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The global pandemic has catalysed remarkable shifts in the Australian housing market. <\/strong><\/p>\n Here I explore six of the major impacts on the Australian housing market two years on.<\/p>\n Figure 1.0 shows the cumulative change in the national CoreLogic Home Value Index since the onset of COVID-19.<\/p>\n The index had a relatively small decline at the onset of COVID-19, with sales and listings volumes being far more impacted than prices.<\/p>\n National home values declined -2.1% between April 2020 and September 2020, before soaring amid low interest rates, high household savings, government grants, and a sharp reduction in the supply of housing.<\/p>\n By February 2022, CoreLogic estimated the total value of the residential real estate to be $9.8 trillion, up from $7.2 trillion at the onset of the pandemic.<\/p>\n The median Australian dwelling value increased $173,805, to $728,034.<\/p>\n This cohort took advantage of more affordable housing options following the earlier downturn, along with record-low mortgage rates and government incentives.<\/p>\n ABS data shows the number of new loans to first home buyers increased during the housing market downswing from 2017 to 2019 (figure 2.0).<\/p>\n From June 2020, first home buyer activity surged amid the introduction of the HomeBuilder scheme, used alongside the First Home Loan Deposit Scheme, as well as other state-based grants and stamp duty concessions for first home buyers.<\/p>\n The result was a spike in first home buyer activity, which peaked in January 2021. The spike mirrors first home buyer participation in 2009-10, which marked a temporary boost to the First Homeowner Grant.<\/p>\n Since the January 2021 peak, first home buyer activity has diminished, reflecting higher barriers to entry as housing values substantially outpace incomes.<\/p>\n As of January 2022, loans to first homebuyers numbered 10,964, above the decade average of 8,682.<\/p>\n Proportionally, first homebuyer lending comprised 24% of owner-occupier mortgage demand in January, which is in line with the decade average.<\/p>\n This may have implications for rates of homeownership, which may see an increase in ABS 2016 census numbers.<\/p>\n While the rise in home values has created a greater deposit hurdle for those looking to enter the market, various government schemes introduced throughout 2020 helped to incentivise first homebuyer participation.<\/p>\n Figure 3.0 shows the change in the national rent index since the end of March 2020.<\/p>\n While rents saw a mild decline of -0.8% between March and August 2020, there was a swift recovery in these values, followed by a surge through 2021.<\/p>\n There are multiple reasons rents have risen.<\/p>\n Rental supply may also have been eroded through the rise of rental services like Airbnb, which have enabled property owners to pivot to the short-term rental accommodation market.<\/p>\n This latter trend may have been particularly prevalent in tourism destinations across Australia, some of which have flourished amid a rise in domestic tourism in the past two years.<\/p>\n For investors who have recently purchased long-term rental accommodation, rents may have increased due to higher purchasing prices.<\/p>\n Over the course of 2021, annual rent value growth was at its highest levels since 2008.<\/p>\n The headline numbers hide the diversity of rental conditions.<\/p>\n Through the pandemic, there has been a clear shift in rental preferences towards lower density housing options, where the upwards pressure on rents has been more substantial.<\/p>\n This trend has evolved over the past year, with rental affordability gradually deflecting more demand towards higher density rental options where the cost of renting is more affordable.<\/p>\n This is because gross rental yields are a portion of the purchase price of a property, and purchase prices of properties have grown 24.6% since March 2020, outpacing the 11.8% rise in rents.<\/p>\n Nationally, gross rental yields have fallen from 3.8% in March 2020 to a record low of 3.21% as of February 2022.<\/p>\n As housing growth has started to slow, this record-low gross rent yield figure appears to have begun stabilising.<\/p>\n With the RBA setting the official cash rate target at 0.1% since November 2020, lower debt costs enabled borrowers to access more credit.<\/p>\n As of January, total outstanding housing credit sat at a record high of over $2 trillion, according to the RBA, while the ratio of housing debt to household income was at a record high 140.5% through Q3 2021 (figure 4.0).<\/p>\n This is up from 139.2% in March 2020.<\/p>\n While total outstanding credit reached over $2 trillion in January, ABS data shows monthly new finance borrowed for the purchase of property continued to hit fresh record highs through January 2022, at $33.7 billion.<\/p>\n High levels of housing debt, particularly where it has grown faster than incomes, create a vulnerability in the Australian economy.<\/p>\n However, it is important to frame debt levels in the context of high asset values, and relatively low interest costs.<\/p>\n RBA data shows housing interest payments to income have fallen to their lowest levels since 1999, and household debt has trended lower as a portion of housing values.<\/p>\n Investors,\u00a0who may have a preference for units<\/a>, have been a relatively small part of demand through the upswing.<\/p>\n Additionally, detached houses may have been in higher demand as Australians spent more time at home through the pandemic.<\/p>\n The result is a record-high gap between house and unit values.<\/p>\n Figure 5.0 shows the median house value across Australia was at a record high 29.8% above the median Australian unit value, with a dollar value premium of around $182,000.<\/p>\n This is up from just 8.5% in March 2020, or a dollar value premium of around $44,000 for houses.<\/p>\n Figure 6.0 shows the dollar-value premium of median house values over median unit values in each of the capital cities, with most cities seeing a substantial increase in this value since March 2020.<\/p>\n The result has been higher than normal housing demand against unusually low levels of listings across regional Australia, in both the sales and rental market.<\/p>\n Value gains across regional Australian dwelling values have been almost 40% since March 2020, while capital city home values have increased around 21% (figure 7.0).<\/p>\n In lifestyle regions, which have become intensely popular in the past two years, new million-dollar markets have been created across areas such as the Sunshine Coast, the Illawarra, and the Gold Coast, where median house values now sit above the million-dollar mark.<\/p>\n But since April of 2021, monthly gains in national home values have softened.<\/p>\n Arguably, there are more headwinds than tailwinds now stacked against continued growth in the property market, with the potential for sooner-than-expected cash rate increases, affordability constraints, and weakening consumer sentiment slowing demand.<\/p>\n While some structural shifts through the pandemic, such as remote work, may sustain demand in regional Australia long term, it is likely that housing values will start to decline on a fairly broad basis later this year.<\/p>\n ALSO READ: <\/strong><\/span>The 7 biggest influencers of our property markets<\/a><\/p>\n<\/div>\n![\"Covid](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/07\/covid-recession-300x225.jpg\")
From the temporary shutdown of cities to an unprecedented monetary policy strategy, the new-found popularity of regional and low-density housing preferences, and the introduction of various government home-buying incentives, the COVID period has had distinct impacts on the composition of buyers and the dynamics of the housing market.<\/p>\n1. Australian home values rose 25%, to record highs<\/span><\/h2>\n
![\"Property](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/09\/property-rise-300x225.jpg\")
Despite an initial dip, housing values rose 24.6% between the end of March 2020 and February 2022.<\/p>\n![\"Fig01\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2022\/03\/fig01.jpg\")
<\/a><\/p>\n2. First homebuyer activity spiked<\/span><\/h2>\n
First homebuyers were a sizable part of housing demand at the start of the pandemic.<\/p>\n<\/a><\/p>\n3. Rents rose 11.8% to record highs, while gross yields fell to record lows<\/span><\/h2>\n
The CoreLogic Rent Value Index, which tracks changes in rental valuations over time, has also surged to new record highs.<\/p>\nInvestor activity had been relatively subdued between 2017 and mid-2020, contributing to rental supply constraints.<\/p>\n<\/a><\/p>\nAcross Australia, median advertised rents since March 2020 have increased $30 per week to $470 per week.<\/p>\nHowever, gross rental yields have declined.<\/p>\n4. Housing debt levels hit record highs<\/span><\/h2>\n
Rapid increases in housing and rent values in the past two years were largely the result of a sizable reduction in the official cash rate.<\/p>\n<\/a><\/p>\n<\/p>\n5. The premium of house prices compared to units hit record highs<\/span><\/h2>\n
Both the composition of the buyer pool and the impacts of COVID may have contributed to a record gap between house and unit values.<\/p>\nGovernment policies such as the HomeBuilder grant may have also contributed to increased detached housing demand, due to tight construction timelines to qualify.<\/p>\n<\/a><\/p>\n<\/a><\/p>\n6. The rise of the regions<\/span><\/h2>\n
Migration trends over 2020 and 2021 revealed an uptick in the volume of people leaving cities for regions outside of lockdown periods, and a decline in people leaving regions for cities.<\/p>\n<\/a><\/p>\nWhere to from here?<\/span><\/h2>\n
The current housing market upswing has delivered extraordinary value gains, providing a significant wealth boost for homeowners, but larger hurdles to enter the market for non-homeowners.<\/p>\n