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The COVID-19 period in Australia has been defined by incredible increases in housing prices. Sydney has increased by 32.1%, Melbourne has increased by 22.4% and Brisbane has increased by 22%. Some specific suburbs increased even further! Byron Bay increased by a whopping 86.21%. Houses have increased much faster than apartments, increasing at 2-3 times the rate of apartments.
Australia's price increases are in-line with broader trends across the world. The IMF's global house-price index is well above the peak it reached before the 2007-2009 financial crisis. London's already insane house prices are up 6% and US prices increased by 24%. Even the IMF is warning of the “downside risks to house prices” and that, if they were to materialise, prices in rich countries could fall by up to 14%.
Aussies are wondering “when will this end”? The Government has cut its level of support for the economy and the opening up of restaurants and interstate travel has reduced the amount of spare cash people have. There is, at this stage, little evidence that any of this is provoking a slowdown. New Zealand's central bank has raised interest rates by .05 percentage points since October and prices increased 3.7% in November to hit record levels in December.
Buyers have been driven by a desire for more space while locked down. Working from home drove a desire for home office space and an apartment with 2 kids was not a great option when the playgrounds got shut down. With remote work a reality now, buyers are also moving to more exotic locations like the beach and the bush increasing the price of regional and coastal real estate.
Gabrial Chodorow-Reich of Harvard believes what appears to be a housing bubble may in fact be the product of fundamental economic shifts. People’s growing preference for city living and rising wages for educated employees in cities. Two further economic factors affecting prices are people’s willingness to spend more on real estate and a lack of supply.
House building levels per capita have halved since the 1960's according to an analysis by the Economist. Building is becoming increasingly inelastic. There is only so much inner-city land and all of it is built on. Supply chain shortages and labour shortages have made supply issues even worse. slowing the pace of home building by up to 30% according to the Master Builders Association of Victoria.
Sadly for Australians trying to enter the market it doesn't look like housing prices will reduce anytime in the near future. Rather than a bubble it seems driven by fundamental economic factors. An increase in immigration in 2022 might further increase both house prices and rents.
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