Has Covid-19 permanently changed housing market in Australia?

The pandemic has changed how and where Australians wanted to live, which in some cases was linked with the ability to work from home, and led to a heightened demand for lifestyle locations.

Some of the pandemic-induced changes and impact on the Australian housing market were followed by low or negative growth in inner urban areas, growth in regional towns and cities as well as strong growth traditional first home buyer areas, these were the findings of the research undertaken for the Australian Housing and Urban Research Institute (AHURI) by researchers from Curtin University and Monash University.

Further to that, COVID-19 fallout, which included the lack of new supply resulting from persistent construction cost increases and labour shortages, is expected to continue to affect the housing market for another two years.

The research, “The new normal: changed patterns of dwelling demand and supply”, also found that although COVID-19 stimulus measures turned out beneficial to housing supply, the apartment development did collapse at the same time. At the same time, rising building costs and construction delays pushed demand into the established dwelling market.

Regional locations saw substantial growth in median prices compared to metropolitan areas but, on the other side, many such locations struggled as they could no longer could offer an affordable alternative.

“The pandemic showed us just how quickly demand for housing can change, with a shift to home buyers wanting to escape metropolitan areas; to larger homes and more private space; and to work from home in lifestyle locations,” Professor Steven Rowley, lead author of new AHURI research, said.

WHAT’S NEXT?

Although a lack of new housing supply and private sector development, combined with strong population growth and a comeback of overseas immigration, are expected to pose a main threat to both home ownership and rental markets for the next two years, it will also provide opportunities for the Government to step in and ramp up its social housing building program.

Otherwise, the lack of new supply and strong population growth will put upward pressure on both prices and rents, “not good news for potential purchasers or anyone in the rental market”, Rowley stressed.

Therefore the governments must continue to work on policies enabling  delivery of housing within existing urban areas, with a particular focus on diversity of option, which will not be “simply dominated by apartments”, the research found.

“Governments should take a more direct role in housing supply, including through large scale delivery of social and affordable housing, both in cities and in regional areas. Protecting supply chains and training a workforce to respond to supply pressures is also essential,” Rowley said.

He also highlighted the importance of partnership between government and private sector to be extended to many regional areas, which also need diverse housing options, and where the private sector often struggles to operate.

At the same time, Professor Rowley said he believed the market was now shifting back towards pre-pandemic patterns of demand.

“While COVID drove some permanent changes, such as working from home opportunities for many, and a surge in regional house prices, the market appears to be returning to pre-pandemic patterns with location and affordability the key drivers.”

He added that interest rates rises had played a key part in this and tight rental markets seriously limited household movements.