STUDY: COVID-19 Drove Australian Property Prices Upward

The COVID-19 pandemic wrought havoc upon Australia’s economy. However, new modelling shows that the pandemic has also helped to cause the property boom that we’re seeing now. 

It’s no secret that the Australian housing market has thrived over the past year and a half, having reached a combined value of $8.4 trillion as of June 2021.

However, modelling from KPMG indicates that the historic growth of Australia’s property market isn’t despite the COVID-19 pandemic, but rather, it’s because of it. 

In the report entitled ‘The Impact of COVID on Australia’s Residential Property Market’, KPMG states that “country-wide, house prices are now between 4-12 percent higher and units up to 13 percent higher than they would have been in the normal course of events.”

The report goes on to state that while Australia’s property market was already due for a cyclical upswing, favourable conditions and incentives surrounding the property market helped to accelerate that growth. 

This upswing in property market transactions was also recorded by CoreLogic in its recent report on the ‘Housing Market Through Pandemic Lockdowns,’ which noted that during the 20-21 financial year, there were “ approximately 582,900 transactions nationally, compared to a decade average annual volume of 455,346. This is the highest

annual sales volume observed since February 2004.”

The calm before the storm

It wasn’t all sunshine and rainbows for Australia’s property market during COVID-19. In fact, there was initially a dip in activity surrounding the property market when the pandemic first occurred. Dr. Brendan Rynne, the Chief Economist at KPMG commented on this initial scare, stating that:

“Going into 2020, property prices in Australia capital cities were due for a cyclical upswing. Initially, the uncertainty caused by the pandemic and consequent economic downturn saw a 3 percent fall in prices in the June 2020 quarter. “

CoreLogic noted similar impacts of the lockdowns, stating that “There were 18,000 fewer sales in this period due to COVID-restrictions.”

Eliza Owen, the Head of Research for CoreLogic, said that the COVID-19 pandemic created a lot of uncertainty, but ultimately, market factors helped to mitigate the fallout: 

“There was a lot of uncertainty amid stage two restrictions nationally last year, and sentiment for housing market outcomes plummeted. But supply also declined, because sellers and agents knew it may not be the best time to market the property. That helped to balance out the overall effect on prices.”

After that short dip, people began to flood back into the property market. 

According to Dr. Rynne:

“Once market participants became confident that the pandemic would not result in a free-fall of home values, a combination of monetary and fiscal policies quickly began to push things the other way.”

These policies included stamp duty concessions, grants for first home buyers and home builders, record low-interest rates and financial safety nets such as JobKeeper.

As a result, CoreLogic reports that sales volumes not only returned but came back stronger than ever: 

“As restrictions started to ease, the monthly growth rate of sales from May to December 2020 averaged far higher than typical monthly growth rates in the previous 5 years.”

According to KPMG, capital cities enjoyed the biggest increases in their predicted property values over December 2019-2023, with Sydney leading the charge.

Sydney was initially expected to see a 13 percent rise over the four-year period but is now expected to achieve a  25 percent rise over that same time frame. 

Brisbane followed Sydney with a 19 percent rise compared with an 8 per cent increase had COVID-19 not occurred.

Dr. Rynne went on to say that these increases in housing values persisted even in spite of international migration being effectively cut to zero during COVID-19 which should have reduced the demand for Australian property. Though he mentions that this reduction in population growth will eventually catch up to the market:

“It appears these short-term positive factors have swamped the longer term-negative factors associated with the housing market such as lower population due to the fall in migration. But over the next 2-3 years the lower population growth and rising mortgage rates will moderate the current price surges.”

The Delta Variant: how will the market respond? 

Cases of the Delta variant of the COVID-19 pandemic are spiking around Australia and have plunged Victoria and NSW into lockdowns once more, which may create additional uncertainty surrounding the property markets in these regions.

Victoria was the hardest hit by both COVID-19 and lockdowns in 2020, and when each state was witnessing a higher than average monthly growth rate of property sales, Victoria did not follow this trend.

Now, NSW is experiencing the largest spike in cases, with lockdowns in the state extended to the 30th of July at the earliest.

It remains uncertain as to whether NSW’s lockdowns will have a tangible impact upon NSW’s property market – as was seen in Victoria in late 2020 – though early data is showing that New South Wales’ auction rates are remaining relatively high despite the lockdowns.

In fact, CoreLogic estimates that there will likely be a “jump in sales activity as restrictions ease across Sydney,” though the report hedged this expectation by saying that “housing market conditions could be weaker amid an extended lockdown that does not see the same strong institutional response as was seen last year.”

However, since CoreLogic published that report, the NSW Government has worked in concert with the Federal Government to release a COVID-19 relief package for the duration of the lockdown, indicating that Australia’s property market may just weather the COVID-19 storm yet again.