How has the pandemic affected property prices?

It’s been a wild ride in the property market over the last 12 months with an average increase across Australia of 14.7% (as at 17th of August).

Why has this happened, and will it continue?

There are a few things driving the market, including historically low interest rates, but the major reason is likely to be a shortage of homes.  In other words, high demand, low supply.

So, lets set the scene.

As Covid spread, so did uncertainty.  No one could really predict how long before a vaccine would be developed, and how long it would take before Australia returned to ‘normal’.

Each state had its own version of control or lockdown, with Melbourne’s ring of steel being the longest lockdown of any capital in the world.  Consumer confidence in Australia fell to the lowest point since the recession in the 90’s (graph below).

With uncertainty came insecurity.  People put off their plans to buy, build or change dwellings and potential buyers stopped buying.  During this time new housing construction reduced considerably, especially in Melbourne.


What happened was the perfect storm.

·      January 2020: First Home Loan Deposit Scheme introduced by the Federal Government.

·      Mid 2020: Federal government introduces ‘HomeBuilder’ incentives to build or renovate.

·      Mid 2020: State governments introduce their own incentives such as stamp duty discounts (Victoria).

·      Mid 2020: Clinical trials of vaccines underway.

·      Late 2020: Vaccines against Covid successfully trialled.  Both the AstraZeneca and Pfizer vaccines were approved for use overseas in 2020, and by Australia’s Therapeutic GoodsAdministration (TGA) in early 2021.

·      Victoria Premier Dan Andrews announces on site inspections permitted from 8 September, on-site auctions from 18 October (let the sales begin!).

·      Australia’s economy rebounds as Victoria comes out of lockdown late 2020.

·      The Reserve Bank drops interest rates to just 0.10%.

So, the scene is set. After the initial fright from Covid, Australian’s came to the conclusion that this wasn’t the end.  A vaccine was on the way, we were heading into summer and it was looking like we’d be celebrating Christmas with our families.

There was also a historically low interest rate environment, housing was relatively cheap because of the lack of buyers, and there was plenty of incentives from governments.

From mid 2020:

·      First home buyers use lower housing prices and government incentives to get into the market.

·      Australian’s that had delayed their plans, move on with their planned buy, move or build before Covid hit.

·      New construction gains momentum.

·      Consumer confidence rebounds.

·      People run for the hills (or at least rural areas).

·      New home sales spike (graph below).

What we experience is a rapid recovery with new buyers coming into the market, and a shortage of supply, especially in regional areas as Australian’s flee from the Covid Capitals.

In fact, regional areas have seen the biggest growth with some markets jumping by over 30% including Alpine (33.7%), Ballina (34.4%), Benally (32%), Broome (33.6%) and Lismore (34.1%).  

Capital cities, on the other hand, have increased by anaverage of 9.6% with Sydney setting the page at 14.1%, followed by Hobart 13.6% and Brisbane 12.1%.

Apartments and inner city suburbs don’t enjoy the same rebound and prices for these dwellings remain subdued.


Where to from here?

Low interest rates won’t matter if Australia’s economy is in decline.  If consumer confidence drops off (trending down now), property prices will move in a downward trend.

The graph below shows the link between consumer confidence and the value of new home loans.  As you can see from at the far right, consumer confidence began falling with new lockdowns and home loans (or home sales) have followed.

It’s also important to note that consumer credit is at an all-time high, and affordability of housing is at an all-time low.  

In Conclusion

Our best guess is that property prices will fluctuate over the next year or so.  

But what happens next will depend on supply and demand, which is dependant on how we feel (consumer confidence), economic conditions of the day, and government intervention (lockdowns, incentives, etc).

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Rex Claringbold

30 years practicing. Head honcho. Avid pies supporter. Enjoys a social gathering and beer.‍