The Australian housing market continues to exhibit strong signs of growth during the first few months of 2021. Capital cities are rebounding from the COVID-19 slump and there is also evidence of continued interest in regional markets. Further, what is equally impressive is that Australia’s borders have remained relatively shut during this period of market growth.
However, the question remains: how long will this positive streak last?
Overview of the Australian Housing Market
Australia’s median home values increased by 0.9% in January, 2021. Capital city growth averaged 0.7%, with Perth, Hobart and Darwin contributing the highest increases. These smaller markets represent approximately 14% of Australia’s capital city population, have been underperforming for years and are favoured with attractive supply conditions and house median prices compared to the larger markets.
The regional home market continues to lead Australia’s housing market growth, which represents a 1.6% increase in home values in January. These numbers are further evidence that more Australians are choosing to opt away from high-density urban living and towards more rural locations.
It is arguable that COVID-19 has partly contributed to the shift towards regional living. As such, the next few quarters of housing data will suggest whether this housing trend is temporal or more long-term. It’s necessary to relieve some of the built-up demand in capital cities, even if this movement is short-lived.
The current state of the Australian rental market
The rental market benefited from the overall growth of the housing market. Australian rental yields increased by 0.6% in December, 2020, with single-family homes outperforming unit rentals.
The figures may be indicative of COVID-19’s impact on living preferences. For instance, more Australians are opting for more spacious accommodation over high-density living options. However, unless more tenants move away from capital cities towards regional areas, it is unlikely that this demand trend will meet up with local rental supply in the long-term.
Rental eviction moratoriums currently remain active in most states. While these moratoriums were necessary, the economy has rebounded to a condition similar to pre-COVID-19 levels. Further, while these moratoriums cease, the expectation is that rental numbers will remain steady, albeit with some potential movement towards the owner-occupier market.
First home buyers remain a force in the market
The first home buyer was a big player in the Australian housing market during 2020. This is supported by the ABS data outlined below, where first home buyer debt obligations rose by 8.7% during December 2020, and a 31.2% year-on-year increase.
Local first home buyer incentives, coupled with low interest rates, have accelerated housing interest from new homeowners. For example, first home buyer grants from $7-15,000, which is an attractive-enough incentive to purchase a home. Further growth is explained by added government incentives directed to lower- and middle-income earners, such as the First Home Loan Deposit Scheme or the Homebuilder Scheme.
First home buyer interest will continue to gather momentum for the rest of 2021, notwithstanding the COVID-driven incentives. This interest is expected to drive property prices upward, with some economists projecting an 8-9% annual price growth.
What to expect from the Australian housing market for the rest of 2021
From a global perspective, Australia has been incredibly fortunate in terms of its pandemic exposure. The population weathered the COVID storm through a combination of strict border protocols, necessary stimulus, and timed government action. While it caused a paradigm shift in how we live, the situation could have certainly been worse.
Consequently, the housing market has recorded growth across all markets, marking a silver lining for the past year. Further, the interest in the under-developed and regional markets balanced out the historical demand for capital city living. Finally, while some of this growth may be linked to government-incentives, there is enough evidence that this momentum will continue well into 2021.
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The content outlined above was written, edited and published by the Lost Realtor. The author has over 20 years or real estate sales and investing experience in the Australian property market. He has held senior positions in Australian building companies, including being the General Manager of the residential sales division of Collier Homes. His qualifications include a Bachelor of Commerce degree and a Graduate Diploma in Building and Construction Law.