COVID’s impact on the housing market
AHURI study reveals the pandemic’s impact on the housing crisis. Image: Canva.
  • Housing crisis, which started during COVID, to continue for the foreseeable future
  • Building costs, construction delays, and adversity to risk contributing to the crisis
  • Australians flocking to urban periphery and regional areas causing price jumps

New research conducted by Curtin University and Monash University researchers on behalf of the Australian Housing and Urban Research Institute (AHURI) has uncovered the effects the COVID pandemic had on Australia’s housing market.

The research predicts that the housing scarcity will negatively impact the market for the coming two years. Focusing on mid-2020 to mid-2022, the study found strong price growth in Australian capital cities and even more significant growth in regional areas. Rental vacancies dropped nationwide while rents grew significantly.

The housing crisis: a vicious cycle

Australia’s property market fallout was driven by increasing building costs, construction delays, and a reduced appetite for risk in starting multi-unit construction projects.

COVID interrupted global and interstate supply chains, while the interstate and national border closures created a skills shortage. Heightened demand in this period, an unintended side effect of COVID stimulus measures aggravated these problems.

Completion times snowballed, and costs were estimated to have risen by $150,000. Consequently, the strained supply chains and elevated prices meant that multi-residential units were not feasible to develop, and residential dwellings declined in supply from the mid-2020s.

“Increased construction costs resulting from labour and material shortages have played havoc with the multi-residential sector. Many private sector developments are no longer profitable and builders are not wanting to take on the risk of residential development. This will have serious implications for housing markets over the next couple of years, contributing to a housing supply shortage. The lack of new supply and strong population growth means upward pressure on both prices and rents – not good news for potential purchasers or anyone in the rental market,” says lead author of the AHURI report, Professor Steven Rowley.

Considering the disproportionate waiting times and costs, buyers focused on established dwellings, further intensifying the housing deficit. However, the housing scarcity has made property owners more averse to selling due to the absence of options in the market. Rowley explains that the “tight rental market means renting in between selling and buying a dwelling is difficult.”

Changing consumer tastes

The growing acceptance of remote working saw households become more partial to homes that were more spacious and situated in lifestyle locations. No longer worrying about long commutes to work, fewer Australians elected to live in inner urban areas, purchasing cheaper homes in the urban periphery or regional towns and cities featuring tree or sea changes.

10-year changes in numbers of dwellings in capital cities and ‘rest of state’

10-year changes in numbers of dwellingsin capital cities and ‘rest of state’
Source: AHURI Final Report No. 399.

The sudden spike in buyers induced acute and unexpected demand in these traditionally overlooked smaller markets. Developers have historically focused on capital cities when introducing new housing stock.

While the stock in capital cities has increased by over 2% annually over the past decade, ‘rest of state’ areas have lagged at 1% to 1.7%. Therefore, prices in these smaller to medium-sized cities and the regional regions disproportionately increased compared to their capital city counterparts.

“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 Rowley, lead author of AHURI study.

The report recommended that the government develop a policy allowing diverse housing to be swiftly delivered to urban areas. Moreover, it called for the government to build partnerships with the private sector to introduce more options in the regional areas where the private sector has faced difficulties operating.

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



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