The COVID-19 pandemic has helped to accelerate trends, which were already underway in the Australian economy, including more flexible working arrangement, in particular working from home, and the desire to have a foothold in desirable lifestyle locations.
Global trends reflected down under
Recent developments from countries with further advanced vaccination rollouts suggest that the Delta variant of the virus is leading to persistently high case numbers detected.
The substantial increase in cases is leading to a third booster dose recommended by healthcare experts. A third boost has already commenced in Israel and rolls out in the UK next month.
The virus will persist, as will related disruptions – and this is likely to be the case in Australia too, where the vaccine rollout is far less advanced, despite the recent acceleration.
The federal and state governments have agreed to a four-stage process to open up and live with COVID-19, and the final step arrives when more than 80% of the adult population is fully vaccinated. In substance, it means that Australia, like many other countries, will live with COVID.
This is likely to have key implications for Australia’s economy, demographic trends, and the domestic housing market landscape.
Pete Wargent, the co-founder of national property buyer’s agency network BuyersBuyers, said, “We expect to see a continuation of the current trends for more flexible work and working from home well into 2022, by which time many of these trends will be so entrenched that they may not reverse in full.”
Local economic impacts
Sydney is now entering an extension of its lockdown restrictions for at least a further 4-week lockdown. This has already had a marked impact on consumer confidence, although it hasn’t yet fed through to property market surveys on sentiment towards residential property.
The New South Wales lockdown’s extension locks in another negative quarter of GDP growth for the Australian economy, reversing much of the improvement seen earlier in 2021, including for the tight labour market. The tight employment markets for skilled workers are likely to see a hybrid model of working in the office only part of the time, persisting beyond the end of the pandemic.
Housing landscape shifts – lower demand for rental properties
There is very little investor appetite for high-rise units, where rental markets have been soft over the past year, especially in inner-city Melbourne. This is reflected in a material reduction of dwelling approvals for units of four storeys or above.
Sentiment has improved from last year’s nadir in Sydney and south-east Queensland. However, there has been no recovery in Melbourne. Overall approval levels are running far below their previous market peaks of several years ago.
Doron Peleg said that “net overseas migration is expected to remain very low until at least Q2 2022. Therefore, we believe that investors should be wary of markets with a high volume of supply in the pipeline, as recently covered in our oversupply risk report.” Inner-city Melbourne is the most obvious example, where there are many vacant units. But there are some other pockets of oversupply risk that are best to be avoided.
Internal migration and demand for lifestyle areas
The top-performing markets over the past year were Byron Bay and Sunshine Beach. Still, New South Wales markets such as Orange and Mittagong have been exceptionally tight, and Buderim on the Sunshine Coast is another top-performing inland market.
Mr Wargent of BuyersBuyers said that “southeast Queensland has been a particularly popular choice with our clients, from the Sunshine Coast to the Gold Coast, with interstate migration now running at the highest levels since the post-Olympics period and the early parts of the mining boom some 15 years ago”.
“Many of our clients want to buy in regional areas at the moment, generally close to the capital cities, such as Cessnock in New South Wales or Southport in Queensland,” Mr Wargent said.
The 2022 reopening
It is expected that when international borders reopen in 2022, office occupancy will pick up again, and the capital cities will reassert themselves as the destinations of choice for new migrants. However, the trend towards more flexible work arrangements is unlikely to be reversed in full. Therefore there will be a hybrid model going forward, with more office workers likely to work only 2 or 3 days per week in the office, rather than the traditional 5, for example.