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From Real Estate ‘Armageddon’ To Roaring 2020’s

From Real Estate ‘Armageddon’ To Roaring 2020’s
January 25, 2024 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

Exactly four years after the boffins declared that the biggest Armageddon in the history of property markets was about to unfold, a series of official measurements now confirm that Australia has enjoyed the best conditions in more than half a century.

Much can be learned by using the 4-year anniversary of the health pandemic as a moment for reflection.

The valuable lessons include using the outcome to develop a greater understanding of the biggest influences on the price to rent or buy real estate, being wary of human tendencies to overreact, and reconsidering whose reputation is truly worthy of being referred to as an ‘expert’.


Safe as houses

When the international border closed in January 2020, the procession of doomsday predictions from the boffins included house value declines of greater than 30 percent, unemployment soaring to 20 percent, skyrocketing distressed sales and empty homes everywhere.


Related article: Lone wolf predicts 2020 property boom


For the record, the value of a standard Australian house in January 2020 was $760,000 (combined capital city average). It increased over the following 4-years to $1,025,000.

In other words, the 7 out of every 10 Australian households with an owner-occupied property added 35 percent to their net worth in just 4-year.

Australia’s 1.54 million population growth over the 4-years prior to the pandemic was higher than the 1.46 million during the 4-years ending 2023.

Despite a lower population growth rate, real estate capital growth rates were significantly stronger after the international border closed than before it.


Related article: Overseas migration has limited affect


In fact, the 2021 calendar year was one of the lowest population growth rates in more than 100-years, yet the highest increase in asset values in 50-years. And rent prices increased at the highest rate in 30-years.


The property market during and beyond the pandemic is more compelling evidence among 8 consecutive decades of proof that residential real estate is an incredibly strong asset class for investing to support future lifestyles.


Best in 50-years

Sure, everyone still has challenges, frustrations and concerns to deal with each day.

Utopia is a fairyland.

Property markets will always contain imperfections. And the boffins will always focus on the imperfections.

But the combined sum of *all* factors produce a (net) positive result in most years.

Despite multiple lockdowns, state border chaos and social distancing impacts on business and recreation, Australia created 1.27 million extra jobs over the last 4-years.

That compares to 1.06 million jobs created during the 4-years directly prior to the pandemic.


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The national unemployment rate was between 5 and 6 percent during the 4-years to December 2019.

If we exclude the 2020 major lockdown year, the significantly lower range of 3.5 to 5 percent over the 4-years ending December 2023 ranks as the best era since the early 1970’s.

And wages are currently growing at the highest rate in a quarter of a century.


Seagulls are (still) fighting over a few chips

The single biggest influence on real estate values was the ridiculously low volume of properties listed for sale (not to be confused with new home construction).

For several years prior to the pandemic, APRA’s enforcement of unreasonably tight credit policy progressively squashed economic growth. It prevented the investment in supply for the rental pool and it significantly restricted real estate activity in a general sense.

Reflecting on these two separate blocks of 4-years illustrates that credit restrictions have a significantly bigger impact on the economy and property markets than social distancing pandemic restrictions.

The total volume of properties listed for sale was on the slide well before the COVID inconvenience began.

By the time the international border closed in January 2020, buyers were competing for just 296,000 properties.

An equilibrium position would have been circa 350,000 properties for sale.

Across Australia, there were 1.44 million purchases of real estate during the 4-years prior to the pandemic, whereas there were 1.89 million transactions over the 4-years ending December 2023 (a 31 percent increase).

Despite the border being closed and the national population declining in 2020-21, property values soared as a result of intense competition among buyers for fewer and fewer properties on the market.

The above chart shows a steep descent in resale supply listing volumes (the blue line) over many years.

Currently there is a piddly 220,000 properties for sale – a key reason why Propertyology is predicting continued strong capital growth for property investors.


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Rental supply shortage is a pre-pandemic creation

The highest rent increases over the 4YE 2019 were in a variety of locations that included Hobart TAS, Bendigo VIC, Canberra ACT, Geelong VIC, Orange NSW and Launceston TAS.

Overall, rent price growth in the years prior to the pandemic were mild. And the price to rent a house actually declined in Sydney, Brisbane, Perth and Darwin. Apartment rents were even softer.

Conversely, over the 4-years post-pandemic, rent prices increased by more than 40 percent in locations such as Adelaide SA, Albury NSW, Ballina NSW, Busselton WA, Cairns QLD, Darwin NT, Geraldton WA, Maryborough QLD, Mount Gambier SA, Port Lincoln SA, Rockhampton QLD, Shepparton VIC, Toowoomba QLD, Wagga Wagga NSW and many others.

First home buyers were significantly more active over the last 4-years ending 2023 compared to the previous 4-year block. And population growth in this period was inferior to the previous period.

Ordinarily, it would be reasonable to assume that 530,000 households exiting the rental pool to become first home buyers (4YE 2023) would take more pressure off the rental market than 384,000 first home buyers over the previous 4-years ending 2019.

Once again, the issue was insufficient supply of properties – in this case ‘For Rent’.

The compelling evidence packaged into the above chart plots a large collection of poorly considered property policies which continually suppressed the participation rate of rental suppliers.

In January 2016, the very start of the first of the two 4-year blocks in question, there were 75,371 properties advertised for rent across Australia.

The green columns in the above chart confirms a progressive decline to just 32,000 properties in January 2024.

So, the national population expanded by 3 million across the last 8-years, yet the total volume of properties available ‘for rent’ and ‘for sale’ is now 58 percent fewer and 36 percent fewer, respectively.

Housing sits alongside water as a commodity which will never go out of fashion.

Those who place importance on having the ability to live a comfortable lifestyle throughout the circa 25-years beyond their 60th birthday would be wise to invest in it.

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