- The Australian property market has rebounded strongly as a result of the fiscal and monetary responses to the COVID-19 pandemic.
- KPMG calculates that homes in each capital city will continue selling higher as a consequence, with Sydney buyers paying $120,000 more than had no pandemic occurred.
- The price difference is expected to temper as interest rates rise and a reversion begins to take place.
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A pandemic-recession two-punch didn’t kill the Australia property boom and, in all likelihood, has only made it stronger.
New analysis from KPMG has tried to calculate exactly how different the market would look had ‘new normal’ never begun, and just where prices would be in a parallel universe blissfully ignorant of the novel coronavirus.
“The rises in residential property prices have been greater than we estimate would have occurred in the counterfactual no-COVID-19 scenario,” KPMG economists wrote.
While the theoretical exercise is undoubtedly complex, it does help quantify exactly the kind of impact that the pandemic has had on Australia’s single largest source of wealth.
KPMG’s modelling traces price trajectories to 2023 under two different scenarios, one post-pandemic and one with no pandemic.
The short answer is the buyers are paying more because of the pandemic, not despite it. This difference is expected to “temper out” over time however due to a “reversion back to equilibrium and higher mortgage lending rates weigh on property prices.”
“Notwithstanding this moderating property price growth during 2022 and 2023, KPMG’s analysis shows that house prices are expected to be between 4% and 12% higher and unit values are expected to be between 0% and 13% higher than would have been the case in the absence of COVID-19.”
In other words, Australians will foot the bill for years to come, according to KPMG.
Sydneysiders will pay $125,000 more than they would have otherwise in 2023. Without the pandemic for example, Sydney was already slated for 13% growth over the three years to 2023. With it, prices are set to jump by 26%.
Under the same modelling Brisbane prices are $60,000, Canberra’s $67,000, Hobart’s $50,000, Adelaide’s $37,000, and Dawrin $46,000 because of the pandemic.
Melbourne’s market is singled out as almost the market with the smallest price differential, at just $35,000 more. This being the product of multiple lengthy lockdowns suppressing property price growth, as well as the fact that the city relies the most heavily on international migration.
But it was Perth that appears the least affected, with KPMG economists arguing the pandemic only moved medium term prices up by $17,000. The market, which has languished for years, was due for a bounce prior to the pandemic anyway, KPMG’s figures show.
How the pandemic shifted the Australian property market
The significance of the theoretical exercise is that it identifies what has changed over the last 18 months and what it means for Australian home values.
When the COVID-19 crisis came to a head in March 2020, it set off a six-month lull in property sales as confidence was shattered and live auctions and inspections were prohibited.
But since October, a rapid rebound has gathered speed, with national prices ending the financial year 13.5% higher than they began it.
The crucial difference lies in how Australia changed in the interim.
“Real house prices in the long run are heavily conditioned by two key factors, how many households need to be accommodated (demand) and how many properties exist to accommodate them (supply),” KPMG’s economics team wrote.
“Both of these factors have been materially impacted by the onset of the coronavirus, and to some extent by the economic policy responses by government.”
The responses – interest rate cuts and record fiscal stimulus – helped fuel demand at the same time that stalled migration depressed it. One million fewer people are expected in Australia by 2030 as a result, with Victoria and New South Wales to bear the brunt, having previously enjoyed the greatest migratory inflows.
While that may push property prices lower in the two cities in the long term, both have surged higher alongside other capitals as an immediate reaction to favourable buying conditions.
Namely record low interest rates, as well as government stimulus and incentives have lured more buyers into the market, borrowing $1 billion each and every single day.