Has COVID-19 really spurred a regional property boom?

CoreLogic’s head of research, Eliza Owen, has published the below interesting research questioning the notion that COVID-19 has spured a regional housing boom:

There has been a high level of interest as to whether the pandemic has spurred housing demand in regional markets of Australia.

Housing market data is partially suggestive of this, especially across the largest capital cities. Rental value increases are positively correlated with greater distance from the CBD for the largest capital cities. The latest CoreLogic indices show growth across regional housing markets is higher than the capital cities in both quarterly and annual terms.

The chart below shows the rolling annual change in dwelling values across the combined regional market, compared with the combined capital cities market. Values across the combined regional market increased 4.8% over the year, compared with 3.7% across the capital cities.

The rate of annual change in combined regional dwellings has not outpaced the capitals since October 2019, when the largest capitals were moving through the end of a downturn.

Through the COVID period to-date (March 2020 to October 2020), values across the combined regional areas increased 1.7%, while the combined capital cities value fell 2.3%. The chart below shows the same trend across the states, with the exception of Western Australia.

In each state, inner-city markets are still showing relatively weak performance. This is because inner cities have historically seen greater housing demand from renters, particularly those from overseas, or working in industries that have been acutely affected by the pandemic.

However, it is noteworthy that regional Australia has previously outperformed capital city markets based on cyclical patterns. Capital city markets generally have higher volatility, meaning returns are higher during upswings, and declines are deeper during downswings. This is also evident in the rolling growth chart above.

This means that a snapshot of capital growth may not be enough to support the idea that structural shifts caused by COVID-19 have been the reason that regional areas have out-performed.

Sales data has also not highlighted consistent trends in demand. In the three months to October, CoreLogic modelled estimates suggest the growth rate in sales was 12.0% across Sydney, but a lower 10.9% in regional NSW. In Melbourne, sales volumes fell 18.0%, while regional Vic saw a 3.7% uplift in sales. Sales data is also a difficult measure of demand through the pandemic, as sales have been highly volatile in response to social distancing restrictions.

What we learned from the ABS this week

Provisional data from the ABS shows internal migration patterns for Australia at the greater capital city and regional level during the first few months of the pandemic. Internal migration tracks the movement of people from one part of Australia to another.

Without this publication, greater capital city and regional movements for the 2019-20 financial year would not otherwise be available until next March.

In the June quarter, when Australia faced its highest levels of government stringency in response to the pandemic, the net loss across the combined capitals of Australia was 10,500 people. This is a record low in net internal migration. An additional shift of people from cities to regions is likely to have at least partially contributed to better performance in regional housing markets.

But migration from capital cities in Australia has been persistently negative for over a decade. Net internal migration had been trending lower since early 2015, which was a time of worsening affordability in the largest cities. As housing prices peaked and trended lower, internal migration trends reversed. This suggests housing affordability could be a key driver of movement to regional Australia that was evident well before COVID-19. Ultimately, the data suggests migration to regional Australia was not initiated by COVID-19, but may have amplified it.

Unsurprisingly, as stage 2 restrictions eased, migration trends showed a shift away from dense cities that saw high levels of COVID19 cases. Melbourne saw the biggest drop in net internal migration, with almost 8,000 net people leaving the capital city.

However, a deeper dive into the ABS data shows the story is not as simple as COVID-19 driving city-dwellers to coasts and hobby farms. Intrastate departures from Greater Melbourne (the movement of people from the metropolitan to regional Victoria) had already been trending up with capital city house prices from 2017.

The June 2020 quarter saw a record-high level of departures from the city to regional Victoria, at 11,746. But this is only 3.1% higher than the previous peak in intrastate departure, which was well before COVID in December 2018.

Brisbane defied the trend of intrastate departure, and saw a significant increase in net internal migration. Importantly, the biggest net gain (885 people) to Brisbane was from the rest of Queensland, which refutes the idea that COVID largely spurred migration away from Brisbane to regional markets within the state.

Ultimately, the combination of housing and population data highlights that in some parts of the country, COVID-19 may have spurred an increase in movement to regional Australia. This has at least partially contributed to an offset in the decline of values, or an increase in values, through the COVID period. However, migration data suggests the narrative does not appear consistent across the country, and highlights affordability is also an important driving factor of departure from the cities.

I think it’s a fairly safe to assume that COVID-19 has spurred some departures from Melbourne to regional Victoria, as well as interstate. Melbourne’s net loss of people through internal migration was the largest on record in the June quarter.

The bigger impact will be longer term if the working from home phenomenon continues post COVID-19. If so, then this would represent a structural shift that decentralises the population and economic activity away from the major urban areas.

Only time will tell.

Unconventional Economist

Comments

  1. boomengineeringMEMBER

    Selling fast near Port Macquarie.
    But that could also be affected by uptick in retiring baby boomers who would have gone there anyhow.

  2. My mate worked in the CBD Sydney, said they are planning to move to Wollongong since the office is WFH, I don’t see this as permanent, so can’t work out the move. My company wants us back in the office, although we moved away from CBD some time ago. I can’t see companies wanting their employees working from home, most of us have the TV on whilst working, and I’m sure less productive. Although we do start earlier, tend to finish 20mins earlier also!!

    Either way, properties going up baby

    • I was wondering how the metro areas appeared to continue to be relatively strong while the regions were booming (in the absence of new foreign hordes) but I guess the answer may be that people are leveraging the equity in their city properties to buy in the regions rather than selling up up entirely ie. hedging their bets.

      • Thats whats happening in my street in the sydney east. 5 families moved out to greener pastures. Wollongong, 2 blue mountains. 2 central coast. They wfh and if needed can get to the city. They are getting a good price forthe apartments but still 10% below peak in 2017

  3. sooooo….does that mean utimately that the prices cross the whole of the country within a few hours from the coast will all be up?
    Not a case of Syd/Melb coming down, but just the regions increasing?

  4. The boom is in regional property volumes, not necessarily prices.

    In my rural area in northern NSW, turnover is up 5-10 times year-on-year (source: RE agent I know).

    • boomengineeringMEMBER

      Theoretically we should have deflation at the beginning of a depression but with all this stimulus, who knows, we may get inflation so, to buy or not to buy RE, that is the question.

    • That’s good enough to drive prices higher. As there is a buyer and a seller on either side of each transaction, it is the ‘relative urgency’ of buyers vs sellers that determines whether prices go up or not. That is true for all markets.

        • I'll Stir Fry You in My Woke

          Right. Northern Rivers here.

          Things are booming $ and volume wise. It is astounding.

          Just saw someone pay near on 1M on a 700sqm block in our village for an old QLDer pressed right against neighbours and near main road, now rented out for 750pw

          Mind boggled

          Bangalow is crazy.

  5. alwaysanonMEMBER

    My employer (large technology company) sent out a thing yesterday basically saying that, while work from home was going to be a thing for the forseeable future, “work from anywhere” was NOT a thing and that you need to get formal permission from your manager to relocate out of the city you were hired in. They reiterated that they expect you to be able to come back to the office where you are meant to be at least some of the week in the not too distant future. That was interesting – and I am sure took the wind out of some tree/sea change sails of some of my coworkers…

    • Yeah, the company I work for is the same, there are exceptions but we are expected to be in the office at least 1-2 days per week, so any plans for moving to northern NSW are now on hold.

    • innocent bystander

      sounds right to me.
      but ppl are still looking to move (slightly) further out since they might only have to commute 2 days a week and not 5.

      • yep – that puts sthn highlands in reach if only doing 1-2 days. I have a mate that did that. bowral most of the week and comes up a few days – but his boomer parents still live centrally in Woollahra – not sure what happens if they move!

        I know someone else who has moved regional – they just pay for an affordable hotel in the city for a week when they come in and do 3 weeks at home 5 hours from Sydney. You’d need to be prepared for that – still offers lifestyle benefits.

    • I'll Stir Fry You in My Woke

      Thats seems fair enough

      Kinda puts paid to this whole WFH is here to stay for everyone nonsense

    • I had always planned to do this sort of thing anyway. Work in city 1-2 days and 3 days from home further out. I was looking at regional VIC at say $600k and buying a small apartment 1 bed something or other closer to the city for $250k odd. That way I could stay there 2 nights a week (maybe Air BnB other nights) and have the best of both worlds (and not have to rent).

      However I found a property within commuting distance of CBD that offered almost all I wanted (except 2 acres of land for a massive warehouse of cars to be stored in)..but maybe later I’ll have that dream. 😀

      • alwaysanonMEMBER

        I went the other way but mainly because of my wife working for a Uni that is making her go back full time. We bought an inner-city terrace (Glebe) that is triple the size of our 1br apartment but is still walking distance to both of our works. It has a nice back garden (bigger and nicer than any balcony) and I get an office with a door that closes and she gets the same. Plus it is quality old construction and with no strata and whatnot. My, admittedly biased now, theory is that the walkable inner stuff that still feels a bit suburban will hold up. I do get jealous of your tales of a pool and a garage though…

  6. Anecdotally I have seen a lot of the property in the area I grew up suddenly sell after many years on the market, but its just been replaced with more property with stupid high prices for the area.

  7. The rule has traditionally been that urban areas pull internal migrants from the regions… generally this is how cities enjoyed such rapid growth in the first place. What we see now.. is this in reverse.
    As international migrants pour in, Australians move out.
    And with good reason, the consequences of mass international migration, with its deleterious affects on cohesion, safety, and congestion, correspond to worsening realities in our cities. White flight.

    (And before anyone calls me on the numbers migrating out being low – note the numbers graphed are ‘net’, there are still plenty of regional kids moving to the cities for work.. (who perhaps don’t know any better), which means the actual flows out are far, far larger).

    • I certainly don’t want to live in an Australian version of Shanghai or Mumbai. But then, I’m a vile racialist.

  8. I second the Sunny coast QLD has been raging in housing prices. It used to be all the mexicans from Melb and Syd coming up but now its Briz people moving up in droves. We guess wfh has enabled them to move closer to beaches (bris beaches are sh$t). Note sunny is a bit of a white flight destination.