One of the biggest side effects of the COVID-19 pandemic on the Australian property market is that it has reversed the trend towards apartment living.
There are several drivers behind this trend.
First, the collapse in immigration and international student numbers has dampened apartment demand in inner-cities. This is reflected by the sharp fall in apartment rents across the immigration hot spots of Sydney and Melbourne:
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Second, COVID lockdowns and the new found ability to work from home has caused households to reevaluate their living arrangements, driving a preference for space and detached house living. This is reflected in the higher rental demand for houses across the capital cities (above), as well as increasing demand for regional properties, which are almost always detached houses:
New sales data from Corelogic adds weight to the view that apartment living is ‘on the nose’, with the proportion of sales that are houses rising well above the decade average to 74.2%:
Put another way, for every 1 unit sold in the year to January 2021, there were 2.9 house sales.
The next table below shows that the proportion of house sales is higher than the decade average across almost all jurisdictions:
The shift towards houses should continue for the foreseeable future.
The HomeBuilder subsidy has driven house approvals to their highest level in the series’ 38-year history:
At the same time, unit & apartment approvals have fallen to around 2010 levels:
Australia’s international border is likely to remain closed until next year, meaning we won’t see immigration nor international students return in the near term. Migrants and students are more likely to live in apartments than the native born population.
Beyond that, who knows? Detached house approvals will inevitably retrace when HomeBuilder finishes in late-March (assuming no extensions). Australia’s policy makers will also no doubt try to reboot immigration as soon as virus risks subside.
But for now at least, the apartment market is on the nose.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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