Since the COVID-19 pandemic began, there has been lots of discussion claiming that Australians are fleeing from capital cities to the regions, which is helping to fuel the region’s rapid price growth.
For example, the Australian Bureau of Statistics’ (ABS) latest internal migration data shows that Australia’s capital cities lost around 22,000 residents over the September and December quarters of 2020, led by sharp falls across Sydney and Melbourne:
The capital cities lost 22,000 people via internal migration over the second half of 2020.
However, new research from CoreLogic shows that the rise of the regions has been driven more by locals choosing to stay put than by city slickers opting for tree/sea changes. CoreLogic also believes that recent migration patterns favouring the regions may only be temporary:
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There has been a stark difference between capital city and rest of state dwelling value changes over the year. While the combined capital city market has been resilient through the pandemic, increasing 6.4% in the 12 months to April, the growth rate in the combined regions was more than twice this, at 13.0%.
Through 2020, it is likely that COVID-19 deterred the usual migration from regions to cities, which has contributed to a net internal increase of almost 43,000 additional residents from cities through the year. This is more than double the average net gain observed over the ABS series of internal migration.
The charts below show that while there was a marginal uplift in arrivals from capital cities to regions through 2020, the net position was exacerbated by a lack of departure from the regions.
Subdued regional departures likely contributed to the very low listings levels observed across regional Australia through COVID-19.
As of May 23rd, total listings for sale in regional Australia totalled 60,141, compared to an average in the previous 5 years of 102,717. The lack of supply amid increased demand for regional property has contributed to the acceleration in property values.
It is difficult to ascertain whether this trend can continue. As restrictions eased in late 2020, the December quarter already saw a significant uplift in regional departures from capital cities, bringing the net position down slightly on a quarterly basis.
Assuming COVID-19 remains well contained, and life in Australia returns to some kind of pre-COVID ‘normality’, more people may make the move to cities through 2021.
On the other hand, increased affordability pressure in capital cities, combined with a new normalisation of remote work for some, may create longer-term interest in regional Australian housing markets, especially those within commuting distance of the larger capital cities.
In any case, the growth rate gap between the regions and cities has started to narrow on a monthly basis. March marked the first month since the onset of the pandemic that the increase in combined capital city dwelling values (2.8%) outpaced combined regional dwelling values (2.5%). In April, combined capital city market values rose 1.8%, with combined regionals eclipsing this monthly rise by just 10 basis points at 1.9%. The two markets have rarely shown inverse performance, meaning both capital cities and regional markets could see increased dwelling values through to the end of 2021.
Regardless, the surging demand for regional property has not just juiced property price growth but rents as well.
The latest CoreLogic data shows that regional property rents are growing at triple the rate of capital cities, soaring 9.6% in the year to April 2021:
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An unprecedented rise in regional property rents.
The next chart shows the growth in rents at the state and capital city levels. Here, regional rents are stronger across all states & territories with the exception of WA and NT.
Regional rents are growing faster across most jurisdictions.
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Once COVID vaccinations have been rolled out, and society returns to ‘normal’, old migration patterns of people leaving the regions for the cities are likely to resume.
Therefore, the regional property boom is likely to be short-lived.
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.
