Apartment Prices Still Lag Well Behind Detached Housing
Contrary to expectations, Australia’s property market has posted an extremely impressive performance during the pandemic, on the back of largely effective measures to keep the Novel Coronavirus at bay.
While the most pessimistic of forecasts anticipated a decline of as much as 30 per cent in the Australian housing market as a result of COVID-19, most of Australia’s capital cities saw median home prices rise to record highs by the final quarter of 2020, according to figures from Domain.
The apartment market posted a far less impressive performance however, lagging well behind detached dwellings in terms of price growth, and in some areas ceding ground.
In the 12 months leading to the end of March this year Sydney and Melbourne’s apartment markets saw gains of just 0.2 and 0.9 per cent respectively, with some major suburbs even posting outsized declines.
In Sydney these suburbs included St Leonards, which saw a 8.4 per cent annual decrease in 2020; Chatswood, which also saw an 8.4 per cent drop, and Croydon, with an 8.1 per cent decline, according to figures from Corelogic.
In Melbourne the declines were even more pronounced, with apartment prices in Moonee Ponds and Ascot Vale both seeing drops of 9.7 per cent, and Kew falling by 8.2 per cent.
These declines can be imputed to the plunge in migration resulting from COVID-19 related travel restrictions, which most directly impact demand for urban apartments.
Reopening of International Borders Will Drive Surge in Apartment Demand
The apartment market remains heavily dependent upon newcomers to Australia, given that high-rise units are primarily concentrated in the dense CBD districts of the capital cities, which are also core settlement hubs for recent migrants.
Over 85 per cent of international migrants to Australia elect to settle in the country’s capital cities, while Sydney and Melbourne - the country’s two main global cities, attract over 50 per cent of overseas newcomers, according to figures from the University of Canberra’s Institute for Governance and Policy Analysis.
The pandemic resulted in international travel restrictions which slashed Australia’s migration levels, and resulted in Australia’s first quarterly population decline since World War I.
During the 12 month period from September 2019 - 2020 Australia saw net overseas migration arrivals plunge by 35.4 per cent according to figures from the Australian Bureau of Statistics.
Australia even saw a population decline of 4,200, or 0.02 per cent in the June - September 2020 quarter, on the back of international border closures that resulted in net overseas migration of - 34,800.
While this plunge in migration is undoubtedly a key culprit for the poor performance of Australia’s apartment market, it’s also a highly anomalous, short-term condition, as opposed to a secular trend.
Migration levels are expected to recover in the near-to-medium-term once COVID-19 is contained, as they are an indispensable source of the population growth needed to drive the Australian economy and dampen the impacts of an aging population.
This will in turn will likely bring back demand to inner-city apartment markets that had previously been stymied by international travel restrictions.
Lockdown Measures Constrict Near-term Apartment Supply
The reopening of international borders could lead to a sharp recovery in apartment demand that Australia’s inner city precincts will be poorly positioned to satisfy.
Apartment construction in some of Australia’s most coveted inner-city areas met with major disruptions as a result of the onerous lockdowns imposed in 2020.
Data from property group JLL points to a sharp plunge in the national inner city supply pipeline of apartments in the wake of COVID-19.
While 2016 saw the completion of over 20,000 new units in Australia’s inner city areas, and 2017 a peak of nearly 29,000, this figure dropped to around 15,000 in 2020 during the global spread of COVID-19. This figure is expected to remain muted in 2021, at 18,500 units for the year.
Victorian apartments under construction have nearly halved to 9995 from their peak in 2019, while in Sydney apartments under construction have dropped to 6120 - just two thirds the figure during their 2018 peak.
While dwelling approvals have seen an increase, this has been almost entirely for detached housing that garnered a boost from the HomeBuilder initiative, leaving apartment approvals still out in the cold.
For this reason apartment supply levels can be expected to remain subdued over the next several years, well into 2023 and 2024.
This provides a favourable outlook for gains in apartment prices in the medium-term, when considered in tandem with the surge in demand resulting from the recovery of inbound migration as the COVID-19 pandemic gradually winds to a close.
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