Though the coronavirus crisis has wreaked havoc on the economy and Aussies’ personal finances, it could actually be a boon for housing affordability, according to an economist.
Australia’s house prices have steadily increased in the last decade, driven by a growing population that wasn’t met with a sufficient supply of homes.
“Prices were able to stay elevated. And so poor housing affordability got locked in,” said AMP Capital chief economist Shane Oliver in a note.
While there were a few cyclical downturns during the global financial crisis and again in 2011, they were short-lived and prices bounced back.
But the coronavirus has permanently changed certain factors, and it has the potential to stop this dynamic of cyclical fluctuations, leading to better housing affordability in the long term, Oliver said.
Since Covid-19 hit, property prices have fallen for three straight months, CoreLogic data reveals. Nationally, capital city house values are down 2 per cent on average from April, while Melbourne suffered a 4 per cent hit.
And Oliver predicts capital city house prices will slide by a further 10 to 15 per cent amid levels of unemployment not seen in 22 years, falling rent prices and a severe reduction in immigrants.
Though Oliver predicts economic activity will return to normal once lockdown is lifted, the major shift to online shopping, education, healthcare and sports will mean “a long tail of unemployment”.
And while mortgage repayments are currently being propped up by government stimulus packages, this won’t last forever.
“This will likely result in more forced property sales and act as a drag on home prices, as income support measures and the bank payment holiday wind down,” he said.
Additionally, Australia’s immigration levels – a key driver of rising house prices – have taken a major hit. Net immigration looks set to fall to 35,000 this financial year from 240,000 last financial year.
“This is a huge hit which will take population growth in 2020- 21 to just 0.7 per cent, its lowest since 1917.”
It means underlying demand for homes could fall from 200,000 to 120,000.
“This could result in a significant oversupply of dwellings, and in turn could reverse the years of undersupply that has maintained very high house prices since mid-last decade.”
The major shift to remote work also has significant implications for house prices, with lockdowns and social distancing proving it is possible for white-collar workers to do their job from home, though there will likely be a hybrid solution that involves working from both the office and home.
“All of [this] could revolutionise residential property demand – and from what I am hearing anecdotally maybe already is,” said Oliver.
It will also mean less demand for property surrounding the city and greater demand for suburban and regional property.
“All of which could break down the dominance of the city with its expensive property.
“By fostering decentralisation, a shift away from cities to regional communities could dramatically improve housing affordability over time.”