Is the pandemic regional housing experiment over?

The pandemic has given the development sector many things to think about. Some we knew were coming, others came out of left field and shook many of the core beliefs around where and how people wanted to live. When office staff were told not to come into the city where their traditional workplaces and daily social interactions were located, the desire to live in the city or near city suburbs was also questioned.  The query being asked by some was, “If I don’t have to work from the city office five days a week, where do I really want to live?”  This question has evolved from “where do I need to live?” Which has meant that many have chosen the regions in response. Those regions that are likely to have “sticky” population growth are also those best served by public transport, more often than not, the mode of choice being the train.

Call it an unintended social experiment, a demographic shift or a reaction and acknowledgement of perceived lifestyle discontent, the regions were the major beneficiary. In some respects, this relocation choice mirrored similar characteristics of personal relationship breakdowns between husband and wife. It wasn’t that they were totally unhappy, it was just that they believed they could be happier with someone else. The leaving of a “known” relationship with one’s community to start a new life in a new geographic location is exciting at first, but the same types of everyday grind are still persistent for most, except the travel times are often even longer if you need to go back to the city multiple times a week. So, the question for the medium term almost becomes, will there be a reverse trend back to the cities as the economy and businesses again require more from their staff? Or will those who have moved to regional locations, end up resigning and taking a local job at a potentially reduced pace thereby completing the full motivation for moving in the first place? Some have called it the big resignation; I don’t think we are there just yet.

The above graph demonstrates that the volume of sales has abated across every aggregated regional centre on the east coast of Australia. The question has to be asked though, is this because the shine has been lost from the regions or more likely, that the supply of property and trades was simply not able to keep up; combined with a serious escalation in prices? The answer is less binary than one or the other. On a recent trip to Mackay, local builders were advertising that they could start construction nine months out and that aspiring new home buyers should book now to secure a start date. Delays such as this can negatively impact the growth potential in many of our regional centres where it simply becomes “too hard” to move and by default, the opportunity may end up passing and not being fully realised for both the regional community and/or the potential new resident.

Are we now witnessing the remnants of tide out with a tide in movement back to the city and suburbs? Whilst previously we expressed doubts over the data not supporting widespread population movement to the regions and it’s important to acknowledge that the sales data from the ABS does not define how many of those transactions are related to holiday accommodation and the knee jerk reaction to not being able to travel overseas. Disposable income not being allocated to international travel has been responsible for arguments around many different sectors, from increased car/boat/caravan prices to holiday homes being in high demand. Again, the truth probably incorporates some of this but also includes frequency of lockdowns, low interest rates, generally sound employment conditions in many sectors, supply constraints and lack of critical components in almost every sector. Quite simply, the volume of sales appears to have passed its peak and is reverting back towards previously established norms.

The chart below demonstrates that the significant demand that was created in the regions also translated into a jump in prices whereby the affordability dynamic was lost for many purchasers. The concept of escaping the city because prices had sky rocketed, meant that by end of 2021, in the space of just two years, NSW’s regional median house price had almost doubled, Victoria’s has jumped by 50% and Queensland still looked relatively attractive, assuming you weren’t buying the regions on the outskirts of South East Queensland. The reason being that many Queensland regions were still recovering from the resource driven mining boom that was fuelled by greed, oversupply of housing, inappropriate housing and poor government oversight.  Given the time over, it is highly likely these mistakes would not be repeated.

The issue that has arisen now is that many regional centres have lost their attractiveness around price competitiveness. With the loss of affordability, the strain on local wages to meet the increased barriers to entry for home ownership suggests that the city problems have been brought to the regions, the exact thing many were trying to escape.

Whilst this push to the regions has certainly breathed life into many local economies, the benefit has not come without a cost. Many regions are now largely out of balance and these will take some time to correct.

Having stated that, it would appear that the peak has been reached in terms of price which has also coincided with the tapering of sales. If the sales/supply chain were constrained by a lack of supply across all regions, the expectation is that prices would still be escalating, rather than plateauing or showing very modest growth. Queensland’s regions are arguably a very different proposition to NSW or VIC given the more decentralised nature of the population. Many regional centres north of Hervey Bay are only just starting to return to the values seen at the peak of the resources boom. So, whilst the aggregated data creates a broad sense of what is going on within a State, it fails to deliver the intricacies of what may be happening at a local level. As an example, large regional centres such as Geelong, Bendigo, Newcastle, Wollongong, the Gold/Sunshine Coast or even Toowoomba will have their own unique set of circumstances that may or may not mimic the broader data set.

As the nation approaches the two-year mark of trying to live with a pandemic, has the move to our regions been enduring? In 2022 much of the 2021 Census will be released to the public. This will provide insights as to how Australian’s reacted to the Corona virus, though this data will always need an asterix next to it, given it is likely to be highly irregular.

If the nation wants to capitalise on the growth of our regional centres, the decentralisation of the population and the reduction of dependency on the capital cities as a place to get ahead, then investment in these larger centres will need to be a focus. If people are voting with their feet, then hopefully government recognises this and commits the necessary investment to grow the infrastructure requirements that allows for flourishing non-capital city centres that become more diversified and less reliant on seasonal attractions.

Matt Gross | Director | mgross@nprco.com.au