COVID-19 Implications for the Residential Market - June 2020 - Efront
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COVID-19 Implications for the Residential Market June 2020
Demand
Key Demand Driver- Population Growth
Population growth in Australia has been relatively
consistent, ranging from 1.1% to 2.1% per annum since
June 1999. This steady growth was a contributing
factor in Australia avoiding recession during the GFC
and major housing markets experiencing good growth
over the years.
The chart on the right shows forecasts for the key
components of population growth. Following the
announcement of the COVID-19 pandemic, borders
were closed and net interstate and overseas migration
forecasts were significantly impacted. As a result of
the pandemic, the following forecasts have been
Overview
adopted in our analysis:
» Migration from May until October 2020 significantly
slows. Government forecasts 30% fall in FY2020
There are many factors impacting supply and demand for residential » Significant slow down post FY2020, with a fall of Australia is forecast to see
property at current. With government announcements changing daily, 85% in FY2021, compared to FY 2019 overall population growth of
» The recovery is unlikely to be immediate after
the direction of supply and demand is difficult to predict. We expect low
State borders open due to underlying employment
207,000 people during year
population growth, high unemployment rates and government safety conditions, which will take time to return to normality to June 2021 a reduction
and stimulus initiatives, to have an impact on all residential indicators. » Net migration is forecast to improve, returning to
of 220,000 people in
Based on our expectations for these indicators and assuming we avoid levels achieved pre COVID-19 in July 2021.
a second wave of the virus as state borders re-open, we have forecast Applying the same assumptions to the States, the comparison to pre COVID-19
the supply-demand gaps and median prices for the major markets. expected population growth rates by State change forecasts.
substantially for FY2020 and FY2021. For the year
to June 2021, the Australian Capital Territory tops
Supply the forecast annual population growth with Victoria
traditionally having been the highest growth State.
Residential dwelling supply will depend mainly on policies, planning and
market conditions within each State. Key factors influencing supply across
Total Net Migration (Persons)
the States at current include:
2018-2019 2019-2020 2020-2021 2021 - 2022
» Projects delivered over the next 12 months from supply approved prior to
Australian Capital Territory (ACT) 5,008 3,506 751 4,767
COVID-19
» Short-stay property owners converting premises to long-term accommodation
Victoria (VIC) 105,335 73,735 15,800 94,028
» Planning applications fast-tracked to stimulate state economies and provide
employment opportunities Queensland (QLD) 54,294 38,006 8,144 53,200
» Supply chain issues which could extend building times for some projects
» Difficulties to fund projects due to soft presale markets and increased cost of New South Wales (NSW) 88,081 61,657 13,212 78,638
capital
Western Australia (WA) 7,131 4,992 1,070 17,236
» The longevity of the medical/economic crisis.
South Australia (SA) 6,143 4,300 921 7,581
Page 3 | COVID 19 - Implications on Resdential Market
Demand Supply Gap
New South Wales South Australia
Queensland
Demand in NSW is likely to match supply by mid- New South SA is set to remain in a state of undersupply in FY2020,
Financial Under/
2021 and start to outstrip supply from early 2022. Western Year Over Supply Wales before supply outstrips demand in FY2021 due to
Given reduced migration over 2020 and early-2021,
Australia 2020 + 3,496 Financial Under/
reduced population growth, resulting from declines
and economic uncertainty, demand is set to remain Year Over Supply in overseas migration estimates. A minor state of
Financial Under/ 2021 + 14,263
lower than dwelling supply in these years. The 2022 Year Over Supply 2020 + 31,949 oversupply will remain through FY2022 and FY2023
2022 - 124
and 2023 financial years are forecast to witness 2020 + 17,454 2021 + 28,934 as the market absorbs the excess supply of stock that
2023 - 10,327
undersupply levels accelerate. However, the NSW 2021 + 21,840 2022 -1,988 entered the market over the previous year. However,
Government’s Planning System Acceleration Program 2022 + 6,562 2023 -16,957 increased population growth over this period (2022–
is now likely to see this undersupply reduced. The 2023 - 3,335 2023), together with the average number of people per
Government Program includes fast-tracking of over household trending downwards, is likely to support
50 major projects in stage one and two that can be healthy demand levels.
approved and underway in six months. Stage one will
contain more than 5,400 dwellings and tranche two
Western Australia
over 3,600 new homes. WA has witnessed a long period of oversupply
brought about by reduced demand following the
Victoria mining boom. Demand caught-up to supply in
Victoria is expected to continue to be undersupplied FY2019, and while oversupply remained, it was
over the next three years with the demand-supply starting to be absorbed from the second half of 2019
gap likely to start reducing by mid-2021 before to March quarter 2020. Reduced population growth
widening again from early 2022 when we begin is forecast to result in an oversupply of dwellings
to see the population growth returning back to now until FY2022 in WA. Demand is then likely to
previous forecasts. Given the reduced migration start rising again, absorbing the excess supply and
forecast over the remainder of 2020 and early-2021, leading to undersupply over FY2023.
demand is set to decline. The 2022 and 2023
financial years are forecast to witness undersupply
Australian Capital Territory
South Australia
levels accelerate. Undersupply is likely to generally continue in the
Financial Under/ Australian
ACT over FY2020 as the Government controls most
Queensland
Year Over Supply Victoria Capital Territory
2020 -1,923 of the land supply and land is released according to
Financial Under/ Financial Under/
After peaking during FY2017, the number of 2021 +1,317 Year Over Supply expected population growth. Further, with forecast
Year Over Supply
dwellings supplied per year in Queensland has 2022 +1,022 2020 - 26,833 population growth within the ACT likely to be higher
2020 +22,952
steadily reduced. The slowdown is forecast to 2023 +751 2021 - 7,391 than the other states over FY2021 and expected
2021 +60,364
continue until FY2021, before projects approved 2022 - 30,562 stimulus through government employment,
2022 - 26,781
start to increase the level of supply again. With 2023 - 56,706 demand should continue in the Territory, albeit
2023 - 91,710
demand falling over FY2020 and FY2021 due tracking slightly below supply. A very slight
to reduced population growth and economic oversupply is, therefore, forecast for FY2021 due
uncertainty, dwelling supply is likely to exceed to migration slowing population growth compared
demand over the following two fiscal years. An to pre-COVID-19 expectations and some of the
uplift in demand is projected to ensue in FY2022 as employment created during the crisis being scaled
migration levels revert to normality and confidence back in that year.
returns in a low interest rate environment.
| Page 4 Page 5 | COVID 19 - Implications on Resdential Market
Dwelling prices in May reflected a decline of -0.4% according to Core Logic’s house value index, however, this
Median Dwelling Prices is based on early COVID-19 data with true impacts yet to materialise in the indicators. Interest rates are low
and Australian Banks are trying to assist mortgage holders over the COVID-19 crisis period, which will result
in less distressed properties coming to market in the short-term. However, once mortgage breaks end and
unemployment impacts are known, dwellings may start to be offered to the market at discounted prices, it
negatively impacting prices. The length of the crisis is going to determine the depth of the downturn.
Year to
New South Wales Victoria Queensland South Australia Western Australia
Australian Capital
Territory
June - 2020 9% to 11% 10% to 12% 0 to 3% 0% to 3% -1% to 1% -1% to 1%
June - 2021 -6% to-9% -5% to -10% -3% to -5% -5% to 0% -3% to -5% -2% to -4%
June - 2022 1% to 3% 0% to 3% 1% to 3% 0% to 3% 1% to 3% 1% to 2%
June - 2023 6% to 8% 4% to 7% 4% to 6% 0% to 3% 3% to 5% 5% to 7%
Median House Price Growth 27.87% 43.84% 20.73% 13.74% -12.05% 30.06%
(Mar-2015 to Mar-2020)
Outlook
Period of Weak Market Conditions 12 - 18 months 12 - 18 months 12 - 18 months 6 - 12 months 12 - 18 months 6 - 12 months
Median Prices Recovery End of 2021 End of 2021 End of 2021 End of 2021 End of 2021 End of 2021
Demand Exceeds Supply FY 2023 FY 2021 * FY 2023 FY 2020 FY 2023 FY 2023
» With supply being pushed » With demand supply gap » Most of the decline in » The impact of COVID-19 » After four years of » Canberra usually has
forward by the NSW increasing again, FY2022 is median prices is expected is expected to be more oversupply, dwelling prices relatively moderate cycles
due to the considered
government and demand forecast to be a recovery in FY2021 when the bulk restrained in SA when finally started to recover
release of land for
flat, FY2021 is likely to see an year in Victoria, with dwelling of potentially distressed compared to the eastern over the second half of development.
oversupply driven decline prices expected to remain properties come onto the states. 2019. The rise was cut short » However, the unexpected
in median dwelling prices in stable or have minimal market. » SA markets have due to COVID-19. events over 2020 are likely
Sydney. growth. » By FY2022, the economic historically been less » The rebalancing of supply to result in development
land having been released
» Strong median price growth is » Price growth is expected recovery should volatile, and while it should produce a return to
based on expected larger
expected in FY2023 as vacancy when the undersupply be underway; and has not witnessed the growth in median dwelling population growth.
declines. expands again in FY2023. unemployment rates strong gains in values prices over FY2022, before
are likely to be falling, over recent years, it is strengthening in FY2023.
resulting in a favourable also unlikely that it will
market, stronger growth in experience strong falls
dwelling prices is expected over the forecast period.
*Demand supply gap shrinks over the following year.
| Page 6 Page 7 | COVID 19 - Implications on Resdential Market
Conclusions
Key Contacts
• NSW, QLD and WA are forecast to be in oversupply in FY2020.
Key Contacts
By FY2021 all states, are likely to be oversupplied, except
Victoria, which will be in undersupply.
Luana Kenny Jarrod Morgan Ben Toole
• Demand is likely to be weak in FY2021 due to economic Vic | Managing Director NSW | Director NSW | Director
+61 3 9605 1071 +61 2 8234 8117 +61 2 8234 8105
uncertainty resulting in many people putting investment and luana.kenny@m3property.com.au jarrod.morgan@m3property.com.au ben.toole@m3property.com.au
house purchasing decisions on hold.
• The residential property market will be impacted by COVID–19
for the balance of 2020 and the first half of 2021. During this time, Kym Dreyer Robyn Cowie Josh Johnston
Vic | Associate Director
SA | Managing Director Vic | Associate Director
we anticipate residential prices will decrease, with a recovery +61 8 7099 1800 +61 3 9605 1025 +61 3 9605 1015
kym.dreyer@m3property.com.au robyn.cowie@m3property.com.au josh.johnston@m3property.com.au
not occurring until the latter half of 2021. This recovery will be
impacted by the high level of unemployment, however, in part
will be offset by improving population growth. Once market
Stephen Linanne
confidence is restored, we anticipate slow recovery. Growth is QLD | Senior Valuer
Lani Rogers Jennifer Williams
SA |Senior Valuer NSW | National Director
not expected until mid to late 2022 and is forecast to accelerate +61 7 3620 7905
stephen.linanne@m3property.com.au
+61 8 7099 1819
lani.rogers@m3property.com.au
+61 2 8234 8116
jennifer.williams@m3property.com.au
in FY2023.
Amita Mehra Casey Robinson Zoe Haskett
VIC | Research Director QLD | Research Director SA | Research Manager
+61 3 9605 1075 +61 7 3620 7906 +61 8 7099 1807
amita.mehra@m3property.com.au casey.robinson@m3property.com.au zoe.haskett@m3property.com.au
m3property.com.au /m3property
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