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By Per Amundsen, Head of Research, Thinktank
Outline: National and state economies are struggling; the number of unemployed remains high; yet housing goes from strength to strength
It’s a fascinating number. The research house CoreLogic’s national home value index up was 0.9% in January 2021, with every capital city recording an increase. And for the 12 months to 31 January 2021, every capital city except Melbourne saw housing prices rise, ranging from a staggering 11.4% in Darwin to a more modest 2% in Sydney.
Even in Melbourne, which was effectively shut down for much of 2020, prices only fell 2.1% for this 12-month period, and in the past three months to 31 January they have jumped 2.1%.
It’s not just the capital cities that are enjoying higher prices. Regional housing values have risen at more than twice the pace of the capital city markets since the COVID-19 pandemic took hold last March – up 6.5% over this timeframe. It seems fair to assume in a pandemic world having a regional bolt hold has growing appeal for many Australians.
The only soft spot is the unit market with demand falling due to COVID-19 dampening investor interest and changing living preferences. There is also no shortage of units coming on to the market, suggesting they will continue to underperform while there remains an imbalance between supply and demand.
Based on one yardstick alone, the demand for housing hardly seems surprising. The cash rate, the rate at which the Reserve Bank provides overnight loans to commercial banks, is at a record low of 0.1%. And Reserve Bank Governor Philip Lowe is on the public record as saying he does not expect the Official Cash Rate to increase for three years.
It means money has never been cheaper for property investors wanting a mortgage. Although the rental market remains soft, investors can either lock in low interest rates or remain on a variable rate, confident that they will remain low for the foreseeable future. So, despite Australia having experienced the deepest recession since the Great Depression of the 1930s, housing prices have remained buoyant.
It’s not just the cost of money. The government has poured money into the economy via subsidies such as JobKeeper and JobSeeker to keep families and businesses afloat. Apart from the RBA cutting interest rates to record lows, the central bank has pushed $100 billion into the economy through its quantitative easing program. And Victoria aside, the states and territories came out of lockdown earlier than initially expected, helping to bring back businesses and pump money into the economy.
As economists have noted, if Victoria’s GDP growth for the September quarter was in line with outcomes from the other major states, instead of falling by 1%, then national GDP growth would have been 2 percentage points, or about 5.3%, higher.