REA's PropTrack Regional Australia Report 2021

COVID-19 has disrupted the status quo of many facets of modern life, and housing is no exception. 

Long lockdowns, border closures and more time spent at home have caused many to reassess their lifestyles and living situations and continue to do so. 

Housing markets in regional Australia have been one of the prime beneficiaries of this dominant trend. 

These trends have continued in 2021 and nowhere has this been so evident as in regional Australia. 

It’s no secret that the pandemic has driven population growth in regional areas, with Sydney and Melbourne recording large net losses of people through 2020 and early 2021.  

With the delta variant keeping south-east mainland capitals under lock and key for the latter half of 2021, and regional and interstate migration trending above long run averages, the regions have seen record price growth this year.

 

 

Housing values in regional Australia are currently rising at the fastest annual pace in at least 35 years, having increased by almost 30% in the year to September.

This outpaces the already strong growth in metro areas, representing a particularly exceptional period for Australia’s housing market. It’s being driven by low interest rates and a shift to regional areas with limited housing inventory.

In addition, the mining industry has continued to experience large growth in line with strong commodity prices, adding to the regional renaissance.

These changes have culminated in elevated demand for regional property, with regional areas again outperforming metropolitan ones in the past 12 months across a wide array of PropTrack metrics.

The regional renaissance and workforce changes

Despite the multitude of challenges COVID unearthed, many office workers embraced the flexibility to work remotely and made their move to regional Australia. More affordable housing and natural amenities have given many of those “city skippers” a higher quality of life relative to urban areas. As a result, regional centres are seeing rapid population growth.

Specific drivers found to be correlated with regional relocation include health and wellbeing, housing affordability, safety, culture, natural environment, and a sense of trust and belonging.

Last year, taking advantage of remote work ability, many opted for that sea or tree change with a net 43,000 people exiting capital cities in favour of regional areas. That was the biggest net influx to the regions since Australian Bureau of Statistics records began in 2001.

 

 

In the March quarter of this year, data from the ABS showed capital cities recorded a net loss of 11,800 people, more than double the decade average and the largest quarterly loss on record and this was prior to the arrival of the delta variant.

Though we do not yet know for sure if this trend continued through the rest of 2021, with another round of lockdowns and the continuation of remote working trends, it is likely to have persisted.

Although, perhaps somewhat anecdotal, demand activity on realestate.com.au (search, high intent buyer activity, views per listings etc.) in regional areas has continued to grow and has outpaced metropolitan areas, suggesting an ongoing relationship between COVID and regional relocation.

And certainly, the reacceleration of regional house price growth in the third quarter of this year would indicate this may be so.

 

Regional population shifts – myth busting

Counter-urbanisation is not a new trend, but one that has been hugely accelerated by the arrival of COVID-19.

 

 

From 2011 to 2016, both Sydney and Melbourne lost more residents to the regions than they gained.

In fact, ABS internal migration data implies people have been relocating from capital cities to regional Australia throughout the past 20 years.

Housing affordability constraints, regional migration schemes and incentives, pre-existing remote work, and other labour opportunities had already driven a rise in regional migration.

In particular, over the past five years there has been a steady increase in regional migration, though COVID has supersized that trend.

 

Through the pandemic, remote work ability and rapidly rising house prices have accelerated pre-existing trends that have seen the south-east coast capitals, Melbourne and Sydney, declining in terms of liveability and losing large numbers of people.

While Melbourne, the most locked down city in the world, experienced its largest net migration loss on record in 2020, both regional NSW and regional Victoria recorded large net migration gains.

Housing in capital cities is much less affordable than regional areas.

If house prices in state capitals are rising relative to regional counterparts, then the state capital is not only more expensive on absolute basis but is becoming relatively more so.

The number of interstate movers in the latest internal migration release (March 2021 quarter) was the highest for a March quarter since 1996.

And in the 12 months to March 2021, net migration into Queensland was more than double the decade average.

Queensland has experienced an influx not seen in almost two decades, with many escaping COVID lockdowns in southern states in search of relative affordability, scenic coastlines and more space, considering Queensland’s housing stock is dominated by houses.

The Gold and Sunshine Coasts were the most searched regional areas in the country from September 2020 to September 2021, and the most “in demand” according to activity from highly engaged prospective buyers on realestate.com.au.

Housing affordability varies considerably across Queensland, but with the ratio of housing prices in Greater Sydney to Queensland increasing to more than two times (and even more for regional areas), the Sunshine State still retains an affordability advantage over south-east coast capitals Sydney and Melbourne.

Nonetheless, accessibility problems still remain for younger people and lower income earners – a nationwide problem.

In the previous Census period, the top three regional destinations for millennials were the Gold Coast, Newcastle and Sunshine Coast.

So much so that in the past 12 months, 74% of interstate searches into Queensland came from NSW and Victoria, with searches from NSW and Queensland accounting for 18% of total search activity.

Regions that have attracted more people have experienced higher increases in housing prices

Regions that have gained in popularity with large internal migration inflows have seen prices growing more rapidly.

 

Hybrid work and commutable regions

People moving from cities to regional areas has been one of the most talked about pandemic-induced property trends.

The “city exodus” during COVID has already been well documented.

 

With Queensland, regional NSW and regional Victoria recording large net migration gains we look to unpack some of the relationships between remote work, increased residential choice and migration.

Looking at trends in PropTrack price data and user activity on realestate.com.au, it appears than many of these “city skippers” have sought out regions that remain on the outskirts of metropolitan areas, within a one to two hour commuting distance of major capitals.

They’re perhaps taking advantage of both the ability to maintain office connections one or two days a week and the amenities provided by the regional lifestyle in fringe commutable areas.

This prompts the conclusion that remote work arrangements are indeed correlated with regional relocation.

Queensland areas that appear to have benefitted from population increase, remote work ability and demand for lifestyle are also close to capitals, including the Gold Coast and Sunshine Coast.

With Southerners headed to Queensland in droves, coastal suburbs such as Sunrise Beach, Mermaid Beach and Miami are all seeing strong relative growth, indicative of the influx in demand.

In the Southern Highlands and the towns of the Shoalhaven region, sea and tree changers are on average further from Sydney. However, these lifestyle areas packed with natural beauty and amenities have still proven popular, with townships seeing strong demand and price growth.

The suburbs of Berry, Culburra Beach and Vincentia are all seeing much stronger price growth relative to history.

Towns of the Newcastle and Lake Macquarie region have also seen strong price growth, with demand boosted by coast/water recreational amenities and new infrastructure projects.

Lifestyle locations like Merewether, Redhead and Caves Beach are seeing exceptional price growth.

Regional demand – digging deeper

Long lockdowns, border closures and more time spent at home, along with the ability to capitalise on remote working trends, have seen elevated demand for regional property since the pandemic began.

Larger homes and lower price points appear to be the key drivers.

The increase in the number of users who are seriously interested in purchasing a property (highly engaged buyers on realestate.com.au) in regional areas have risen more than in capital cities since March 2020, when the World Health Organisation officially declared COVID a pandemic.

Although there is still more than twice as many highly engaged buyers in capital cities than in the regions, internal migration trends have seen high intent buyer activity almost doubling in the combined regional markets.

And in many regional SA4 areas, demand from high intent prospective homebuyers has more than doubled – far outpacing demand growth in metro areas.

Property seekers look to the regions for larger and more affordable homes

When we look at highly engaged prospective buyers across different property configurations, we can see that demand from serious property seekers has increased the most for two- bedroom and five-plus bedroom properties in the regions, almost doubling for two-bedroom properties.

The number of properties listed for sale has declined for all bedroom configurations since the pandemic began.

This has resulted in the average number of high intent prospective buyers per ‘for sale’ listing climbing almost three-fold across all configurations, but it is even more competitive for two-bedroom and five-plus bedroom listings.

This shift is also visible in the sizes of homes those high intent buyers are engaging with.

The share of demand for five or more-bedroom houses has increased, as has the share of demand for one- to two-bedroom houses and units.

This is especially the case for one- to two-bedroom units, which is likely a result of demand for lower price points as rising house prices place pressure on buyers’ budgets, or demand for smaller holiday homes.

These trends indicate space has been a primary motivator for buyers in regional Australia since the pandemic began.

The majority of buyers engaging with listings of larger homes in a way that makes realestate.com.au classify these buyers as “serious”, is far outpacing those buyers engaging with listings for smaller homes.

However, price is perhaps becoming an increasingly important motivator (the price point of two-bedroom units is on average lower), as the fast pace of house price growth has constrained affordability for some.

This could be due to mounting deposit gaps in capital cities pushing lower income earners and first homebuyers into the regions.

An exodus of young city dwellers are taking advantage of the increased residential choice available with remote work opportunities.

Or simply demand from investors or owner occupiers looking for holiday apartments.

Views per listing

The average number of views per for sale listing on realestate.com.au has tripled in regional areas since March 2020, again highlighting that the increase in demand for the regions has outpaced capital cities.

It also highlights the more pronounced demand/supply imbalances that are causing havoc in regional housing markets, with regional listings hovering around record lows.

This trend has continued throughout this year, with the number of highly engaged buyers per listing almost doubling year-on-year in the regions, while supply regionally is hovering around record lows having fallen more than 30% in the last year.

Partly a product of base effects with those same regions being the least searched in regional Australia the year prior (September 2019-20), but also a product of elevated commodity prices and increased mining activity, driven primarily by booming demand for ferrous, base and precious metals.

Border closures and disruption to fly-in, fly-out work arrangements could also play a part.

Agriculture, manufacturing and infrastructure job creation also looks to be a driver in the regions where searches have seen the largest uptick.

However, the desirability of affordable coastal and lifestyle centres is also clear across these regions.

The ratio of housing prices in Greater Sydney and Melbourne to Queensland increasing to almost two times, making Queensland a top destination in the pursuit of relative affordability combined with lifestyle and amenity.

Across the board, many of the top enquired suburbs are within commuting distance of metropolitan centres, but also offer lifestyle amenities in close proximity.

This highlights the significant trend toward affordable and commutable regional areas.

In Sydney and Melbourne, exorbitant price growth has seen housing accessibility decline significantly. With an ever-increasing deposit hurdle, first homebuyers are looking further afield to buy property.

Orange, Dubbo and Port Macquarie are all suburbs where it can be cheaper to buy than rent.

Investor Enquiry

Record low interest rates, strong rental yields and price growth have seen investor activity in the market picking up significantly since last year.

Queensland suburbs also feature heavily in the top spots for investor email enquiry, and the trend for investment in regions is set to benefit from increased demand from “city skippers”, interstate migrants and infrastructure spending in the run up to the 2032 Olympics.

As the Games approach, a pipeline of infrastructure investment, transport upgrades and job creation will continue to drive demand, a positive factor for the southeast Queensland market.

Investors are honing in on regions that have benefitted from population growth within close proximity to capital cities.

According to the ABS, in the 2019-20 financial year Queensland’s Gold Coast had the highest net migration gain of all SA4s, where at a suburb level Pimpama saw the biggest uptick.

More recently in the 12 months to March 2021, net migration into Queensland was more than double the decade average, so we expect these trends are likely to have continued.

Investors may also be taking advantage of the relative affordability and cheaper price points in Queensland compared to other east coast regions as well as where future tenants may want to live.

The allure of affordability, lifestyle, and also the recent 2032 Olympics confirmation, which will see increased infrastructure investment in the lead up to event, are clear drivers for increased investment in Queensland.

Where are serious prospective buyers looking?

Regional QLD and NSW suburbs dominate the top spots with the greatest number of serious prospective buyers per listing in the past year, again reinforcing the migratory flows seen from state capitals to the regions and Queensland and the rise of lifestyle commuter hubs.

The Illawarra region and Gold Coast stand out as clear favourites for prospective buyers.

The booming demand in the Illawarra region of NSW, where many suburbs retain a reasonable proximity to metro areas, highlights again the ‘commutable’ trend.

The desirability of these suburbs coupled with low supply of properties for sale has not only led to large price increases relative to historical trend, but also tight competition, with buyers paying big premiums over list price.

Which suburbs have seen the biggest increase in per listing demand?

When it comes to where demand has increased the most, it’s a Queensland success story once again.

Scenic coastlines and lifestyle again standout as key drivers, along with low supply of properties for sale.

In terms of the growth in demand from those high intent property seekers, Queensland suburbs dominate with 7 of the top 10 in the Sunshine State.

Some suburbs have seen a more than three-fold increase in highly engaged prospective buyers per listing in the past year due to both heightened demand and falling supply of properties for sale.

The sunshine state experienced a flood of arrivals not seen in almost two decades, but has also benefitted from the trend toward commutable amenity rich regions. As well as the COVID induced hot market for holiday homes in coastal areas whilst borders have remained locked down.

Low listings in the regions driving increased competition

The significant uptick in views per listings highlights the demand/supply imbalances that are causing havoc in regional housing markets, with regional listings hovering around record lows.

The reduced supply of properties for sale in regional areas is another key factor, outside of heightened demand and record low interest rates, behind the accelerated price growth seen in regional areas.

Where competition has ramped, with buyers paying big premiums

The low supply of properties for sale has spurred a competitive market with home buyers being forced to pay up for properties in high demand regions.

Newcastle and Lake Macquarie and South Australia’s southeast region are where the percentage of sales selling over the list price are highest, indicative of heightened demand creating tough competition for buyers.

The low supply of properties for sale has spurred a competitive market with home buyers being forced to pay up for properties in high demand regions.

Newcastle and Lake Macquarie and South Australia’s southeast region are where the percentage of sales selling over the list price are highest, indicative of heightened demand creating tough competition for buyers.

When it comes to where the biggest premiums over list price are being paid, it’s the Gold Coast, Sunshine Coast and Illawarra regions.

That is good news for potential sellers, but not so much for buyers.

Diminished supply of properties for sale and the extremely elevated demand has created a tough market for buyers, pushing prices higher in these regions.

Just how unique is this period of price growth?

The annual pace of house price growth in regional areas is currently almost four standard deviations above the prior decade average, pointing to the unprecedented turn of events that has had a huge impact on regional housing markets.

A testament to the combination of record low interest rates, migratory trends and constrained inventory.

Australia’s regional housing values are currently rising at the fastest annual pace in more than 35 years, having risen 28.5% in the year ending October 2021.

This was driven by strong price growth in the first quarter of this year and another reacceleration in growth in the third quarter.

It is regional NSW that takes the crown, with house prices up a whopping 35.2% over the past 12 months – again the fastest pace of growth in at least 35 years.

This was led by price growth of over 8% in the first and third quarter of this year.

Regional Tasmania came in at a close second, with house prices having risen 32.3% in the same period.

More recently over the past three months, regional NSW has come in on top nationally, with 8.71% increase in median house prices.

Where price growth has really gathered steam

Many of these suburbs are names that have come up frequently throughout the body of this report.

Runaway price growth has largely been fuelled by low interest rates, but clearly the COVID induced city exodus is playing a part.

A clear trend that stands out across all metrics is the hunt for the best of both worlds in terms of affordability and lifestyle in commutable regions.

City skippers have paid up for fringe commutable regions but also amenity and lifestyle. In areas that tick those boxes, demand, sales and prices have boomed – in fact so much that the price growth has been entirely exceptional relative to the history of these suburbs.

Demand for real estate in commutable lifestyle hubs and the regions overall is up as ‘city skippers’ take advantage new ways of work.

This trend is seeing cities lose some of their appeal and many are hunting out relative affordability in lifestyle rich regions. This is seeing a recalibration of housing markets in regional Australia, that reaches beyond just real estate.

Although, we believe changes in prospective homebuyers’ demand behaviour (search, enquiry, views per listing and highly engaged user activity) on realestate.com.au predicates potential price growth, but when it comes to regional Australia there are other factors at play.

The trend in tree or sea change relocation has boomed with flexible workplace arrangements and lockdowns attracting more people to the regions.

Is it a flash in the pan, or a lasting trend?

Clearly strength in mining is another factor, particularly for WA and NT where regional housing market trends are tightly linked with the state economies reliance on mining.

If industry revenues compress, house price growth would cool in those areas heavily linked to strength in mining.

The desirability of coastal and beachside living is clear when analysing demand behaviour and price growth.

It is likely that relative price differentials between regional areas and capital cities is also in play.

The city exodus in favour of affordable lifestyle (Queensland, regional NSW and Victoria) also stands out.

We have seen amenity rich regions, and those within commuting distance of metro centres, outperform in terms of price growth since the pandemic began.

With increased residential choice, we are seeing increased demand, in both lifestyle areas, and areas that are within commuting distance to the state capital that allow for more permanent hybrid work arrangements to be established.

This trend looks likely to continue and there is a correlation between not only the number of highly engaged buyers looking at these regional property listings, but also the growth in high intent buyers, and the distance to the state capital CBD.

Regions like Illawarra, Newcastle and Lake Macquarie, Hunter Valley, the Southern Highlands and Shoalhaven, Gold Coast, Sunshine Coast and Geelong are all still seeing incredibly strong demand compared to the supply of properties for sale.

With many more prospective homebuyers engaging with properties for sale in these regions, pointing to the potential for continued price growth.

The Richmond-Tweed and Coffs Harbour regions are outliers here in terms of seeing heightened demand from prospective buyers despite being further afield, but remain connected via well-serviced airports.

 

Post COVID, ongoing favourable housing market conditions in regional areas with attractive relative price differentials is likely to continue to attract people from capital cities, particularly if remote working trends continue.

Though it must be reminded, metro areas still remain the most popular residential choice, and home to the largest proportions of respective state populations.

And city populations will also continue to grow with the resumption of international migration.

Throughout history, pandemics have been defining moments for shifts in consumer behaviour and this time round is not likely to be an exception.

Though given the unique and complex nature of COVID, and the uncertainties around the future of workplace arrangements, any crystal ball is inherently murky.

According to the Australian Government Centre for Population, models of inter-GCCSA migration show that flows between capital cities and the regions typically respond to changes in labour and housing market conditions.

Young adults are typically the most mobile segment of the population.

For many first home buyers, following the largest increase in housing prices in more than 30 years, the deposit gap in capital cities has widened significantly and affordability will be a major factor in where people buy.

Housing prices have risen almost 13 times faster than wages growth since March 2020, increasing the hurdle for those who don’t already own a home.

For those who can and want to take advantage of the increased residential choice brought by remote work, regional relocation may provide some relief.

At present with the ratio of housing prices in capital cities more than 1.5x regional areas, there is a continued impetus behind above trend net migration out of capital cities if workplace flexibility remains.

That disparity is even greater when considering Greater Sydney compared to regional NSW, and Greater Sydney compared to Queensland overall (regional and metro).

The effect of housing prices on migration also means that the attractiveness of regional areas is likely to diminish in the future if housing prices in regional areas increase proportionally more than in capital cities.

In some regions that affordability advantage is already being quickly compressed.

 

 

The net shift in migration away from capital cities in favour of regional areas is likely to have remained well above trend through 2021. Into 2022, it may remain above trend for some time but begin falling back towards the long-run average – declining from current incredibly elevated levels.

Again, this recent period has been extraordinary, and we are unlikely to see the current pace of capital exodus or price growth maintained, though fringe commutable regions are likely to remain popular.

And although the outflows from cities is unlikely to continue at this pace, we may find the trend settles at a higher level.

Well-connected, amenity rich regional centres with adequate infrastructure and service provisioning are likely to see continued price growth with demand remaining high.

In itself, the accumulation of human capital and increased movement to regional Australia becoming a self-reinforcing feedback loop fuelling local economies, innovation and incentivising investment and infrastructure upgrades.

Price growth in the regions is therefore likely to continue, but moderate from current levels (a slowdown, not downturn).

Already the pace of price growth is slowing across the broad market and we expect that to continue with the peak of the current cycle now behind us.

These trends will also be influenced by other external factors affecting the market overall and expectations of house prices. For example, interest rate expectations, credit conditions and the health of the economy overall.

As such, it is going to be increasingly important for local councils and government to make appropriate decisions with respect to the ongoing sustainability and liveability of regional towns and cities.

Affordability has been a major factor in the regional renaissance, but it will be important to maintain the supply of housing in regional areas, alongside appropriate local planning, zoning, design, and development.

And critically infrastructure catering for the uptick in migration and urban growth of regional areas.

This should be more easily achieved in regional areas compared to cities given the relatively abundant stock of land, though at present the pace of development is not keeping up with demand.

But even the affordability factor has been a double-edged sword, and rapidly rising prices in the regions are pricing locals out of their communities, further entrenching inequality and placing pressure on local service provisions.

Incomes are not keeping pace with rising housing values nationwide, but in regional centres for many local buyers this disparity is even more stark for those without city salaries and who don’t yet own a home.

The onus is therefore on governments to address the shortage of housing stock in regional Australia, with additional housing supply and improved land-use planning.

 

Full report: Download the PropTrack Regional Australia Report, 2021