Signs the Boom in Regional Property Markets is Coming Off the Boil
With COVID restrictions over, is demand for lifestyle properties in the regions starting to wane?
Since the pandemic hit, lifestyle property has been the most sought-after type of real estate, but now that restrictions have eased some data suggests that the lure of a tree or sea change is waning.
Shortly after COVID forced cities to shut down and workers to stay home two years back, many people decided that the future of work had fundamentally changed and moved from cities to regional parts of the country.
Further, households weren’t free to spend as they could pre-pandemic with overseas travel not an option and many businesses and social activities closed, so households were willing to dedicate more of their income to housing.
It should be noted that the trend towards lifestyle housing being in-demand has been prevalent across the developed world, not just here.
While demand for regional properties across Australia remains strong, there's some evidence that it has waned somewhat in recent months. With cities re-opening and events returning, it's perhaps an indication that people are remembering why they lived in metropolitan areas in the first place.
Rental markets in particular have started to ease, with more supply and less demand, and this is likely reflective of renters now fully committing to the region and buying, or those that rented through the pandemic returning back to the big cities they came from.
Let’s look at a collection of some of the most in-demand lifestyle areas throughout the country during the pandemic and see how trends in certain areas have started to shift.
The SA4 regions analysed are Bunbury, Coffs Harbour-Grafton, Geelong, Gold Coast, Illawarra, Mornington Peninsula, Newcastle and Lake Macquarie, Richmond-Tweed, Southern Highlands and Shoalhaven, and Sunshine Coast.
They represent some of the regions that recorded the biggest increases in housing demand since the onset of the pandemic.
While each of the 10 regions recorded price growth over the past year, and prices continue to rise, there has been a deceleration of the growth over recent months.
In each instance, the rate of annual growth peaked late last year.
Bunbury was the only one of the regions with an increase in sales in February 2022 relative to February 2021, and an increase in sales over the first two months of 2022 relative to the first two months of 2021.
Southern Highlands and Shoalhaven (down 20.9%) and Sunshine Coast (down 17.6%) have seen the greatest falls so far this year relative to last.
While the volume of properties for sale and trends are somewhat varied, in most instances late last year and early this year, total listing volumes have lifted.
While total properties for sale are generally lower year-on-year, there are some exceptions, with increases in Coffs Harbour-Grafton (0.4%), Illawarra (2.2%), and Richmond-Tweed (14.4%).
Properties are continuing to sell rapidly within these markets, with the charts highlighting most have recorded a decline in days on site over the year.
It should be noted that properties were on site for a slightly longer period in February 2022 than they were a year earlier in Illawarra and Mornington Peninsula.
On a demand per listing basis, demand is below its peak across each of the 10 regions analysed.
In many instances, demand per listing peaked in January 2022 and fell in February 2022, however it has fallen to levels below the previous highs achieved in late 2021.
Further, demand per listing is now lower year-on-year in Geelong (down 3.8%), Illawarra (down 4.4%), Mornington Peninsula (down 4.1%), and Richmond-Tweed (down 15.2%).
In most of the regions analysed, rental growth has been strong over the past year, with Illawarra the only region in which rents have increased by less than 10%.
While growth has been strong, the only regions to record an increase in rents over the past three months are Coffs Harbour-Grafton (2.1%), Gold Coast (3.6%), Newcastle and Lake Macquarie (2%), and Sunshine Coast (1.8%).
A key challenge for people shifting to regional areas has been finding rental accommodation, with vacancy rates historically low.
While supply remains tight in many of regions, there have been year-on-year increases in total rental listings in Geelong (5.7%), Mornington Peninsula (5.7%), Richmond-Tweed (9.5%), Southern Highlands and Shoalhaven (7.8%), and Sunshine Coast (13.8%).
Rental properties continue to get snapped-up quickly across these regional areas, but only Gold Coast, Illawarra, and Southern Highlands and Shoalhaven had historically low days on site in February 2022.
In fact, rental days on site was higher than a year ago in the regions of Coffs Harbour-Grafton, Geelong, Newcastle and Lake Macquarie, Richmond-Tweed, and Sunshine Coast.
Rental demand also appears to have peaked across each of these regions, with demand per listing below previous highs seen in all 10 regions.
In February 2022, demand per listing was lower than it was 12 months earlier in Coffs Harbour-Grafton (down 15.3%), Geelong (down 1.5%), Mornington Peninsula (down 6.7%), Newcastle and Lake Macquarie (down 4.9%), Richmond-Tweed (down 17.8%), Southern Highlands and Shoalhaven (down 13.7%), and Sunshine Coast (down 15.1%).
Where to from here?
The data shows that regional housing markets are still recording strong increases in property prices and rentals, with properties selling and leasing quickly while demand remains strong.
However, as highlighted above, there is some evidence across several metrics that many of these regions are not running as hot as they have been.
Prices have risen rapidly and the relative affordability of many of these areas – which made them so attractive early in the pandemic – has diminished.
Furthermore, with major cities having re-opened and life returning to normal, I believe that the outflow of residents from metropolitan areas to the regions is likely to slow.
We may even see some people that made the shift due to the pandemic returning as they realise the level of amenity and lifestyle in regional markets is very different to that of cities.
I still expect that regional areas will have strong demand and more rapid price growth than the capital cities over this year, but I believe the surge in new residents to many will slow.
As we’ve shown here, the data indicates these markets are generally not quite as hot as they have been.