Property market commentator Simon Pressley has warned of a lockdown legacy in the making due to the exodus of residents from Australia’s two largest cities.
Mr Pressley is the head of research at Propertyology, a market research firm and national buyer’s agency.
He believes the combination of population patterns, economic instability and housing supply trends could prove shaky fundamentals for the Sydney and Melbourne property markets in the future.
Noting that prior to COVID Sydney and Melbourne had become accustomed to their respective populations increasing by 75,000 and 115,000 per year, Mr Pressley said in the 12-months to March 2021, the population of both cities declined by an estimated 6000 in Sydney and 50,000 in Melbourne.
In total he said that resulted in a negative swing in the combined population of Sydney and Melbourne to the tune of 245,000 people over the first 12 months of COVID-19.
Conversely, the population of regional Australia increased by an estimated 51,000 over the year ending March 2021.
“To put the size of Sydney and Melbourne’s population decline into perspective, the volume of people is big enough to create an entire city the size of Mildura (Australia’s 40th largest city), Noosa, Dubbo or Albury,” Mr Pressley said.
Mr Pressley attributed the shift to the financial and psychological impact of lockdowns, which were encouraging the two major cities’ residents to relocate, and said the exodus was also affecting rental vacancies.
“Sydney and Melbourne have a combined 42,142 vacant residential dwellings while the entire rest of Australia only have 16,714 vacancies,” he said, adding it might also be only a matter of time before there were additional job losses in the two largest cities.
As a result, he said he had concerns for the future of Sydney and Melbourne’s economy.
“Pre-COVID, the CBDs of Sydney and Melbourne were epicentres for 500,000 jobs each,” Mr Pressley said.
“While plenty of white-collar businesses can still operate from home offices, the same cannot be said for restaurants, cafes, clothing stores, assorted other retail businesses, hotels and universities.”
Mr Pressley said Property Council of Australia data indicated only 40 per cent of Melbourne’s CBD offices and 60 per cent of Sydney’s were occupied in April this year.
“For each business that permanently closes, the ability to pay household mortgages and rents of every business owner is in jeopardy,” he said.
“Ditto to tens of thousands of direct staff, the staff of associated other businesses that once supplied goods and services, and landlords (commercial and residential).
“Both Sydney and Melbourne lost a (net) 32,000 to internal migration in the 12-months to March 2021 and logic suggests even more since then.”
He went further to explain the population and economic patterns, plus the housing supply pipeline, were leading market indicators and, in this instance, resembled Perth’s fundamentals in 2013, directly prior to the commencement of its property market downturn.
Other economists aren’t quite so concerned
However, PropTrack economist Anne Flaherty had a different take on the issue, explaining Sydney and Melbourne had far greater industry diversity than Perth.
“Melbourne and Sydney are the most diverse markets in the country,” Ms Flaherty said.
“If one industry suffers a shock, the others are generally still going strong.”
Ms Flaherty conceded population migration from Melbourne and Sydney had been an issue over the past 18 months, but noted the Federal Government had flagged that by mid-2022 more people from overseas would resume arriving in Australia.
“Australia has traditionally enjoyed strong population growth compared to other countries, and I think that will return,” she said.
“Over the next 12 months some of the challenges we’ve seen in Sydney and Melbourne will continue, but in the mid to long-term the growth fundamentals for those two capitals will return.”
She also predicted that once the CBDs reopened, residents would come back due to the desire to be near their workplace.
“Looking at the CBD markets, one advantage of living there is if you work in the city,” Ms Flaherty said.
“With the CBDs closed, people wanted to live in regional areas. Demand should continue to recover over the next 12 months as more people return to the office and migration resumes.”
Meanwhile, citing SQM data, Ms Flaherty noted the rental vacancy rate in Sydney had halved to 7.8 per cent compared to its peak last year.
“It’s not reduced quite so much in Melbourne, where it is 8.3 per cent, but the reason for that is that Melbourne’s had very little break from lockdowns,” she said.
Looking to the future, Ms Flaherty agreed the recent price growth driven by low interest rates was unlikely to continue at its current pace.
“But I certainly don’t think the sky is falling,” she said.
“I think we’ll see that level of price growth moderate, but in terms of those greater capital cities, we won’t see it deteriorate any time soon.”