The worst is over, with strong growth expected
across the capital cities throughout the rest of 2021

RPM continues its Industry Leader Q&A with Daniel Gradwell, Associate Director, Property at ANZ to provide insight into the challenging economic and property market developments during 2020.

RPM: What are the key insights for Victoria’s property market in Q4?

A positive starting point is that Victoria has come roaring out of lockdown. Employment in Melbourne and Victoria has rebounded strongly, now down less than 2% from pre-COVID, which is much better than most people would have hoped for. Prices have accelerated too, falling into line with the other states. In the September quarter, prices fell 1% month on month before beginning to stabilise. In the last quarter, there was a sharp turnaround and they increased on a monthly basis at the end of November and December. In construction, the data also accelerated strongly, driven by the support mechanisms offered by HomeBuilder and other construction grants. Without taking it for granted, I believe we’ve seen the worst of the economic outcomes and it’s quite clear that Victoria has performed on the same pathway as the other states and territories. While the reality is that we had a pandemic, we also got nowhere near the negative forecasts due to the protection of the support mechanisms in place. This provides some optimism around Melbourne’s continued adjustment going forward.

RPM: Were there any surprises or major shifts over the past quarter, given the COVID-19 restrictions?

One of the more surprising results is Australia’s internal migration through 2020 in the context of COVID-19. ABS data show that in the June quarter, around 8,000 people left Melbourne and many relocated to regional Victoria, representing a massive shift. We expect this to accelerate again for September, and possibly December in line with lockdowns, quantifying the anecdotes and feelings on the ground of people looking to move, attracted by hubs including Geelong, Ballarat and Bendigo. Over the long term, we will be very interested in how we can plan for and absorb these changing population stories for people who seek easy commuting to the city and a more balanced change in lifestyle. Another surprise from the last quarter is that building approvals and housing finance are booming. Finance approvals to build are 100 per cent higher than a year ago, while building approvals for detached housing are at record levels, namely for greenfield house and land packages. The fact that this has doubled suggests we will expect to see even stronger growth in building approvals and construction over the next six or 12 months, depending on the market sector. This is a contrast with the high rise city market, which stimulus measures aren’t targeting, and there are no tourists, no students, but high vacancy rates. If there’s one thing that has become really clear over the last six months, it is the need to keep stimulus in place for as long as it’s needed, which I think is the completely appropriate outcome.

RPM: How do you predict the market will perform over the next 12 months?

Assuming that COVID-19 case numbers remain the same and the vaccine rolls out in March, we expect strong growth across most of the capital cities and the regions throughout the rest of 2021. In a big change to their historical language, the Reserve Bank doesn’t expect to increase rates for three years and it’s likely they will remain very low for at least the next year. For first home buyers, this is good news and it adds some certainty around the playing field. Lower prices, higher wages and interest rates halved from the 4 or 5% from four years ago translate to affordable actual mortgage repayments as a share of income, which will still be the case if prices move higher throughout the year. Having said that, if interest rates start to increase, we could see some sensitivity for those who have leveraged up their mortgages. As for the employment recovery, there are still some holes with many new jobs part-time rather than full-time, and those under 25 still have 5% less jobs than pre-COVID, causing financial difficulty. However, the overall employment picture has been very positive, and leading indicators suggest this will continue and may lead to better wages growth later in the year.