Housing affordability is impacted globally by Covid-19


With newly published evidence With house price inflation slowing in early 2022, Australia’s latest housing boom may wane.

Especially with higher interest rates expected in a few months, it seems very likely. But any plateau or even slight decline will start with considerably higher land values ​​than before the pandemic.

At the end of 2021, the typical Australian home was 30% more expensive than at the start of 2019. This will have significantly raised the barrier faced by aspiring first-time home buyers, especially in terms of mortgage payments. After all, salaries only increased by 6 percent over this period.

Far from triggering a real estate crash, as widely expected, the 2020 Covid-19 recession is found to have triggered an extraordinary spike in home prices. And, as our new international comparative research, Australia is far from alone in this case. The equivalent increases in Covid-19 house prices in New Zealand and the United States have been even larger.

Sources: OECD and UK Office for National Statistics

In fact, during the pandemic to date, nominal house prices have risen in all eight countries studied in our research – Australia, Canada, Germany, Ireland, New Zealand, Spain, UK and US. Unlike the global financial crisis of 2008, none of these countries experienced significant episodes of nominal price declines in 2020 or 2021.

What “saved” the market?

Averting a pandemic-triggered housing market crash can largely be attributed to the remarkable government measures to maintain incomes and protect savings – largely implemented in the first two years of Covid-19 – both in Australia and internationally.

Extraordinary actions that have directly protected housing systems and attempted to shield at-risk populations have also helped confound initial fears of collapsing property values ​​and rising homelessness. Activities of this type, as seen in most of the countries covered by our research– included mortgage payment deferrals, tenant eviction bans and emergency housing for the homeless.

What drove the prices?

While measures like this appear to have effectively put a floor under the market in 2020, other factors have combined to trigger the widely-seen price surges in 2021. quantitative easing that have formed key elements of central bank responses to the crisis around the world. Although they are considered essential to protect economic activity, they have also injected large amounts of liquidity into housing demand.

In Australia and the UK, an additional factor has been the government-funded direct housing market stimulus – generous home purchase subsidies and stamp duty concessions launched in 2020. Looking back, it seems like a misdirected form of official response to the pandemic, as they have only worsened market overheating.

In some countries, accumulated household savings also contributed to the price spike. Many affluent households, working from home during the pandemic, with unusually low spending and housing wealth to cash in, have been motivated to spend heavily to improve their housing situation. At the same time, many others were overpriced as a result.

Increase in rental markets

For low-income households, housing cost pressures triggered by the pandemic have mostly intensified due to a spike in rent inflation, seen in Australia and many other countries in 2021. While some of the countries in our research had limited rent increases at the start of the pandemic, almost all had lifted these limits when rents started to rise, due to changing demand.

By the end of 2021, with the possible exception of Canada, national annual rent increases exceeded 8% in every country in the Anglosphere – a rate of increase generally well above last year’s standards. decade. Rent inflation in Australia, the United Kingdom and the United States was at that time reaching rates not seen since the global financial crisis of 2008.

Sources: Multiple – see Figure 6.1 in published report for more details.

Likewise, there have been marked variations within countries in the impacts of the pandemic on the rental market. In Australia, for example, rental demand from Sydney and Melbourne in many inland areas has been hit hard by the closure of international borders for most of 2020 and 2021, due to the resulting absence of overseas students. and foreign tourists. By the end of 2021, capital city rents across Australia had barely recovered to pre-pandemic values. Rental prices in non-metro Australia, on the other hand, were on average 18% higher than at the start of the crisis.

Higher rates of house prices and rent inflation affecting non-metro locations and homes (as opposed to apartments) have also been seen in other countries during the pandemic. These trends probably also reflect thespace racea trend fueled by the rapid rise of working from home. This increased the size of properties and weakened spatial ties to downtown offices, allowing many (usually more privileged) employees to consider out-of-town moves. As a result, the damage caused by the pandemic to housing affordability is likely to be even greater in attractive non-metropolitan contexts.

Different stories in Germany and Spain

Importantly, much of the preceding narrative most directly describes the pandemic-era experience in Australia and other English-speaking countries. The market impact happened quite differently in some other high-income countries. In the German home sales market, for example, the relatively robust pre-2020 price growth has continued on a similar trajectory during the crisis to date. Spanish price growth, meanwhile, remained subdued.

The German rental market also appears to have been relatively unaffected by the pandemic, with rent inflation generally continuing to moderate in 2020 and 2021. In Spain, meanwhile, rents have continued to fall in nominal terms.

The German experience here likely reflects the country’s unusually stable and resilient economic and housing systems, a tradition of conservative mortgage lending, and a stronger social safety net. For Spain, a key factor affecting the country’s economy and housing market during Covid-19 will have been the heavy damage suffered by the dominant tourism industry.

Impacts on Housing Affordability

Although contrary to forecasts in some key respects, the direct and indirect impacts of Covid-19 on the housing system have been profound. All of the new housing market trends seen in 2020 and 2021 are unlikely to continue. But, as things stand two years after the declaration of the pandemic, rising house prices and rents will consequently have further intensified housing affordability stress in many countries. Specifically, in five of the six countries for which we obtained national statistics, nominal rent increases exceeded wage increases over the two-year period to the end of 2021.

Coinciding in many countries with rising energy and tax prices, these developments will only aggravate cost of living crises and prompt calls for action to cushion these impacts, including through regulation and increased rental investment and an increase in social security payment rates.


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