Covid pushes Sydney, Brisbane house prices up by more than 20 per cent

People looking to buy their own home can blame the pandemic for one more problem, with one city requiring an extra $125,000 to secure a place.

Aussie house prices were “turbocharged” by the Covid-19 pandemic, with Sydney the hardest hit as buyers are expected to need an extra $125,000 to snap up a property.

KPMG modelling found Sydneysiders would be slugged an extra 26 per cent by December 2023 to buy a home, double the increase in price compared to if the pandemic hadn’t occurred.

A house in Sydney will cost on average $1.24 million by 2023, compared to $1.19 million if the pandemic had not surfaced, whacking an extra $125,000 premium on to the cost of property.

It’s a huge increase too with the median Sydney house price in late 2019 sitting at $986,000, according to the Australian Bureau of Statistics.

Canberra was the second city expected to be tough for home buyers with a 23 per cent rise in house values due to the pandemic, compared to just 14 per cent if it hadn’t happened.

An average house in the nation’s capital is set to come in at $913,000 adding a covid premium of $67,000 to the cost of a place. The median house price in late 2019 was just $745,000 in Canberra.

For those looking to buy in Brisbane, they will have to fork out an extra $60,000 to secure a house in December 2023 as house prices jump 20 per cent due to the pandemic. This will take the average house cost to $661,000 as a result of the covid premium, compared to $601,000 without the pandemic.

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Sydney house buyers will have to fork out an extra $125,000 to secure a home. Picture: Damian Shaw/NCA NewsWire

Dramatic rises

Currently across Australia, house prices are now between 4 to 12 per cent higher and units up to 13 per cent higher due to the pandemic, according to KPMG analysis.

Government policy responses to the pandemic such as pushing the cash rate down to 0.1 per cent and introducing the HomeBuilder program have been huge contributing factors to the spike in prices, it found.

Initially, the uncertainty caused by the pandemic and consequent economic downturn saw a 3 per cent fall in prices in the June 2020 quarter, said Dr Brendan Rynne, KPMG chief economist, but house prices have since taken huge leaps and were “turbocharged” by the pandemic.

“Once market participants became confident that the pandemic would not result in a free-fall of home values, a combination of monetary and fiscal policies quickly began to push things the other way,” he said.

“The material decline in mortgage interest rates, extra savings from not spending on holidays and leisure and generous income support from government and housing market support specifically, has seen property prices rise dramatically in the past six to nine months, past the point to where they would have risen under a no-covid scenario.”

The pandemic also contributed a huge hit to the supply of homes, he added.

“Our analysis of dwelling approvals in the big cities shows that in Melbourne and Sydney there are 25,000 and 20,000 respectively fewer houses and units available than would have been the case in a no covid scenario,” he said.

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There were 20,000 less houses available in Sydney due to the pandemic. Picture: Gaye Gerard/NCA NewsWire

Huge covid premiums

Melbourne is also expected to have one of the biggest jumps in prices with a 24 per cent leap due to the pandemic, with the average house price expected to sit at $940,000.

However, the covid premium isn’t as high as in other cities as it only adds on an extra $35,000 to the cost of a house by 2023, as people from Melbourne fled the city after multiple lockdowns last year.

Hobart and Perth were predicted to experience a huge 35 per cent jump in prices in 2023 due to the pandemic. The average price of a house in Hobart is expected to rise to $701,000 compared to $651,000 if the pandemic had not hit, meaning homeowners will have to shell out an extra $50,000 to buy.

Perth owners will only need $17,000 more to secure a home, although the KPMG modelling showed that prices will have jumped to $667,000 in 2023, up from an average of $495,000 in 2019.

Adelaide is also set to experience a rise of 19 per cent in house prices, meaning people will need to stump up an extra $39,000 to secure a place, which is expected to hit an average of $576,000 in 2023.

In the Top End, potential homeowners are also facing a hike of $46,000 to buy as prices rise by 7 per cent compared to a predicted drop of 3 per cent if the pandemic hadn’t taken hold.

It means the average house price in Darwin rises from $470,000 in 2019 to a positive upswing of $501,000 by the end of 2023, rather than a taking a hit in value down to $455,000.

Darwin housing values were set to drop but the pandemic has pushed them up. Picture: Supplied

Changes coming

The KPMG modelling also found short term factors influenced skyrocketing house prices around Australia, including FOMO (fear of missing out), investors’ return to property (adding more competition) and Sydney’s insane prices influencing other markets around Australia.

Dr Rynne said the lift in house prices was good news for boosting Aussie’s financial confidence, but the soaring house prices had also further entrenched housing unaffordability, especially for first home buyers.

As the family home represents the single largest asset for many people, if house prices are rising then consumer confidence and spending tends to also rise at the same time, he added. “Conversely, when house prices are falling, then consumers tend to get worried about the short term outlook and they save more and spend less” he said.

“This is exactly what happened during the first six months of the pandemic. The economic outlook was uncertain, house prices fell, and discretionary consumer spending declined. As households’ confidence improved – consistent with Australia’s positive approach to managing Covid-19 – house prices rose, wealth improved and spending increased.

“A consequence of this price differential pre- and post-covid is the fact existing homeowners will be the winners, whereas those trying to get into the housing market will find it even harder as price increases in property will grow at rates faster than what most people can save.

“This simply means the amount required for housing deposits will now be even higher than would have been the case if the pandemic did not occur.”

Brendan Rynne, chief economist at KPMG Australia, said soaring house prices are good for consumer confidence, but bad news for first home buyers. Picture: Supplied

But it’s not all bad news for Aussies looking to realise their home ownership dream.

Soaring prices will temper over the next two years due to mortgage rate rises and lower population growth as a result of a fall in migration, with Australia’s population now anticipated to be lower by about one million people by the end of this decade, found KPMG.

“This reduced population growth will feed into the property market through a combination of ways, including reducing the immediate demand pressures for accommodation as Australia’s border remain shut to both returning travellers and foreign migrants,” the report noted.