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Despite these issues, builders are busier than ever before, as demand is strong. Population growth is a key driver of housing demand: more people means more houses are required.
Yet despite the current slow-down in population growth, demand for housing remains very strong. Lower interest rates and government stimulus (Homebuilder and state programs) have certainly helped. But there’s more going on in the market.
Demand for space at home has increased during COVID-19. This is the result of people spending more time at home. We see this in three trends.
1. Choosing houses
There has been a clear preference shift towards houses under COVID-19. The additional private space afforded by houses is more valuable. The longer commute is less costly. The price of houses has grown more quickly than the price of townhouses and apartments – the extent of this divergence has been unusual.
2. Fewer people per household
In townhouses and apartments, it appears there has been a shift towards fewer people per household. If a house and a backyard is not an option, living with fewer people is the obvious way of getting more space at home! The shift down in household size means demand for housing remains strong, even if population growth is weak.
This shift down in household size is driven by an increase in activity among first homebuyers and changing preferences among renters.
Dwelling purchases by first home buyers (measured with the number of loan approvals) increased by 54 per cent in 2020-21. Many first home buyers leave a share house or their family home to form a new household when they buy. This dynamic creates a larger number of households with fewer people in each one. In other words: a fall in household size.
3. Renters keep it compact
Renters are choosing to live in smaller households under COVID-19. This makes sense: when everybody is required to work at home, housemates become even more annoying!
In New South Wales, the number of rental bonds lodged with the government grew by around 32,500 over the first year of the pandemic. This increase (around 30,000) is a similar growth to previous years. It implies the formation of new households who rent is similar to previous years. This continued formation of new households has occurred despite a sharp slowdown in population growth in NSW, especially among younger working adults.