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July 2, 2021 by ash

Coronavirus escapees from big cities are driving a regional property property boom. Can it last?

They turned out in droves for the auction.

On a bright, sunny Saturday a few weeks back, the bidding was furious, jumping in lots of more than $100,000 and even multiples. By the time it was over, in less than half an hour, the house was under the hammer for a town record of $5.27 million.

The property, perched on a steep rise across the road from a pandanus-lined headland, is a nice place. Tasteful with never to be built out panoramic views of the Pacific, it has been split into two apartments. Only a thin strip of asphalt separates it from a bushy track that leads to a nook of northern NSW coastal perfection.

But $5 plus million? The town, a couple of hours south of the Queensland border and the madness and mayhem of Byron Bay, is studded with fibro and frangipani and boasts a dilapidated pub. For decades a sleepy little fishing haven, it largely was overlooked by the glamour set jetting into Byron. Until now.

Like many quiet corners of the country, real estate prices have gone mad. The frenzy, driven mainly by escapees from the Big Smoke, shows little sign of slowing. And while the official figures point to a rise of around 10 per cent across regional NSW in the past year, the situation on the ground suggests otherwise.

Anything with water views, or proximity to a beach, has seen meteoric price rises. From just three years ago, prices have doubled and, in some cases, trebled leaving rusted=on locals flushed at the prospect of newfound wealth but fearful for the future of their families.

Can it continue? Or is this just a bubble within a much bigger bubble?

The economics make no sense

Across the nation regional real estate gains have leapt ahead of their capital city counterparts. Apart from a brief period between 2002 and 2004, when the first round of retiring baby boomers opted for sea and tree changes, this is a new phenomenon.

It began last year when the nation was in lockdown. Regional Tasmanian real estate leapt 12.8 per cent as the country tried to come to grips with strict isolation policies, both internal and international.

During last year’s horror stretch, CoreLogic data showed NSW rural and regional prices leaping 8.8 per cent, South Australian bush notched up gains of 7.8 per cent with outback Queensland in hot pursuit with a 7.3 per cent hike.

Nationally, regional property prices surged 13 per cent in the 12 months to April, according to property data group CoreLogic, more than double the rise in capital cities of 6.4 per cent.

The surge has built a momentum all its own. Everyone now wants a slice of the great Australian dream. Fuelled with near free money and using the inflated values of their city properties as collateral, they’ve quickly bid up the price of regional Australia and narrowed the value gap between cities and the bush.

The economics don’t make any sense at all. Take our example above. It’s too far to commute to the city for work, at least on a regular basis. And even though rents have been pushed out of the ballpark amid the frenzy, at that price, there is no way you could ever make a commercial return on your investment.

Even with negative gearing, you’d need a mighty big income to service that kind of debt unless you’d cashed in a city property at hugely inflated prices to make the move.

Where is all the money coming from?

Good question. By the time the pandemic hopefully has ended, the federal government would have pumped more than $311 billion into the economy through health and crisis relief.

That money will continue to provide stimulus for the next few years.

Then there is the easy credit. The banks have relaxed their lending standards since the pandemic outbreak and money is cheap.

But that still doesn’t explain the huge ramp up in prices.

Even the Reserve Bank is grappling with the financing dynamics. In a Freedom of Information request by my colleague Dan Ziffer, an internal RBA discussion panel raises the apparent disconnect between only moderate credit growth and a strong rise in loan commitments.

And they wonder whether the federal housing stimulus programs merely have brought demand forward.

In short, they don’t know either.

OMG. Will WFH last?

Technology and the acceptance of remote working may have altered the dynamics. It’s now de rigueur to hold daily, multiple teleconferences.

If the COVID pandemic has proved anything, it is that the workplace is mobile and that productivity can be maintained with workers dispersed across cities and the nation. If there was any doubt, that’s been dispersed by the official assignation of an acronym.

Yup, in workplaces across the land, emails about WFH litter the inboxes of millions of employees.

How much of this, however, has been born out of necessity?And once the pandemic has receded, will we gradually will revert to our old ways? Humans are social animals and crave personal contact. Isolation is not normal.

If we do head back to toil in towers in the urban hubs, the rush from the cities may well not just abate, but slam into reverse.

That sure would be a dampener on the rural property boom.

A great city exodus? Or just a statistical blip?

The price rises have been accompanied by a highly unusual demographic pattern. In the second half of last year, for the first time in living memory, the populations of major cities such as Sydney and Melbourne declined by more than 20,000, according to the Bureau of Statistics.

Brisbane and Perth added to their totals but nowhere near enough to make up for the exit from the bigger cities.

For some, that was all the proof they needed to proclaim the trend was real, and here to stay and that city dwellers seeking refuge in the regions would continue to drive regional real estate prices. But the story isn’t quite so simple.

The pandemic had two major effects. Not only did it stop immigration and hasten the departure of many foreign workers, resulting in fewer big city dwellers, it also had a profound impact on internal movements.

There’s no doubt been an exodus to the bush. But other factors are at work.

In a normal year, as the kids of regional families leave school, many head to the cities, either for work or education, resulting in a population drift from the regions to major urban centres. Other older workers seeking greater opportunities and higher pay also make the shift

That didn’t happen last year, helping skew the numbers. And as they held on to their homes, properties became tight. Add in the influx of retirees and refugees and you get turbocharged prices.

If the pandemic ever does abate, we may see a return to more normal behaviour, although what constitutes normal in a property-obsessed nation like Australia is becoming an ever more elusive concept.