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Demand for housing in Australia’s outer suburbs has declined over the past year, according to new research from PEXA and Urbis, as the lifting of pandemic restrictions has brought more people back into metropolitan areas.
The report from PEXA, a property settlements digital platform, and architectural and planning company Urbis, found that the dip in demand was a reversal of how the market had behaved in recent years, pointing to the trend of consumers migrating to outer suburban areas prevalent during the height of the COVID-19 pandemic. With restrictions easing over the past year, the report found that demand for property in outer suburbia slumped just as housing supply in metropolitan areas shrunk.
The study determined the change in demand by examining market trends in Greater Sydney, Melbourne and Brisbane. It analysed these areas according to the inner, middle and outer ring segments determined from the 2021 Australian Statistical Geography Standard (ASGS) Statistical Area 2 (SA2) boundaries.
According to the study, settlements in the outer ring of Greater Sydney surged during the peak of the COVID-19 pandemic in FY21, with a 30.3% year-over year growth. In FY22, however, outer ring settlements were down -1.2%, indicating a “dramatic” decrease in demand. Inner and middle ring settlements, meanwhile, were found to have “held steady” since July 2020.
Similar trends were observed in Melbourne, as outer ring settlements increased 18.5% year-on-year in FY21, compared to the 8% of growth seen in FY22. Additionally, inner ring settlements plunged -5.7% in FY21 before rebounding to 5.6% in FY22 and middle ring settlements fell -1.4% in FY21 before increasing 23% year-on-year in FY22.
Brisbane deviated from these trends as the only capital city to have posted growth in all ring segments for both FY21 and FY22, even as settlement volume increased at a comparatively slower rate in the past year. Inner ring settlements hiked 58.6% year-on-year in FY21 and 35.9% in FY22, while middle ring settlements grew 79.2% in FY21 and 19.5% in FY22, and outer ring settlements increased 42.1% in FY21 and 12.5% in FY22.
PEXA research head Mike Gill (pictured above) said Brisbane and more broadly Queensland was the “standout property market in Australia”. He said that Melbourne and Sydney showed “a clear outer ring bias” that has since been corrected as the country to eased into a more ‘COVID normal’ phase in the past year.
Gill also noted that new housing supply was not evenly distributed across the three ring segments, with all three cities exhibiting a distinctive “reverse doughnut” growth pattern, with new dwelling supply concentrated in the inner and outer rings, but far less growth in the middle ring suburbs.
“Looking deeper into the middle suburb segment, new housing has been relatively supply-constrained, with demand tending to outstrip supply over an extended period,” he said. “This trend of the 'missing middle' is likely to continue unless new housing supply is unlocked in order to meet demand from suburban buyers and renters.”
The PEXA and Urbis report also analysed how the rental market had transformed in the past two years, with findings indicating a “clear relationship” between listing volumes and rental growth.
In Sydney, for example, listings in FY22 fell across all ring segments, with inner ring properties down -21.5% year-over-year from -0.9% in the previous year and middle ring properties declining -19.6% from 2.3% in FY21. At the same time, the city saw rental growth between 8.9% and 12.1% across all three segments over the past year.
Melbourne’s middle ring rental listings also dropped to -21.1% year-on-year growth in FY22 from 21.6% in FY21. Its outer ring listings, however, bucked this trend as it climbed 5.4% in FY22 from the -22.1% of growth posted in the previous year. Meanwhile, the Melbourne inner ring posted a rental growth of 14.3% in FY22, compared with 7.7% in the middle ring and 6% in the outer ring, which the report said followed the “swing of market momentum” as people moved closer to the city.
Additionally, FY22 listing volumes in Brisbane were reported to have dropped in all ring segments, producing rental growth of 8.7% to 15%. Despite this, Brisbane’s inner ring rents were found to be more affordable compared to other capital cities, with 17% of listings below $500 per week versus the 9% in Melbourne and 4.7% in Sydney.
“The pandemic turned our housing markets inside-out,” said Urbis housing sector lead Mark Dawson.
“The more time locked inside, the more people moved out. Now they are turning outside in as those drivers have been reversed – and tenants are rushing back to inner areas. With this comprehensive picture of how our housing markets are working, we must find the missing middle ground.”
Dawson said beyond transient trends, structural aid was needed to supply more homes in the middle ring, to boost the supply of rental housing that was thinning so rapidly and to diversify and sustain the important role outer areas have played in absorbing households.
“A healthy and diverse supply of homes across our cities is critical to their competitiveness.”
