The Impacts of COVID-19 On The Newcastle and Lake Macquarie Rental Property Market: 2 Years In

As we click over 2 years of COVID-19 impacting our lives, in this article we reflect on the ways the virus has impacted the property market in Australia, and particularly within regional areas such as Newcastle and Lake Macquarie. 

​1. Australian Home Values Increased 25% To Record Highs

According to data from CoreLogic, following a small and relatively brief decline at the start of COVID-19 in Australia, housing values rose 24.6% between the end of March 2020 and February 2022.

These significant increases in home values have been caused primarily by continued low interest rates, increased household savings (a result of decreased spending during and post lockdowns), government grants and a reduction in the supply of housing. 

By February 2022, the median Australian dwelling value increased $173,805, to $728,034.

​2. Regional NSW Property Price Growth Has Been Phenomenal

As we reported back in December 2021, capital growth of property in regional areas was even greater than in the capital cities over the 12 months to November 2021. 

At that time, we noted that in the 12 months to the end of November 2021:

• Regional NSW dwelling values increased 29.1% in the 12 months to November 2021
• This equated to approximately $156,714 being added to the median value of a regional NSW home in 12 months
• This level of capital growth was significantly above all capital cities, including Sydney (25.8% annual growth), Brisbane (25.1% annual growth) and Melbourne (16.3% growth)

Source: CoreLogic November 2021 Home Value Index

More recent reports at a national level highlight that across 2020 and 2021 there has been a significant increase in the volume of people leaving cities for regions outside of lockdown periods, and a decline in people leaving regions for cities. 

The resulting high demand and low supply has seen regional Australian dwelling values increase 36.5% since March 2020, while capital city home values have increased "only" 21.4%.

​3. Regional Rents Increased Far More Dramatically Than Capital Cities

​We are all aware of the dramatic increases in rents which have occurred nationally as a result of the pandemic. As at the end of January 2022, realestate.com.au reported that across our capital cities, the median cost to rent a property had increased by 6.7% over the previous 12 months. 

The same source reported that in regional areas, growth has been even more significant, with median rents up 8.5%.

However within the Newcastle and Lake Macquarie areas specifically (not at the national aggregated regional level reported by realestate.com.au), the increase in rents has been more dramatic still.

As we reported last month, taking a look at the rental data as at February 2022 courtesy of SQM Research:

• Across postcode 2305 (New Lambton, New Lambton Heights, Kotara East), median weekly rent has increased from $544 across all houses in Feb 2021 to $733 in Feb 2022 (a 34.7% increase in median weekly asking rent)
• Across postcode 2289 (Adamstown, Adamstown Heights, Garden Suburb, Highfields, Kotara) median weekly rent has increased from $526 in Feb 2021 to $651 in Feb 2022 (a 23.8% increase)
• Across postcode 2290 (Charlestown, Dudley, Gateshead, Hillsborough, Kahibah, Mount Hutton, Redhead, Tingira Heights, Whitebridge) median weekly rent has increased from $464 in Feb 2021 to $536 in Feb 2022 (a 15.5% increase)

Remember, from the data reported by realestate.com.au, nationally regional rents have increased 8.5% year on year. The results across these sample suburbs of Newcastle and Lake Macquarie show rental increases have been even more pronounced locally.

​4. Despite Significant Rent Increases, Rental Yields Have Fallen To Record Lows

According to a report from CoreLogic from March 2022:

• Over 2021, annual rent value growth was at its highest levels since 2008
• Nationally, median advertised rents since March 2020 increased $30 per week to $470 per week
• However, gross rental yields have declined

Put simply, rental yield is calculated as the annual rental income divided by the property's value, expressed as a percentage. 

Nationally, purchase prices of properties have grown 24.6% since March 2020, and this has outpaced the 11.8% national rise in rents. As a result, nationally gross rental yields have fallen from 3.8% at March 2020 to a record low 3.21% as of February 2022. 

At a more local level, as at November 2021 we saw that Regional NSW rental yields averaged 3.7%, outperforming capital cities such as Sydney (2.4%) and Melbourne (2.7%).

Source: CoreLogic November 2021 Home Value Index

​5. Regional Rents Will Continue To Rise Throughout 2022

Last month we outlined a number of reasons we believe rents will continue to rise significantly throughout 2022 as the long-term impacts of COVID-19 continue to be felt across our property markets:

• A key driver of demand for rentals (and therefore rent price increases) is population growth. However, the Australian Government closed our international border from 20 March 2020 until reopening 21 February 2022. 
• Rental supply has trended down over the past two years, driving prices up, all in the absence of international migration to Australia.
• With our borders re-opened, demand for available rentals will increase further, putting additional upward pressure on rents.
• Construction and renovation booms have been impacted by a shortage of building materials due to COVID-19 disruptions, pushing up prices and wait times, as well as a shortage of labour. All this means that there will not be a creation of additional housing to meet the current rental demand any time soon. 
• With Australia's big four banks all predicting interest rate rises will commence in 2022, mortgage repayments for investors as well as owner occupiers will increase accordingly. Many property investors will seek to increase rents to assist with covering the increase in loan repayments. 

We love analysing data like this and would love to share our knowledge with you as an investor. If you'd like to talk about management of your investment property in Newcastle or Lake Macquarie, contact us today.