Melbourne home sellers and landlords lost up to $55 million a week as sales prices and rents declined after the second severely restrictive COVID-19 lockdown (July 2020) to attract buyers and renters who were relocating to less restrictive lockdowns outside the city.
Rents dropped up to 8 per cent after first severe lockdown in metro Melbourne
Housing sales prices declined by 7 per cent
Total cost over two-year period of intermittent strict lockdowns ran into hundreds of millions
First author, Dr Jian Liang (pictured) from QUT's School of Economics and Finance, said the study looked at how much Victoria's housing values were affected by long, intermittent and strict lockdowns from early 2020 until late 2021.
"The Victorian Government instituted a unique, two-tier system for the second lockdown in July 2020 by partitioning metropolitan Melbourne into the 'ring of steel' with stricter, and longer lockdown conditions and police checkpoints along the boundary to prevent residents from crossing it," Dr Liang said.
"We focused on the lockdown effects on rents and housing prices on the boundary around Melbourne's metropolitan area, where Covid lockdowns were more severe, compared with those adjacent to the boundary whose restrictions were less harsh.
"We used the economics term 'willing to pay', to denote the maximum amount of money individuals are prepared to give up to gain a benefit, in this case, freedom from strict lockdown restrictions.
"We examined both rental and sales price change data from inside and close to the outside of the 'ring of steel' boundary before, during and after the lockdown period. Our findings came from objective data only, we did not survey renters or homeowners."
Dr Liang said the researchers found that after the second lockdown, rents in metropolitan Melbourne declined by 7 to 8 per cent relative to nearby less-restricted areas' pre-pandemic levels.
"This suggests immediate quality-of-life factors, in this case freedom from highly restrictive future lockdowns, mattered strongly to renters," he said.
"It indicates landlords 'paid' for lockdowns by earning less rent and losing property value, because reduced tenant demand in highly restricted areas forced rents down to keep properties occupied.
"At the same time, after the second severe Melbourne lockdown, housing sales prices within the boundary fell by 6 to 7 per cent.
"This decline represents people's assessment of the duration and severity of lockdowns, future lockdowns, and long-term effects on their employment, education, business and general well-being.
"We found no such price differences appeared before the lockdown restrictions changed between the boundary and that after the lockdown rules were equalised again rents and prices returned to former levels."
Dr Liang said that from a behavioural economics perspective, their findings suggested some people may put extra weight on rare and extreme events and underpriced their assets during those extreme events and in anticipation of more such events.
"The lack of mobility and access to economic opportunities due to lockdown restrictions can be interpreted as a disamenity, as opposed to an amenity such as close to a park or great views," he said.
"This disamenity was reflected in housing rents and prices enabling us to use the price declines within the 'ring of steel' to measure lockdown costs.
"The short-term cost of the lockdown can be estimated by extrapolating these estimates to all households in metropolitan Melbourne, which added up to $48.2 to 55 million per week.
"The total costs of the second four-month lockdown were $771–880 million."
The research team comprises Dr Liang from QUT; Professor Chyi Lin Lee from the University of New South Wales, and Associate Professor Qiang Li from Deakin University.
The study, How much are you willing to pay to avoid lockdowns? Evidence from the real estate market, was published in Real Estate Economics.
