Will Holiday Homes replace the holiday?

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How has the shift to blended working and strict international travel restrictions impacted the holiday rental and holiday home market?

In the 2022 McGrath Report real estate doyen John McGrath explores:

  • The rise of the digital nomad and workcationsHoliday Home
  • The surge in domestic tourism and where holiday rental demand is centred
  • How the perfect storm of low interest rates, remote working and a desire to be safe and outside infection zones, has ensured growth in regional areas

Here’s what the report had to say about the trend towards holiday homes:

Australians pride themselves on being a nation of travelers.

Our island status and position at the bottom of the world coupled with increasingly affordable airfares has driven a desire to travel overseas on a regular basis.

It was a rising trend before COVID-19, with Australians enjoying a record 11.2 million short-term overseas trips in FY19, with our top destinations being New Zealand, Indonesia, and the U.S.

However, when the international border closed in March 2020, our overseas holiday plans were shattered and our movement within cities has been continually restricted during outbreaks.

During this time, holiday homes have increasingly replaced our overseas and interstate holidays.

Holiday homes have become an irresistible refuge for many owners.

They are regularly retreating to their second homes, most of them in premium fringe areas such as Sydney’s northern beaches, the NSW Blue Mountains, and Victoria’s Mornington Peninsula, where they can work remotely in comfortable and familiar surroundings.

Seeking the same escape, other city dwellers have leveraged Australia’s burgeoning home-sharing market to rent a holiday home for the duration of COVID-19.

Airbnb and Stayz are doing a roaring trade servicing this new type of holiday home renter, who is often looking for longer-term accommodation in fringe metro and regional lifestyle areas.

Budgets vary, with wealthy city dwellers redirecting funds usually spent on overseas holidays to long leases of luxury holiday homes.

Others are enjoying shorter stays, trying various holiday home rentals in a different location each time, with each trip providing an invigorating new experience and a break from the monotony of a socially restricted life.

The notion of a working holiday is taking hold, with 23% of people working from home becoming ‘digital nomads’ within the first six months of the pandemic, according to Airbnb.

LaptopWith a laptop in their luggage, these white-collar executives are ‘working from anywhere’ whilst exploring Australia in a more meaningful way.

Dubbed the ‘workcation’, they’re living in holiday rentals a few months at a time and immersing themselves in the communities of coastal, mountain, or rural regions.

Back in the cities, where recurrent lockdowns are creating cabin fever, people are looking to the regions for short breaks and are spending more to make the most of them.

In May 2021, Australians took 5.3 million overnight trips for business or leisure to regional Australia and spent $3.5 billion on them.

Compared to May 2019, this was a 6% decline in the number of trips but a 23% increase in expenditure.

The biggest spending increases were in regional South Australia (up 83%), regional Queensland (up 31%), and regional NSW (up 24%).

According to Airbnb, regional vacationers are seeking uniquely experiential holidays in lieu of overseas experiences.

Treehouses, cabins, yurts, tiny houses, and farm stays are popular, as holidaymakers prioritise seclusion and safety, preferably within driving distance of home.

Holidaymakers are also seeking out lesser-known regional areas, leading local landlords to list their investment properties on homestay platforms for the first time to achieve better returns.

This has significantly increased short-term accommodation options in some areas, such as Mount Gambier in South Australia.

Tiny House

People aren’t just leasing holiday homes, they’re buying them, too.

Their motivation is two-pronged – secure a safe holiday destination for their families to enjoy during school breaks, and leverage ultralow interest rates to invest in booming regional markets.

Demand for regional property is surging, with thousands of sea changers and tree changers leaving the cities for a permanent new lifestyle of working from home.

This is resulting in exceptional property price growth, with the regions outpacing the capital cities by a significant margin in FY21.

Regional NSW home values rose 21.1% vs Sydney 15%, regional Victoria 15.9% vs Melbourne 7.7% and regional Queensland 17.1% vs Brisbane 13.2%, according to CoreLogic.

This is making regional holiday homes even more appealing.

Investors can buy a comparatively affordable property, with a reliable rental stream created by popular home-sharing platforms, and ride the wave of capital growth occurring in scores of seachange and treechange hot spots.

A survey commissioned by ING shows 32% of today’s investors are considering buying property in holiday towns compared to 30% targeting the inner city and 37% preferring outer city areas.

The key motivators for investing in holiday towns include value for money (50%), the ability to use the property as a personal holiday home (28%), and taking advantage of the burgeoning holiday home rental market (25%).

Second-home ownership was on the rise even before the pandemic.

The 2016 Census revealed there were 16% more dwellings than there were households in Australia, up from 9% in 2001.

Tax CutThe introduction of the 50% capital gains tax discount in 1999 likely contributed to this trend, along with the launch of Stayz in 2001 and Airbnb in 2012.

These platforms enable a much steadier flow of rental income, which makes holiday homeownership a more viable investment.

Australians in the city and regional areas are increasingly embracing these platforms, with listings on Airbnb more than doubling from 2016 to 2017 and steadily increasing ever since.

The history of Australian holiday homes can be traced back to the late 1800s when many wealthy families owned substantial holiday houses in popular beachside areas.

In the 1920s and 1930s, the ‘weekender’ gained popularity as mass car ownership allowed the middle class to discover less crowded vacation spots, where they typically bought basic fishing cabins.

Between the 1960s and 1980s, the appeal of holiday houses declined as working women demanded a proper vacation instead of merely “a change of kitchen sink”.

The emergence of resort hotels in Australia, Fiji, and Bali encouraged shorter but more luxurious holidays built around services and activities, according to Sydney University Associate Professor and tourism historian, Richard White.

Today, air travel is restricted and people are hesitant to cross a border in case of lockdowns.

Buying a holiday home using unspent holiday funds appears to be making sense, as it provides assured hygiene, a regular escape (when restrictions allow), and a financial investment as well.

Today, a humble fishing cabin is less likely to satisfy middle-class buyers.

Lux PropertyMany are seeking higher-quality properties in prime coastal locations, and this demand is changing local markets, not only through raised competition and higher home prices but also through gentrification.

The NSW Central Coast provides a case in point.

The traditional go-to destination for Sydney families seeking an inexpensive break, the area saw surging buyer demand in 2020 for old stock to be ‘flipped’ into profitable Airbnb holiday homes in waterfront locations such as Avoca, Forresters Beach, and Killcare.

The desire to spend more time away from the city is creating demand for grander, architect-designed properties with greater amenities.

Some older buyers plan to convert their holiday houses into their primary homes upon retirement, so they are especially motivated to buy higher quality.

Data from CoreLogic shows house prices in Australia’s most loved tourism hotspots are soaring.

In the year to May 31, 2021, the top five regional council areas in NSW for house price growth were Byron (39.3%), Kiama (31.1%), Snowy Monaro Regional (30.3%), Ballina (26.9%), and Shoalhaven (20%).

In Queensland, the top five were Noosa (21%), Sunshine Coast (15.2%), Fraser Coast (14.8%), Gold Coast (13.5%), and Cairns (7.1%).

In Victoria, Mansfield had the highest house price growth at 26.9%, followed by the Surf Coast (24.6%), Macedon Ranges (23.5%), Bass Coast (22.4%), and Mornington Peninsula (21.3%).

In years gone by, holiday homes were never about a prospective return on investment.

For many, lifestyle factors have always outweighed any possible monetary gains.

Family Holiday HouseWhilst this attitude is changing somewhat, as property is increasingly seen as the best way to grow wealth, the big takeaway from 2020 was the importance of a good work-life balance.

Tim McKibbin, the CEO of the Real Estate Institute of NSW, says buying a holiday home to enhance lifestyle is making “emotional and commercial sense” to many buyers today.

This is largely thanks to better digital connectivity spurring a growing awareness worldwide that working from an office is no longer central to productivity.

This, in turn, means that demand for homes in regional and coastal areas looks set to become more consistent, rather than traditionally relying on peak demand during school holidays.

As employers entice – or insist – that employees return to the office for at least a couple of days a week, second homes in commutable regional locations will see the highest demand.

The holiday home is here to stay.

Source: The McGrath Report 2022 Download it here and get more insights

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About

Brett Warren is Director of Metropole Properties Brisbane and uses his 13 plus years property investment experience to advise clients how to grow, protect and pass on their build their wealth through property. Visit: Metropole Brisbane


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