“The importance of home and a sense of place has been emphasised by the experience of the past two years,” she said. “We should consider what people do want in a home, not an idealised concept of what they ought to want.”

The change in household composition helps explain why housing demand remained strong and rental vacancy rates quickly tightened even while the international border was shut, according to the RBA.

“Roughly speaking, the decline in population growth meant that there were up to 200,000 households that didn’t arrive in Australia over the past two years,” Dr Ellis said.

“But the decline in the average size of households that were already here broadly offsets this. Across the whole Australian population … decline in average household size [experienced] would add about 140,000 households.”

Country people stay put

As demand from migration picks up again, the RBA warned that rents in Sydney and Melbourne might rise quicker than expected.

The central bank said the pandemic trend in people seeking “tree changes” was less a case of people leaving the city, and more a case of the normal flow of people moving out and a disruption to the flow of people moving in.

“People from parts of Australia that were not in lockdown at the time tended not to move to cities that were in lockdown. So, this wasn’t so much about city people wanting tree changes, but rather the interruption of the long-standing trend of others moving to the big smoke,” Dr Ellis said.

“These shifts are now unwinding, with internal migration returning to a more typical pattern and overseas migration slowly starting to pick up.”

After notching up 22 per cent growth last year, spurred by the record-low 0.1 per cent cash rate, national house prices are expected to eke out small gains this year, and potentially even fall by up to 10 per cent as interest rates rise.

The greatest demand was for free-standing dwellings, which was also where the most significant gains in house prices were made. These were partially subsidised by the Morrison government’s HomeBuilder program, which had been partially responsible for pushing prices higher during the pandemic.

“We estimate that about one-quarter of building approvals during this period were supported by HomeBuilder, though many of these would have happened anyway,” Dr Ellis said.

“Over time, the short-term fillip to demand from HomeBuilder and other temporary support measures will work its way out of the pipeline”, at which point “the current rate of cost escalation and squeeze on margins” would ease.