When you read almost any history of modern Australia you cannot escape the fact that this is a country built on migration. Almost every aspect of life has been impacted by migration from the diversity of our economy to the character of our cities and even what we eat.
This very simple comment easily demonstrates why immigration and property markets are so inextricably linked and that’s despite the fact that at times immigration and population growth attract negative comments.
Setting aside any political view and approaching this from an economic standpoint, immigration plays a key role in the housing market. As we hopefully emerge from the impacts of COVID-19 it’s worthwhile taking a wider view of how immigration might impact the housing market over the next few years.
I do not think that many would dispute the reality that without migrants, Australia’s economy would have faced many an uphill battle and our quality of life would have been diminished without a strong immigration policy.
Immigration is good for every local economy and for the national economy. It’s the driving force behind the health, diversity and sustainability of our cities and our property markets.
However, currently the numbers of immigrants coming to Australia is at a standstill. This is a concern and could have both short-term and long-term impacts. Our borders are closed not only to migrants, but also to overseas students and also to many tens of thousands of our own citizens.
Treasury forecasts indicate the rate of population growth 2020/21 will be the lowest since 1917. Mainly a result of stalled overseas migration, which is expected to drop from around 232,000 net migrants in the 2018/19 financial year to just 31,000 in 2020/21.
This will be disruptive to housing demand however, the impacts will be complex and far from uniform and may be short lived which might be one factor driving current high, even record housing prices.
The following pointers (including published research) help to demonstrate the impact of net overseas migration (NOM);
- Over the past thirty years, NOM has accounted for 51% of Australia’s population growth.
- Since late 2016, NOM has actually increased, comprising more than 60% of population growth.
- Temporary migrants comprise the large majority of NOM. In 2019, roughly 70% of migrants arrived on temporary visas, with the large majority being students or visitors.
- Currently this is the biggest backlog in potential arrivals.
- Permanent migrants comprised around 30% of NOM.
- Of which 45% arrived under skilled visa arrangements,.
- The second largest portion – 28% – were ‘special eligibility or humanitarian’.
- A large majority of temporary migrants will not buy but rent.
- Most permanent migrants will also initially rent.
- Almost 90% of temporary skilled worker visa arrivals rented or lived in provided housing.
- Slowing NOM will impact Melbourne and Sydney, last year 84% of all overseas migration flowed into the capital cities.
- Interstate migration is a factor with figures into Queensland at a 20-year high.
- Last year Queensland had a net inflow of about 25,000 people.
- Figures are not at their peak levels of the early 1990’s and regions are also far more popular in 2021.
- Number of expats returning has been high with more in line.
The longer term outlook
Beyond 2021/22 we also have the reality that Australia’s population is ageing with a massive number people currently heading to retirement. As mainly Baby Boomers retire, they will leave behind falling taxation receipts for the government and a mid-term increase in the demand for pensions and healthcare.
The size of the population paying income tax into the government’s revenue to offset the Baby Boomer exodus is shrinking. Without urgently seeing a big increase in migration we may face the threat of a serious slowdown even after an expected recovery in 2022/23.
Generally, economists agree that strong population growth is essential for the economy. Without population growth, the housing market suffers as does construction and the whole economy, and in the face of COVID-19 we’ve recently seen government policy responding.
Government made an effort to boost residential construction, through initiatives such as the $680 million HomeBuilder scheme, while putting extra funding into the civil construction however, the program is bringing forward demand from years in which population growth has been affected and so driving demand.
We’re also seeing structural issues that are going to emerge in relation to the appropriateness of the supply of new housing, and its composition and location.
With concerns surrounding migration levels and at a time of rising prices the housing market perspective will shift in a number of ways:
- A higher volume of rental vacancies and falling rent values across some inner city locations.
- Once foreign student arrivals start to normalise, rental demand in these areas should improve.
- The same applies to skilled worker and short-term visa holders boosting the demand for rental accommodation.
- It is also possible that yet-to-be completed projects will settle while rental vacancies remain high and rents are falling, which may put downwards pressure on property values, but also create buying opportunities.
- The residential construction sector is likely to face challenges due to uneven demand and a surge of construction due to HomeBuilder.
- Demand for ‘investor grade’ unit projects is likely to remain low for an extended period.
- Demand for owner occupier unit dwellings with higher specifications and in prime locations remains very strong.
- Greenfield housing estates are also less impacted from reduced migration.
- Activity has been boosted by HomeBuilder, together with low interest rates and first home buyer incentives, driving demand.
- The rate of natural increase and interstate/intrastate migration merits closer attention while NOM recovers.
- Internal migration flows are influenced by a range of factors, such as labour markets as well as lifestyle and housing prices.
- There are already signs that major regional centres are benefitting from increased demand and lifestyle considerations outside of the impacts associated with NOM.
However, we are even in the face of falling migration, seeing a strong pick-up in demand that’s affecting house prices.
There are additional reasons for this including the fact that we’ve had a lot of people moving back to Australia, almost half a million people having done so, and that trend coupled with record low interest rates is driving demand.
We also know that there’s a huge backlog of 140,000 plus skilled migrant visas pending.
The market is also being driven by the numbers of people rethinking their options and choosing to think about lifestyle areas, even within our big cities they’re starting to think about larger suburban properties, larger apartments and varied locations. All of these factors are driving prices however, there’s a lack of speculative excess or offshore investors and buyers see this as an opportunity.
While low migration is a factor to be taken seriously I feel that strong prices are being driven by many of the points discussed, plus we are already seeing an improved, even strong economic recovery than was expected just six-months ago.