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How will Australia's migration affect property prices
Australia’s migration has seen a significant downturn since the beginning of the COVID pandemic, as a result of the publicised closure of borders and widespread travel bans, however, according to the Mid-Year Economic and Fiscal Outlook 2021-2022, is expected to bounce back in 2022.
The report published in mid-December shows net overseas migration (MON) was revised following the 2022-2023 Migration Program report released in the same month. The revised forecast suggests around a net outflow of -41,000 people in the year 2021-2022, which is the first time that NOM has had a net outflow since 1946. Yet numbers are expected to reverse in 2022-2023 with a net inflow of 180,000 and 213,000 in 2023-2024, followed by 235,000 in 2024-2025, and it is presumed it will stay at this level until 2060-2061.
The reopening of international borders aided by the increasing uptake in vaccination will in early course lead to a return to positive net overseas migration and higher population growth that will, in turn, lead to a return to economic growth.
The reopening of international borders will also support a gradual recovery for the international education and tourism sectors. As an indication of the impact that international students have on the Australian economy, as of 2018, close to 900,000 international students enrolled in full-time education. Population growth is expected to return to around 1.4 per cent by the end of the forward estimates as COVID-19 restrictions continue to ease, and global migration flows return to more normal levels.
The size of the population is expected to be around 1.5 million people or 4.9 per cent smaller by 2030-31 compared with what was projected in 2019-20 MYEFO, prior to the onset of the pandemic. Global migration flows, including those to Australia, could increase more quickly if there is a more rapid containment of the virus worldwide.
What does this mean for Australian real estate?
There is no doubt the influx of migration will have an impact on the real estate market, as it further tightens available supply, as we see an increase in demand for available Australian property.
It is reported that many planners and academics blamed migrants for rising house prices prior to the pandemic, despite the fact, in the last two years through COVID times, prices climbed in excess of 20 per cent while borders remained shut.
As we have seen in the past, before the 1950s, land on the fringes of urban areas was both cheap and within close proximity to the CBD’s, however, when the land close to cities became more scarce due to urbanisation, along with the high levels of immigration into Australia in the 50s, 60s and 70s, land prices started rising at a faster rate.
In current times, saving for a deposit is expected to become more difficult as we continue to see house prices rise, it is also worth noting that, rents have been rising sharply and will continue to do so. Therefore not only will renting become more expensive, but with the additional burden of rising capital values, this will further slow people's ability to purchase their own home.
When considering an investment property in the future, the question around affordability from a rental perspective will play more of a part with the decision making. It will become increasingly important to identify whether the area of investment targeted has the calibre of tenants capable of affording the rising rents.
Even with the escalating rents being expereiecned, rental vacancies across Australia’s major cities are at their lowest levels in decades.
AMP chief economist Shane Oliver said: “If immigration were to come back rapidly, we would see significant upward pressure on rents and significant upward pressure on house prices”.
Whilst COVID has caused people’s preferences about where they live to slightly shift, with some opting for regional locations, outside the city boundaries, rental and purchasing demand for housing in inner-city areas of Melbourne and Sydney remains extremely high.
There is concern that once migration returns to forecasted figures, the demand for housing in both Sydney and Melbourne, and to a lesser extend other major capital cities in the country, may outweigh the supply.
According to data from 2016 census, skilled migrants have tended to settle in Sydney (339,774), Melbourne (322,407), and Perth (200,457), whilst a similar trend reflects for family migrants, with Sydney (232,684), Melbourne (173,483), and Perth (67,721) dominating the locations of settlement.
Permanent Migrants (arrived since 1 January 2000) by region
At present, there is a Federal inquiry looking at the issue of housing affordability and is considering options like building more homes, and fast-tracking development approvals, which can provide approvals in weeks rather than months.
Now, does the issue lie with migration, or is there a deeper seated problem? There is no hiding the fact that the property industry has been calling on governments to increase the housing stock to keep up with the rising demand, an issue has to be addressed if the authorities to avoid a political backlash.
If you would like to discuss the Australian property market in more detail, please reach out to the team to organise a time to have a conversation about how Wealthi can help you build a successful property portfolio.
Chris Hynes is Wealthi’s Global Research Analyst, Based in London