Private Ian Hamilton Clark of the Australian Imperial Force and his Russian wife Olga contemplate a window display in London offering passages to Australia. (Merlyn Severn, Picture Post, Hulton Archive, Getty Images)
- Australia’s population will grow by just 0.6% this year, a level not seen since 1917.
- With the number of migrants entering the country expected to fall by 200,000 over the next 12 months, demand for property is expected to fall.
- As a result, CoreLogic head of research Tim Lawless expects inner city rents and property prices to fall in Sydney and Melbourne, while more demand makes its way to regional centres.
With few people making it into or out of the country, the coronavirus has winded the clock back more than 100 years on Australia’s population growth.
Official Treasury numbers indicate the number of people living in Australia will increase by just 154,000, or 0.6%, over the next 12 months. That’s less than half the number added in 2019.
As expected, shrinking migration numbers are largely responsible, with just 31,000 people expected to call Australia their new home, down more than 200,000 on previous levels.
The ‘disappearance’ of those people will have a major impact on many parts of the Australian economy which has long-benefitted from strong migration flows.
Chief amongst the markets to be affected is property.
How has stalled migration affected the property market?
CoreLogic head of research Tim Lawless believes that while falling demand will prove “disruptive”, it won’t necessarily be spread evenly.
After all, net overseas migrants (NOM) represent more than 60% of Australia’s population growth. Seven in ten of those arrive on temporary visas, while the remainder are permanent migrants.
“Considering the substantial skew towards temporary migrants within the NOM figures, as well as the assumption that most permanent migrants will initially rent rather than buy, the greatest impact from a sharp drop in migration rates is likely to be in weaker rental demand than demand for established home sales,” Lawless said.
“This also implies a sharp drop in demand for new home construction targeted towards the rental market.”
The initial effect is already showing up in the rental market, as international tourists and students disappear from the market.
While not directly tied up with falling migration numbers, the collapse of domestic tourism and trend towards remote working has exacerbated falling inner-city rental demand in Sydney and Melbourne.
“Within the cities, the largest number of overseas migrants are generally centered around the CBD, and precincts close to the CBD, where high density housing options are common, and to a lesser extent, middle ring suburbs close to educational precincts or transport hubs such as Parramatta in Sydney or Clayton in Melbourne,” Lawless said.
Previously, those two cities have snapped up three in four new overseas arrivals between them. As their populations swelled, increased competition for housing stock has helped push prices north.
Nor are immigrants likely to rush back on anytime soon, Commonwealth Bank economist Gareth Aird contends.
“[The pandemic] means that there will a lot of Australian residents who are either unemployed or underemployed. Both politically and economically boosting labour market supply when the supply of labour already exceeds the demand for labour makes little sense,” he said in a note issued to Business Insider Australia.
“Therefore we think that it is more likely than not that when the borders reopen NOM will be materially lower for several years than it was before the pandemic.”
Property prices could be pushed down in cities and rise in the regions
While it’s unclear exactly how the market will shake out, analysts can make some predictions.
Firstly, Lawless believes the lack of renters won’t ease until international students begin returning, with prices depressed in the meantime.
“Investors who own property in these locations are likely to be facing high vacancy rates, lower rents and reduced ability to service their mortgage. This may result in more distressed sale listings in these regions,” he said.
Equally, the 100,000-odd apartments under construction in New South Wales and Victoria could find their previous valuations a little optimistic.
“A large proportion of these are high-rise projects in inner city locations. Many of these yet-to-be completed projects will settle while rental vacancies remain high and rents are falling, which may put downwards pressure on property values,” Lawless said.
However, while some of Australia’s major banks have forecast price falls of 15% and more, some areas are expected to hold their value better than others.
“Demand for owner occupier style multi-unit dwellings, which are more often lower density, built with higher specifications and in prime locations should be less impacted,” Lawless said.
Meanwhile, remote working may help push some Australians to more affordable regional areas.
“There are already signs that major regional centres are benefitting from increased demand as some people look to escape the large cities, taking advantage of remote working opportunities, more affordable housing options and lifestyle considerations,” he said.