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Are We Entering a Migration Fuelled Undersupplied Housing Market Again?

 

Australia is a high-migration nation with people-power generating economic activity and diversity over the longer term.

But Covid related border closures predictably placed a lengthy halt to international migration, with severe lockdown restrictions also activating extraordinary shifts in interstate migration patterns – what were the changes, and what lies ahead?

Although the suspension of international migration had no perceptible short-term impact on housing market activity generally, radical changes to interstate migration levels clearly impacted housing demand and home prices in some markets.

Record net migration from 2014 to 2018 in Victoria and New South Wales was a significant contributor to booming house prices in Melbourne and Sydney through that period, and also a catalyst for surging new home development - particularly units (apartment developments).

The closure of international borders in 2020 and 2021 as a response to the covid pandemic halted overseas migration to the lowest levels seen in over 50 years (for the first time since WWII we saw net losses in population), however the re-opening of borders in 2022 has resulted in an unprecedented wave of new settlers with a massive backlog of pent up demand – the biggest influx coming from India, China, Nepal and The Philippines (in that order).

The government has committed to Australia’s immediate return as a high-migration nation, with a target of 195,000 new entrants set for the 2022-23 financial year, and the expectation is for international net migration to exceed 220,000 in the following year based on a huge backlog of migrant applications. 

Although a surge in new workers will be welcomed by a labour market with record low monthly jobless rates generating skill shortages, higher demand for housing will clearly place upward pressure on house prices and rents within already chronically undersupplied housing markets. In the short term, rising immigration is likely to have the biggest impact on rents as most migrants tend to lease rather than buy property in their first 1-3 years while they transition through the settlement period.

And the prospect of matching housing supply with demand in the foreseeable future remains remote at best given Australia’s systemic barriers to new housing development - and regardless of governments’ best intentions as announced in the Federal budget “housing accord”.

 

ABS Annual Net Migration

 

The other factor at play when it comes to migration impacts is that of inter-state migration. Although the reopening of Australia’s borders and the resumption of mass-migration is set to impact housing market activity across the board, shifts in interstate migration activated as a consequence of covid lockdown polices have already significantly impacted local markets.

Severe lockdowns in Melbourne and Sydney through 2020 and 2021 created a wave of covid refugees into Queensland seeking a perceived safe-haven and less restricted lifestyle – as seen in the chart below.

 

ABS Annual Net Interstate Migration

Surging demand for accommodation from interstate migrants contributed to booming house prices and rents in Brisbane and the Gold Coast through 2021 and into 2022. Higher levels of interstate migration also contributed to higher home prices in Adelaide and Perth through the Covid lockdown period.

 

ABS Net Quarter Interstate Migration

Although the latest data from ABS reveals a slowdown in record interstate migration into Queensland, levels clearly remain elevated and reaffirm the positive prospects, particularly for southeast Queensland housing markets.

If Australia is going to keep pace with rising immigration levels into 2023 and beyond, which are inevitable and planned, then the housing market will rely on a surge in new developments across the major capital cities. However, with the construction industry constrained and at near capacity, it is hard to see anything but an undersupplied housing market for several years to come – putting increased pressure once again on housing prices and affordability.

 

Dr Andrew Wilson - Chief Economist My Housing Market 

 

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Published on 5th of January 2023 by Dr Andrew Wilson
Dr Andrew Wilson
Dr Andrew Wilson

Dr Andrew Wilson is Chief Economist for My Housing Market. He provides comprehensive property market intelligence and holds a PhD and Masters by Research each in Housing Market Economics together with graduate qualifications in Econometrics and Construction Economics. Formally Chief Economist of Domain, he is also one of Australia’s highest profile property market commentators.

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