Dispelling some migration housing market myths

It’s long been viewed that increased net migration is the biggest driver of rising house prices and rents. CoreLogic’s Eliza Owen looks to unpack the finer details of that relationship.

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Perhaps Australia’s worst kept secret is the multifaceted housing woes currently plaguing the country. After a brief lull last year, house prices have shot up 7.2 per cent in the last 12 months, with rents rising 6 per cent in that period, leaving many prospective buyers and tenants feeling disenfranchised with the nation’s housing market.

“Heated discussions around migration are drawing more focus as housing affordability worsens,” Ms Owen explained. “But there are many other factors driving values and the rental market.

In her belief, “long-term strategic migration policy should not be influenced by short-term volatility in migration and property markets”.

In response to rising tensions around the increased migration’s property market impacts, Ms Owen has unpacked five key insights that provide further context to the relationship between migration and Australia’s housing market.


Migrants flock to the rental market, at least initially

Migrants target rentals, at least in the short-term anyway. Data from the Australian Bureau of Statistics (ABS) indicated 61 per cent of migrant arrivals in the five years to 2021 were renters.

Home ownership rates, as a result, are higher in migrants who have been in the country longer, Ms Owen noted.

“As of 2021, this included 55.6 per cent of arrivals between 2012 and 2016, and 70.6 per cent of migrant arrivals before 2012,” she said. For arrivals between 2017 and 2021, this portion of home owners drops to 38.3 per cent.

Among temporary migrants, nearly 70 per cent of this cohort aged older then 15 were renters in 2021, including 91.6 per cent of temporary skilled visa holders, and 83.5 per cent of student visa holders.

Today’s migration boom is because of yesteryear’s restrictions

Remember that little old thing, COVID-19, and the locks it placed on our borders? Between March 2020 and July 2022, Australia’s borders were either fully or partially closed to non-citizen and non-resident arrivals.

Barely one year on from borders reopening, in March 2023, and Australia’s annual population growth hit 2.71 per cent, its highest level since 2008. On top of this, 454,000 new additions to Australia’s population in the past 12 months means the nation’s net overseas migration is at record annual highs.

For context, the pre-COVID-19 decade average of annual net overseas arrivals was 217,000. Ms Owen detailed how this mass influx of new arrivals is impacting the already stretched Australian property market.

“Assuming the average household size of 2.49 people per dwelling in January this year, the year to March would have seen demand for around 182,000 additional dwellings, in a year when around 175,000 dwellings were completed,” she explained.

“That’s not to mention new household formation domestically, as young Australians move out, buy first homes, or start their own families,” Ms Owen added.

Australia’s rising net migration in the last year hasn’t solely been down to a surge of arrivals following the lifting of the COVID-19 enforced travel ban, with overseas departures down 22 per cent on the historic five-year average.

While it may seem hard to believe given the current trendline, Ms Owen stressed the “strong spike in migration this year will normalise in time and should not be an influence on long-term migration policies”.

How the COVID-19 migration ban impacted the rental market

“A temporary cap on migration may relieve housing demand in the short run,” Ms Owen said, adding “COVID-19 has already demonstrated the longer-term issues with temporary migration caps”.

In short, this is because “housing demand is more liquid than housing supply”, resulting in the “reopening of international borders creating a demand shock, which quickly pushed up rents and worsened an already tight rental market”.

This demand surge occurred against a backdrop of limited new available supply, with sellers hesitant due to rising interest rates and new home completions were stymied by rising material costs and persistent labour shortages.

As such, regions historically attractive to incoming migration such as Melbourne’s southeast and Sydney’s Parramatta and inner southwest saw rents average 18 per cent growth and between July 2022 and October 2023, amongst the strongest figures reported.

This starkly contrasts trends earlier in the pandemic when “some markets with high exposure to overseas migration also saw a sharp drop in rent values at the onset of the pandemic”.

Indicating this point, Melbourne’s inner region reported a 1.1 per cent rent rise between March 2020 and July 2022, far below the national average 16.4 per cent recorded during that period.

However, while there remains a strong link between migration and short-term rent rises, Ms Owen noted “longer term growth in rent values is actually far less correlated with overseas migration”.

Instead, she explained: “Longer-term increases in rents are in resource-based markets and Perth, which has also been subject to volatile economic conditions and housing demand.”

“High overseas migration markets, meanwhile, have had more moderate rental growth in the past five years of between 20 per cent and 30 per cent,” she added.

Ms Owen shared reasons why this is the case, including the fact the onset of COVID-19 border closes “saw a negative demand shock to these markets initially”, as well as the fact high migration markets often attract higher concentrations of new, high-density development, leading to relatively lower rental growth over time.

In her view, introducing strict migration caps could “reduce incentives for investment housing in these markets longer term, which again could create a demand shock if those caps are lifted”.

Migration is not the only demand-side factor impacting housing costs

A sharp reduction in household sizes during the early days of the pandemic, influenced by people’s desires for more space amid strict lockdown measures, increased dwelling demand by around 120,000 households, even with border closures enforced.

She indicated this trend was “likely enabled by higher household income from government stimulus and low interest rates early in the pandemic, which incentivised people to spend on larger homes”.

Outside of the pandemic, an ageing population and falling marriage rates have been key contributors to reducing the average Australian household size, thus placing further demand-side pressure on the national housing market.

“Private rental market demand has also increased over the decades with falling rates of home ownership and a declining portion of social housing within the housing stock,” she said.

The trade-offs of reducing migration intake

Ms Owen does believe the implementation of long-term targets on temporary and permanent migrations could potentially facilitate greater planning for infrastructure, housing and services.

But, this comes at a cost, with the economic trade-offs of such a scheme being “very complex to implement”.

There is a world where higher levels of skilled migration aid the nation’s current housing shortages, especially if Australia follows the UK’s decision to recently relax visa rules to relieve construction sector shortages.

Similarly, the Western Australian state government this year implemented a grant of up to $10,000 for the settlement of skilled migrants in construction to hopefully inspire increased dwelling completions.

Recently released data from the ABS indicated 71,000 skilled migrants arrived on Australian shores in the 12 months to August, well above the long-term average and a trendline which may boost the productive capacity of Australia’s economy, an important consideration in a high inflation environment.

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