27/11/2020 - 13:38

A delicate balance: the impact of migration trends on the property industry

27/11/2020 - 13:38


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Image credit: Austin Kehmeier

From November, new Australians will face an updated citizenship test answering questions on their knowledge of our country’s core values - including freedom of speech, religion and association.

This change comes at a time where Australia would arguably benefit from encouraging migration and citizenship. Immigrants are likelier than the native-born to start their own business, and create demand for goods and services while adding to the supply of labour. More specifically, population growth has been a crucial ingredient in the success of property investment. Steady demand for housing – and demand that can be accurately forecast – means the residential sector is underpinned by stability.


Australia’s Population Growth Leans on Migration

Australia’s population has two avenues of growth: internal changes in the population called natural increase (births minus deaths), or net overseas migration (arrivals to Australia minus departures). Over the past decade, the nation’s permanent population has grown by 3.7 million to more than 25 million. Over 2.2 million of this growth is due to net overseas migration.

While Australians are living longer, falling fertility rates have triggered a decline in the contribution of natural increase to population growth, with the average fertility rate of 1.69 babies per woman projected for 2019-2024 the lowest level on record.

Population has historically been growing by 400,000 a year, with net overseas migration representing about 250,000 of this. However, July’s fiscal update reforecast this figure to plunge from 154,000 in 2019-20 to just 31,000 in 2020-21. This decline is now seen to be likely to be even steeper with the October 2020 Federal budget, seeing net overseas migration in 2020-21 forecast to be a negative outflow of 72,000 people.

Considering such staggering falls, the Federal and State governments should prioritise strategies to encourage overseas migrants and students to keep coming. For example, the 3,000 bed Howard Springs quarantine facility in the Northern Territory, which will be used for the next wave of returning Australians, may make an excellent facility to keep migrants and students flowing in.


Migration Drives Housing Demand

Every year, Australia needs around 175,000 new dwellings to satisfy underlying demand. The loss of immigration reduces this by about 100,000 houses a year, so with no return to prior migration levels, a new normal might be only 75,000 new dwellings.

A factor in Australia’s development has been the level of urbanisation in major cities. In 1911, the eight Australian capital cities accounted for nearly 40 per cent of the population and by 1944 more than half. Now, the eight capital cities account for over two-thirds of the population.

By 2027, Sydney’s population is projected to reach 6.4 million. Melbourne is projected to be Australia’s fastest growing city, increasing its population by 2027 to 6.3 million and overtaking Sydney as the most populous Australian city by 2037.

Migration is a demand driven system; migrants will come if there are employers who will employ them. But it is also a pro-cyclical phenomenon, being high during periods of strong economic growth in the destination country. When there is an eco­nomic downturn, demand for overseas skills falls.

Further, the migration process is competitive between countries. When assessing where to live, migrants assess not only the ease of migrating but also how they may be treated after arrival. For example, in Australia temporary migrants pay taxes but do not receive welfare benefits, putting it on the back foot against the United Kingdom, Can­ada, France and New Zealand, which have all extended welfare support to temporary migrants.

Government decisions can change the attractiveness of a destination.

The United States has recently suspended all new H1B (temporary skilled work) visas, which has effectively invalidated international student visas throughout COVID-19 lockdowns by determining that online study does not meet the requirements for studying. Such new measures have had devastating consequences for the lives of temporary skilled workers and international students in America.

However, this does provide Australia the opportunity to market itself as an attractive destination for prospective international students. The Western Australian Labor Government’s reversal of its 2017 decision to remove the state from the Regional Sponsored Migration Scheme this year recognises this, once again encouraging international students to choose Perth by providing a two-year post-study working visa, increasing their chances of gaining permanent residency and in gaining professional work.

Students are essential since international education is Australia’s largest service export, contributing $37.6 billion to the Australian economy last year and supporting 240,000 jobs. Opening ourselves up to international students again will slow the negative effects on universities and sustain Australia’s reputation as a desirable place to study.

In light of this delicate situation, property financiers like Dorado Property must assess future opportunities through the lens of how they would be affected by low levels of migration and the withdrawal of government stimulus. In cities like Perth and Darwin, house prices are emerging from years of falls and stagnation so momentum should insulate those local markets from shocks. Canberra remains protected by its persistent public service sector. However, particularly in Sydney and Melbourne there is a need for careful analysis.


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