Travel restrictions have simply become a way of life for Australians as we approach our seven-month milestone of lockdown, albeit at varying degrees per state. Both domestically and internationally, we have experienced the ripple effects resulting from the global pandemic; no planes in the sky being one of the more obvious. Although not all of us will feel the impact at first, one of the legacies of COVID-19 will be its effect on immigration.
Recent forecasts from Treasury indicate annual population growth across Australia is set to slow from around 1.4 per cent, pre-COVID, to 0.6 per cent – that’s a 56 percent reduction compared to 2019.
The forecast decline in net overseas migration is one of the most significant disruptors to the housing market, however it’s likely to present in the form of weaker rental demand rather than fewer established home sales.
What’s driving these changes?
A majority of people migrating to Australia will rent, either long or short term, so when migration is halved, the impact is most felt in the rental market.
Roughly 70 per cent of those arriving in Australia are on temporary visas, most of whom are classified as students or visitors.
Additionally, 85 per cent of incoming skilled migrants were renters and around 80 per cent of those arriving on humanitarian grounds are also renters.
Fewer people leads to less demand which invariably results in oversupply.
Which cities will be hardest hit?
Geographically, stalled net overseas migration (NOM) will be felt across Melbourne and Sydney the most owing to the fact that a staggering 84 per cent of all overseas migration flowed into these capital cities last year.
And where do you stay when you visit or move to a city for the first time?
The impact of the sharp fall in overseas arrivals can already be seen in surging inner city rental advertisements with the volume of rental listings more than doubling across some key inner-city unit precincts.
Southbank and Melbourne CBD listings have more than doubled while Sydney, Haymarket and The Rocks have an increase in listings over 110 percent.
The knock on effect of this is that average rent prices have decreased by 4 per cent in the Melbourne and Sydney CBD as city dwellers vacate their rental apartments and take up work or study from home options in less expensive suburbs or regional areas.
Other property market impacts from weakening immigration
If you’re shopping around for an apartment or unit, you’re in luck since recent trends suggest a higher proportion of units will settle with a valuation lower than the contract price and become forced sales. Plus, many apartment buildings are predominantly owned by investors who may not have any rental income, and some will choose to sell.
The residential construction sector is likely to face challenges due to reduced demand (hence the Home Builder scheme), although this impact will be uneven. Demand for ‘investor grade’ unit projects is likely to remain low for an extended period. However, 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 affected.
We also expect ‘house and land’ regions will be stagnant markets (for property growth and rental) for some time, as the new build stimulus has inflated land prices, combined with these regions being a hunting ground for investors due to new build tax benefits. So, with less renters and premiums being paid by current buyers, this could create a slippery slope for prices.
There are few things we can take from this
It’s important to remember that, like all things, our current situation will pass. We will not be in lockdown forever and while we may never go back to the way we used to be, as positive COVID cases drop and Australia’s restrictions ease, the market looks set to have a terrific comeback this Spring.