Sydney, Melbourne people flood to flow to Brisvegas?

An interesting argument today from Macquarie:

Event

 We think that Queensland could be on the cusp of a major lift in interstate migration from New South Wales and Victoria over the next few years. Impact  An additional 20-25k net interstate migrants per annum could shift the dynamics in Queensland’s economy and residential construction sector, which is currently a subject of some concern given a large dwelling supply pipeline.

Outlook

 House price differentials between Australia’s major East coast capitals have reached the point where historically, multi-year net migrations from South (NSW & Victoria) to North (into Queensland) have kicked off.  We estimate that the median Sydney house could purchase ~2.2x the median Brisbane house, and the median Melbourne house could buy ~1.5 Brisbane houses (see Figure 1). Divergences at these levels have not persisted.

 Population flows have tended to follow these periods of price divergence. Outside of the recent mining boom period, strong interstate migration inflows have boosted Queensland’s population growth, providing a major driver for the Queensland economy’s growth outperformance relative to other states.

 Housing demand impact: A pickup in net interstate migration flows over the period ahead would provide a significant boost to Queensland housing demand. At 2.5 persons per household, an additional 20-25k interstate migrants could boost housing demand by 8-10k dwellings per annum.

 Easing Queensland oversupply concerns: Queensland currently has ~68k dwellings under construction, and annual dwelling completions rose to 42k in 3Q16. However, Queensland’s population rose by just 65k (1.4%) in 2015/16. Strong dwelling supply and below-average population growth saw Queensland’s dwelling intensity fall over the past 2½ years (see Figure 7), weighing on both prices and rents. The additional population boost from net migration could realign Queensland’s dwelling supply-demand balance, and significantly alleviate excess supply concerns.

 Macro prudential & rates impact: Conditions in pockets of Sydney and Melbourne’s housing markets have raised financial stability concerns, and the potential need for a further tightening of regulatory constraints. Additionally, the focus on Sydney and Melbourne house price developments, whilst prices elsewhere have remained contained, has diminished perceptions around the RBA’s degree of monetary policy flexibility. A reversion in net interstate migration flows is an alternative outlet through which Sydney and Melbourne price pressures might ease.

 Implications: Stronger interstate migration could deliver a much more constructive outlook for resi participants (builders & developers) with Queensland exposures. Firmer supply and potential for an improved market balance could reduce the risks for regionally exposed lenders (e.g. regional banks). Diminished downside risks for regional property prices could reduce any drag on regionally exposed REITs.

 A pickup in net interstate migration may ‘kill two birds with one stone’ for the RBA and APRA. Periods of net interstate migration outflows from NSW and Victoria (see Figure 3) have, historically, been associated with a stabilisation of real house prices in Sydney and Melbourne.

 Thanks to strong population growth overall, supported by net overseas migration inflows, regular house price adjustments in Sydney and Melbourne house prices – in real terms – have occurred slowly, over drawn out periods (see Figure 9). Taking some of the heat out of Sydney and Melbourne housing market this would be welcome from a regulatory perspective. But it would also provide a degree of comfort around current Queensland ‘oversupply’ concerns.

Not unconvincing. My only point to add is 20-25k folks heading north would not take much pressure off the southern cities. Still, this is part of what happened post 2003 when Sydney property went bust but the bubble went national. Having said that, back then we had a mining boom tailwind and interest rate rises not today’s wrenching income bust and free money.

Moreover, a flood of people right now into QLD is going to put One Nation into power in that state and it will build a wall between itself and Mexico (only half joking). It will mean rapidly intensifying political fallout aimed at cutting immigration.