UBS: Immigration to 100 year lows as all visas crash

Magnificent! Via UBS:

Government suggests ~330k less migrants than expected in the next 18 months
With reports suggesting over 300k tourists and temporary residents had already departed Australia by mid-April, and expectations that perhaps another 300k may leave by the end of 2020, a collapse in Australian net overseas migration (NOM) and visitor arrivals is inevitable. Indeed the Government’s own expectation is NOM declines very sharply, from the FY19 level of 240k, by more than 30% in FY20, with an 85% fall in FY21. Compared with the 2019 Commonwealth Budget assumption, this would represent a shortfall of ~330k (or 1.3% of the total population).

UBS see population growth slowing to ~0.5% y/y in 2020, slowest since 1916
Our detailed bottom up modelling suggests NOM is likely to turn negative from Q2-20, probably until Q4-20, albeit ‘official’ population data may not report this ‘reality’ until 2021 (because of the lags in reporting and measurement where NOM includes anyone in Australia for 12 out of the last 16 months). Much of this fall is driven by a collapse in temporary visitor arrivals (given travel restrictions), as well as lower student and working visas; which is only partly offset by an increase in Australian’s returning home. From early 2021, we expect a gradual normalisation of migration flows, with a short-term spike in permanent arrivals – largely as a catch-up for those granted permanent visas that again become able to travel. This would see NOM in CY20 fall by ~20k, a record low, and the first fall in the data. However, this could rebound up to ~200k by the end of 2021, assuming borders are largely re-opened by the end of this year. This would see population growth slow from a strong ~1½% y/y in recent years, to just ~0.5% y/y in 2020 – the lowest since 1916; before lifting to ~1.3% y/y by the end of 2021. However, there are significant risks in both directions around these forecasts, given the uncertainty of: 1) when travel restrictions will be eased; 2) Government policy on the migration intake, amid very high unemployment ahead; and 3) if behaviour (i.e. demand) of foreigners to migrate changes. That said, in the medium-to-longer term, we think this crisis will likely see Australia remain an attractive destination for migrants – given the better health outcomes of far lower COVID infection and death rates than most overseas countries – and Australia could see surprisingly strong migration ahead.

Short-term arrivals to drop ~75% in 2020, with 2021 still 40% below 2019 level
Based on UBS forecasts for airline capacity, we estimate short-term arrivals will collapse ~75% in 2020, & remain ~40% below the 2019 level until the end of 2021. This is a huge challenge for tourism, which is ~8% of GDP. But, it’s not all negative. Australia’s COVID-19 containment means it is likely that domestic travel will be permitted well before international travel. Given Australians spend ~50% more on overseas travel than non-residents spend in Australia, there is some offset from domestic substitution. Further, while we expect domestic air travel will remain subdued for some time, there is likely to be a rise in local tourism (i.e. road trips) once mobility restrictions are lifted.

Underlying housing demand drops from ~200k to ~130k; starts fall even more
This fall in migration also sees our estimate of underlying housing demand fall sharply from ~200k before, to only ~130k in the near term – albeit before recovering towards 190k by the end of 2022. This will cause downward pressure on house prices, which we expect to drop by ~10%; and trigger (along with weaker income and uncertainty) a slump of dwelling commencements to <100k in coming quarters, and 120k in CY20. Lower migration adds to the downward pressure on rents from the slump in short-term visitors. But, we see housing undersupply re-emerging next year, and assuming more direct housing stimulus policy, we see a recovery in commencements to ~170k in 2021.

Bravo! As the economy rebounds out of the virus bust, that will give wages some hope of rebounding with it.

David Llewellyn-Smith

Comments

    • Andy McPherson

      No not really. It will bounce back, and bounce back with a vengence.

      Covid-19/20 is going to hit India really hard, and there will be hordes of desperate people wanting to get out at any cost.

      Those already in Australia will be bringing in granny on a tourist visa as soon as the gates open again.

      • And granny ends up in ER as they don’t have health or travel insurance.

        Should be a requirement to have Australian health insurance non-refundable for tourist visa for those on Indian et al passports. Scrap longer term tourist visas.

  1. adelaide_economistMEMBER

    The irony of the push to open up international borders (for foreign ‘students’ in particular) is that it strongly increases the odds of a second-round rebound in virus cases which will put the brakes on everything again. It’s embarrassing that despite the costs of ‘lockdowns’ versus the questionable benefits of ‘students’ they are still pushing this because of their lobbyist donors.

    • second wave is inevitable due to season change
      being able to blame foreign students would be a preferred option for some

      BTW.
      14 day quarantine is 98.9% efficient (~1.1% of people have incubation period longer than 14 days). On every 1000 recently infected arrivals (those who catch infection just prior or during travel on airports and airplanes) 11 will become infectious only after the quarantine

  2. Why should immigration even have to rebound at all for our economy to recover ?

    The government and RBA have now made it abundantly clear that they can engineer a floor to support the unemployed and low income earners, and concede that inflation will not be a problem for many years.

    They should put this newly discovered power (/sarc) to good use and undertake a massive multi-decade investment program into infrastructure, which puts trades to work away from building dog boxes, into something more long-term productive.

    If a bit of deflation fighting is necessary in five or so years, then increase skilled immigration as we need it.

    Because we sure as hell don’t actually need any of it right now.

    • inflation will not be a problem

      ever. Look at Japan.

      undertake a massive multi-decade investment program into infrastructure, which puts trades to work away from building dog boxes, into something more long-term productive.

      Yep.

    • In short term permanent immigration, which is modest, does not have a clear effect (keeps permanent population median age moderate), but temporary immigration i.e. churn over of students, backpackers, workers, long term visitors etc does by paying taxes, and in case of students, education is like elsewhere a significant industry (subsidising domestics while govts. contribute less due to more future outlays and/or lower taxes for e.g. retirees)

      To support the economy and especially services for more retirees, whom are mostly not paying tax but accessing services, there needs to be a tax base to support budgets with a proportional decline in permanent working age population.

      Temporary churn over far outnumbers permanent immigration (<0.5% of population) and are net financial contributors to the budget.

      Simple solution, increase taxes, but political suicide when most Australians would chew through their own (or preferably somebody else's) elbow to receive a tax break equivalent of a cup of coffee per week….. which keeps the LNP in power.

    • Make carbon farming truly profitable. The most effective way to beat global warming is by getting more carbon into the ground, and farmers and foresters won’t go there en masse unless it is profitable. And for most of them it’s not due to government inaction.

    • So 300,000 less immigrants come into the country but but housing demand only go down 80,000. I think demand will drop more as kids put of moving out and boomers who are moving towards 75 years old start exiting the market.

      • Maybe you’re right. ….But remember how quickly the wick can be turned up on migration, and how slowly it gets turned up on construction.

        Also remember how we are starting from a position of shortage – we have to build surplus dwellings just to catch up for the previous decades of migration.

        This has the makings of a potential housing disaster.

          • Feel free to celebrate victory if you like.

            I remember how that turned out for you in 2019.

          • Nope. Not in the habit of celebrating prematurely like you do and then sit on the fence.

          • While they remain empty, they contribute to the shortage.

            While they remain empty, they may as well not exist.

            What if we had another 800,000 or 2,000,000 empty dwellings, permanently locked up?

            Would that make you feel better about 30yo workers having to share apartments?

          • billygoatMEMBER

            @ Peachy
            That’s 30 40 50 something workers sharing houses with each other, with furr reign students, with backpackers and special visa mob … this is Anglo folk … for sure vy brants share from teens to 90’s in share housing / share rooms.
            Rental desperation does not discriminate against age, work or visa or resident status.
            We’re all sharing the landlords debt obligations or avarice if they purchased 30 years ago and own outright.
            Renting is the real deal if ‘sharing economy’

      • I’d agree, too modest, numbers of students and other temps will plummet, hitting apt. (and rental house) property investors big time, throughout year taking into account mortgage payment deferments and investors losing employment (wait till final quarter).

        Data issue too, relying upon CoreLogic and apt. developers who seem able to keep many (closed) developments, outside the data (presumably because it would drag down median prices); and don’t forget the domino or flow on effect to other parts of the economy, not just education.

        Good news is, like former AIR BnBs hitting long term rental (and probably property market) will be buying opportunities galore through the year, next year….. including houses, 25% drop?

        How will banks recoup (future) income streams? Squeezing existing and future borrowers……. then before you know it the next big speed bump, last of the oldies in their houses popping their clogs followed swiftly by the top end of the baby boomer bubble…. all downhill from here.

    • our population growth was around 300k per year and our average household size is almost constant at around 2.6 which means
      that our real housing demand has been around 115k new dwellings.
      That’s how many dwellings are needed for people to live in. there is some additional demand for second and holiday homes but that’s going to disappear even more quickly.

      Over the last 5-6 years we build 650k extra dwellings that are not required – always empty or almost always empty. And with the slump in AirBnB kind of business now definitely vacant and turning into potential PPORs.

      looks like even if we stop building anything and we continue seeing immigrants there is going to be enough homes for 5 years. With no immigrants and unemployment among young (young staying with parents) we are likely to have enough homes for a decade.

      • Display NameMEMBER

        Thats not far from my calc. But the first thing Nev reached for in his role as Coivd Commissioner was more students. Pump the ponzi at all costs.

  3. I am planning on TPTB going back to our previous broken model of migrants to the the moon along with construction etc asap. If they don’t manage mortgage stress with the banks correctly then we may have a short, sharp nominal housing price correction but I don’t expect it to last for longer than 6-12 months. This is my base case, and obviously not what I want but I think it is prudent to prepare for it. Therefore I need to get my butt into gear and do all my potential home buying research in advance as I think the window of getting something at a slightly better level of affordability will be short in duration.

    I think then might we get our last blow off top where we suck in a final bunch of migrants and FHBs and give downsizers one last opportunity to get out (who knows if they’ll take it) and then the crash is on. So maybe those property cyclical believers will be right with their mid 2020s crash. I really want the crash to be now, and I think it should be, but I have to acknowledge it might not be. Time will tell.

  4. “But, we see housing undersupply re-emerging next year, and assuming more direct housing stimulus policy, we see a recovery in commencements to ~170k in 2021.”

    Aussie housing must be the most awesome asset class ever conceived. $200B in non performing loans and housing supply is a problem as millions of people move back in with their parents.

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