Lower immigration will smash Aussie property

Shane Oliver – chief economist at AMP Capital – believes that significantly lower immigration arising from the COVID-19 pandemic will weigh on Australia’s property market for years and could ultimately solve Australia’s chronic housing affordability problem:

The coronavirus shock… has brought lots of pain and suffering on a human level but also on an economic level. And it has caused much disruption to the property market in the short term with more likely to come. But it may have a lasting positive legacy in relation to property – that is more affordable housing in Australia…

Since 2006, annual population growth averaged about 150,000 people above what it was over the decade to the mid-2000s. This required the supply of an extra 50,000 new homes per year. See the next chart. Unfortunately, this was slow in coming. But with an insufficient supply response to surging demand, prices were able to stay elevated. And so poor housing affordability got locked in…

The coronavirus shock has the potential to change this dynamic of cyclical fluctuations around ongoing poor affordability… We now see average capital city prices falling 10-15% from their April high out to mid-next year with Melbourne most at risk and likely to see a 15-20% decline.

…immigration has been a big driver of property prices and it’s taken a huge hit and may take a long while to recover. Thanks to travel bans, net immigration is likely to have fallen to just below 170,000 in 2019-20 and to around 35,000 this financial year from 240,000 last financial year. This is a huge hit which will take population growth in 2020-21 to just 0.7%, its lowest since 1917. See next chart.This will reduce annual underlying demand for homes to around 120,000 dwellings, compared to underlying demand last year of around 200,000. This could result in a significant oversupply of dwellings, and in turn could reverse the years of undersupply that has maintained very high house prices since mid-last decade. (See the population versus dwelling completions chart above.)..

But with unemployment likely to remain high for some time, it will be hard politically for the Government to quickly ramp up immigration to previous levels, even once it is safe to do so from a coronavirus perspective. After the early 1990s recession net immigration stayed low at around 90,000 pa until the mid-2000s. All of which points to a long period of constrained housing demand and hence more constrained house prices…

We are still fighting the war against coronavirus but it’s likely, as we have seen with various shocks in the past, we will get over it, and go back to something more normal. But not everything will go back to normal. A lasting impact could be more affordable housing in Australia. It’s not our base case that this will come in the form of a property crash (and that would be a bad outcome for the economy anyway via negative wealth effects) but it could come in the form of much softer property price gains over time (after the initial hit into next year).

Let’s be honest. Australia’s housing affordability problem is really a Sydney and Melbourne issue. These are by far Australia’s most expensive cities and they, unsurprisingly, have also been the key destinations for migrants (2018-19 net overseas migration shown below):

It stands to reason, then, that property prices in these two cities stand to lose the most value from lower immigration, especially given the strong pipeline of supply yet to come online:

As an aside, it is interesting to watch the narrative around immigration’s impact on property prices shift.

For years the property lobby told us that mass immigration was not a driver of Australia’s unaffordable housing.

But now that immigration is collapsing, we are frequently being warned that Australia’s property market faces decimation.

Finally, the truth is revealed.

Leith van Onselen
Latest posts by Leith van Onselen (see all)

Comments

  1. “For years the property lobby told us that mass immigration was not a driver of Australia’s unaffordable housing. But now that immigration is collapsing, we are frequently being warned that Australia’s property market faces decimation.”

    Not just the property lobby. Politicians of all persuasions either refused to talk about the link between high immigration and the housing affordability crisis or outright denied it. And don’t forget the mainstream media who have consistently buried the issue or shamelessly peddled pro-Big Australia propaganda. The ABC’s one-sided coverage of immigration and population issues is particularly egregious. (Sustainability advocate Dr Peter Cook picked apart some its dodgy reporting in an official complaint here: https://www.peakdecisions.org/the-abc-population-growth-and-a-big-australia-official-complaint/)

    In terms of the housing affordability problem really being a Sydney and Melbourne issue, I would agree up to a point. While nowhere near as horrendous as those two big cities, I’ve noticed that housing costs in Tasmania and even Adelaide are now completely out of whack with wages. Tasmania in particular seems to have experienced a ‘boom’ in housing costs – and nothing else. A real tragedy for younger Tasmanians.

    • I am now old and as impotent as the Special Commission of Inquiry into the “Ruby Princess”. But if I were a man of your stature and intellect, I wouldn’t wait for the housing bust. Borrow now as much as allowed and make a generous offer to secure your dream Tassie home! It does not matter what you pay today – it won’t make a difference in a decade or two.

      • Totes BeWokeMEMBER

        You keep saying that.

        If Australia has to reset and actually work for our money, and that’s looking ominous, it’s going down a long way, and won’t be back at these prices for many decades.
        You’d be better off in stocks while renting.

        Down side is massive, upside is more fantasy.

        The key is young Australians recognising the scam and voting against immigration. That’s the game changer.

      • “Don’t worry about all the naysayers, here’s a blindfold, go walk into that slaughterhouse, it’ll all be okay soon”

    • “A real tragedy for young Tasmanians”

      Yes, and as soon as its borders open to the mainland, expect a stampede to buy up the one still viable piece of Straya left.

    • I think now is the time that the folks that want lower immigration need to agree that immigration has no impact on property prices.

      Make the property lobby own the old lie – we don’t want the taps turned on just to save property!

      • Totes BeWokeMEMBER

        Trouble is there’s no one to call it out.

        They’re all in on it; media, LNP, Labor, Greens, elite influencers.

  2. “For years the property lobby told us that mass immigration was not a driver of Australia’s unaffordable housing…But now that immigration is collapsing, we are frequently being warned that Australia’s property market faces decimation.”

    We were also told that our future was that of a service economy and that we should give away our manufacturing industry. And what did happen to those mining boom profits we were going to future-proof ourselves with? Moreover, what are we to do with a tertiary education business set up as degree mills rather than centres for innovation? How’s that cosy Chinese economic future looking for Chairman Dan?

    The comprehensive failure of the neoliberal vision and labour movement sell out is matched only by the lack of political ideas to re-invent Australia. None of the major parties are capable of new ideas, so strongly have they anchored themselves to the mantras of the 30 year Australian Dark Age of Economic Delusion.

    It began with Bob Hawke’s accord, assault on unions and gift of neoliberalism. The truth is that the ALP sowed the seeds for this over 30 years ago and allowed Howard to grab the ball and run it all the way to the dressing rooms. Their crystal ball was wrong about China, wrong about neoliberalism and wrong about industry and education. It was comprehensively wrong about trickle-down economics and deluded about the privatisation of public services and assets.

    This economic and social ruin is a monument to a two-party system becoming a one-party system that represents only one class of people. It is about to become a nasty sectarian brawl as the divisions that have been built into our society now run deep and have no political solution. Only a common purpose, unity as Australians with a common vision and a renewed egalitarianism will save us. See anyone in the LNP, ALP or Greens up to that task? I don’t.

    Percy Shelley’s “Ozymandias”

    I met a traveller from an antique land
    Who said: Two vast and trunkless legs of stone
    Stand in the desert. Near them, on the sand,
    Half sunk, a shattered visage lies, whose frown,
    And wrinkled lip, and sneer of cold command,
    Tell that its sculptor well those passions read
    Which yet survive, stamped on these lifeless things,
    The hand that mocked them and the heart that fed:
    And on the pedestal these words appear:
    ‘My name is Ozymandias, king of kings:
    Look on my works, ye Mighty, and despair!’
    Nothing beside remains. Round the decay
    Of that colossal wreck, boundless and bare
    The lone and level sands stretch far away.

    • Diverse societies are incompatible with “egalitarian visions”.
      (They can be promised, just never delivered, instead giving over to rorts and cheating, that is, if they can even get through division to the implementation phase).

      So we just have a mucky fight for $, with success coming from whose hands you can grease. Just like the rest of Asia our masters were so determined we should become.

      • “Diverse societies are incompatible with “egalitarian visions”.”

        As Niall Ferguson observed: ‘Many, especially on the centre-left, want to have both open borders and welfare states. But the evidence suggests that it is hard to be Denmark with a multicultural society. The lack of social solidarity makes high levels of taxation and redistribution unsustainable.”

        • If you have open borders your welfare state collapses under the weight of the invaders who consume but don’t contribute. Think of all the elderly Chinese and Indians soaking up Medicare services without ever having paid any tax to support it.

          The use of infrastructure by immigrants who never paid to build it is one of the greatest crimes against Australian society ever perpetrated, and it goes entirely unreported in the MSM.

        • As Niall Ferguson observed: ‘Many, especially on the centre-left, want to have both open borders and welfare states.

          Who are these “many” ? Can we get some examples of them having advocated “open borders” (ie: zero border control, no immigration laws, implicitly no concept of citizenship or the nation state) ?

          Cuz I’ve bumped into the odd one here and there, but calling them “many” – especially in the context of actual real-life influence – is absurd. Most of them are – as one would expect – Libertarians, and generally not people of “the left”.

          • The entire suburb of North Fitzroy and of course the ABC and SBS. Immigration and parsimony for the welfare state doesn’t feature highly.

            Come to Melbourne away from the safety of Queensland smithy and you will see the demise of Australia in all its glory. You are 30 years behind the times.

      • Stewie GriffinMEMBER

        Yup – Clive has an effective and clear way with words.

        Diversity and egalitarian societies simply don’t work – group population differences ensure that such societies will inevitably stratify into group competency levels, creating resentment due to the false notion that everybody is equal (as opposed to everybody should be treated equally) plus excessive openness/agreeableness leaves society open to social cheating.

    • You put it so well, Clive and I love the poem. So apt for the unfolding tragedy not only of the death of a sustainable, homogenous society at the end of the world, but also of its environment, which as in the poem, will soon become desert from shining sea to shining sea as we complete the paving over what remains of the thin strip of arable land all the way from Warnambool to Cairns.

    • “The truth is that the ALP sowed the seeds for this over 30 years ago and allowed Howard to grab the ball and run it all the way to the dressing rooms”

      So true. I can think back to the LNP in the 90s when Phil Ruddock as Immigration minister would go around the capital cities each year ostensibly to ask for community submissions into the following year’s immigration numbers.

      As a member of the group Sustainable Population Australia we would make a submission every year but were the only community/environmental group to do so. All the others in the room would be big business, which to our representations that water and land would become and issue, blatantly and shamelessly responded with “just put the prices up”. Nobody batted an eye.

    • Totes BeWokeMEMBER

      Now Labor go to the election, offering a token difference of grand fathering NG and a bit of climate policy, and young Australians see Labor’s loss as the missed opportunity of their generation.

      The tragedy is the way young Australians have been brain washed. They’re voting to destroy their own futures.

      • Where’s Albodross? Nowhere.

        Bowen was ok yesterday.

        If I was someone like Clare O’Neill I’d be staking out some territory now.

        • Totes BeWokeMEMBER

          I agree.

          The Labor politicians who break out and demand ffffaaaarrrr lower immigration will be left standing, and potentially become PM.

          The rest will go down in history as the most treasonous politicians this country has ever had.

        • Don’t know how early an election could be held but expect a very early one……..no point voting for Labour until they go to the election with a policy of destroying media concentration here…….why vote for people with no sense of self preservation ?

    • Clive did you right “Growth Delusion” back in the 90s (as well as a lot of other more recent books?)

      If that’s you, thank you. If you’re not that Clive then thank you anyway for such lucid and insightful comments here.

  3. SoCalSurfCreeperMEMBER

    Disagree that the affordability impact is limited to Sydney and Melbourne. The prices I see in many coastal lifestyle markets are inflated by Sydney and Melbourne buyers to the point that they are completely unaffordable to local people living there. The incomes of people in these towns are generally much lower, with the exception of a very small handful of local doctors, solicitors, accountants and a small number of business owners. Although I’m sure all of those have taken a hit as well.

    • Totally agree. The entire country and its fragile environment have been destroyed from this tragic “30 year Australian Dark Age of Economic Delusion” as Clive so brilliantly sums it up.

      RIP Straya

    • billygoatMEMBER

      Agree. In my lifetime you could buy a block at Indented Head block back from beach for 16k. House & land in Melton off high st huge block 28K. Took half a working lifetime to pay off while raising & educating a handful of children;))

      • SoCalSurfCreeperMEMBER

        Many of today’s first home buyers will never pay off their mortgages. With mortgages of 6, 7, 8 times gross incomes the numbers are just so challenging. It will take a lifetime of everything going right to do so. Regular pay increases for both mum and dad. No job losses and unexpected periods of unemployment. No emergencies. Little time off for mum with young kids and only 1, just maybe 2. No going part time to care for aging grandpa. Apart from the ones that will get a decent inheritance the rest will have a lifetime of renting from the bank.

        • Not just that but no significant interest rate drops over the life of the loan to help out either.

  4. Would it be so wrong of me, if I hoped that no covid cure is found before this beast is slain.

      • It would be the only silver lining and I say that as boomer who owns a very modest house in a modest town outright and no magic super either. I see what the country and its people have disintegrated to over the last 3 decades.

        • The 1% have taken over whilst they fed us this SJW propaganda in the media. Both sides of Parliament have been purchased. I am looking for an escape from Melbourne.

    • happy valleyMEMBER

      Yes, it would be wrong of you – like me, you would have some basic decency rather than outright greed, the latter having made Straya the morally bankrupt sh.thole that it is.

    • You aren’t alone in thinking this. I feel exactly the same. This isn’t selfish as it’ll benefit others more than myself.

      I will probably have to change career paths, but it I’ll be worth it to see

    • This disgusting bat flu is doing God’s work.
      Things have dragged on in the wrong direction for so long that I’m cynical even of my cynicism…but I’m cautiously optimistic that this virus will with all of its destruction do some good.
      So far so good…no more coolies for a while at least, no more bs students, housing in flames, our dimwit politicians being exposed as dimwits….The pernicious influence of the CCP being openly challenged.
      What’s not to like?

      • ”our dimwit politicians being exposed as dimwits”
        Not till the Murdoch press says so. Thats how stupid the majority are. They see the PM as having a halo over his foul, arrogant smirking, smarmy head.

  5. happy valleyMEMBER

    “These are by far Australia’s most expensive cities and they, unsurprisingly, have also been the key destinations for migrants …”

    And full of appallingly constructed dogboxes (ghettos in waiting) in turn, inhabited by quite a few unfortunate people who will soon be out of a job if they aren’t already?

    Isn’t Straya something to be really proud of?

    • “But it may have a lasting positive legacy in relation to property – that is more affordable housing in Australia…” No words are surer to strike terror into a grasping Boomer’s heart.

  6. reusachtigeMEMBER

    LOLOLOL. No it won’t. Everyone knows that immigration has no affect on property prices. It’s all about savviness.

  7. BoomToBustMEMBER

    The Australian government will do what it has always done, say one thing do another. Once they can get the borders open again to immigration they will, but it will be quiet and covert and before any is aware the flood gates will be wide open again. The only thing that will stop it is people protesting in the streets, and unfortunately Australians have to much of the “she’ll be right” attitude or unless it directly effects them. In which case they will start a new non-profit organization.

    • They’ll keep protests banned, but bring in ‘students’ to save the higher education sector they just undermined

    • Sort of like ‘Stop the boats’ used to get Abbot in, then front door open to 300k pa and back door closed to a handful. Bogans fell for it and voted LNP, not that Labor was a lot better.

  8. – Of course, the immigration spruikers are right. Immigration didn’t make housing un-affordable. it was rising debt levels that made housing un-affordable. Remember the term “FOMO = Fear of missing out” ? Debt levels grew faster than incomes and then you will see that property prices will also respond.

  9. Is it just me (chorus of MB responses: “it’s just you!”) or was Matt Comyn very straightforward this morning on Kuddles Kelly.

  10. Tiliqua scincoidesMEMBER

    I think it’s safe to say that if current immigration levels do not cause a substantial house price correction then nothing will.

    • Yep, that’s my take too. If this debacle doesn’t kill the housing ponzi then nothing will and this really is the new normal.

      • Tiliqua scincoidesMEMBER

        I suspect we will see moderate, short term corrections only and that we are already in the new normal. It’s more about cheap debt and money supply than immigration and there is no sign that this will change (quite the opposite).

        There is almost zero chance of corrections that result in prices falling to pre 2012 levels – that is what would be required to make housing “affordable”.

        • Agree on the demand side but we are yet to see the impact of historic immigration on the sell side, but we wil.

          • Tiliqua scincoidesMEMBER

            Yes, will be interesting to see how it all unfolds. A spike in forced sales will be required for a material correction. We will have to wait to late this year/early next year to find out.

    • Jumping jack flash

      Immigration is the wrong thing to look at in my opinion. Immigration is essential of course because it effectively solves the problem of debt saturation, but it only really does that, and not a lot more.

      A simple thought experiment where if the banks decided to lower debt eligibility criteria so everyone, existing mortgage or not, could double the amount of debt they were eligible for at the same set of household financials, then prices would most certainly rise, and demand would once again increase, and there would be massive “shortages” as everyone fought over existing stock to buy another couple of IPs.

      Irrespective of immigration.

  11. OfficeboyMEMBER

    why the completion delays/lag from 2006 to 2011 ? Will we get a similar reprieve on the way down parri passu ?

  12. Gonzo Woyzeck47

    Can we please stop using the words “crash”, “smashed”, “bust”, “massive falls”, “plummet” or similar for predicting price adjustments that are next to nothing given the the multiple-x price increases over the last 20 years? I mean, 15% over 12 months are actually nothing. Just saying.

  13. So, now that there is a “hint” of price falls, they change their tune to “immigration is good for house prices”. They know that if they keep singing this song, and as prices continue to slide lower which is unacceptable to most Australians, it wont be long before 90% of Australia is demanding mass immigration immediately.

    • Funny thing is that I don’t think immigration by itself will be enough to save housing. You still that immigration to get jobs and be able to service debt. With the recession there will be less jobs for potential immigrants. You can’t inflate housing just on the rock and roll ….

      • Jumping jack flash

        Agree.
        The availability and eligibility for enormous piles of debt to use to pay the asking prices and above has far more impact than a few immigrants.

        immigrants are essential of course, but if we lowered the debt eligibility criteria bar by 50% then there wouldn’t need to be immigrants because everyone already in Australia will be enjoying their 5th or 6th IP, and once again there wouldn’t be enough houses available to satisfy the new “demand”.

  14. Hobart absorbed less than 2000 migrants in 2018, but house prices were shooting the moon. It was all about investor credit flowing in from VIC and NSW. It doesn’t matter who takes on the debt, as long as it keeps growing.

    • Canberra absorbed around 3000, certainly seems way more than that, these figures must exclude student populations?

  15. Mike Herman TroutMEMBER

    Some anecdata for yous all: Sydney based national property consultant I work with has never been busier. There was a lull during the initial lockdown period but demand ex Melbourne has increased since then. He said that most people outside of Melbourne and Sydney are BAU and many see the recent mild drop as a good time to get in. He did quote CoreLogic price indicators (I almost asked about SQM but didn’t). I can’t understand the demand after reading what I read here and witnessing the for lease phenomenon where I live, but that is how it is out there….for the moment…. make of it what you will…

    • Tiliqua scincoidesMEMBER

      I’m hearing the same anecdotally re property where I grew up in Sydney’s south. Auction for a 200 sqm townhouse in a complex well attended and sold to an investor for $1.1m in the last fortnight. Property is still flying off the shelf in some areas.

    • Gonzo Woyzeck47

      Mike, similar picture in the UK – from what I hear from one of my contacts: at least the housing market is shooting to the moon again (since the initial shock of covid-19 is gone), not everywhere but broadly enough.
      What strikes me is if I talk to people based in the US/EU, they slowly feel the grip of the recession such as closing down long established businesses, and organizations go through layoffs. However, similar to the share market, that is not reflected in what the market does, on the contrary. Not sure if the share market or the property market will every adjusts to reality any time soon (if ever).

      • Tiliqua scincoidesMEMBER

        My brother works in construction industry in London and h just presold 90% of a new development off the plan despite the economics impacts of COVID. Demand for hard assets is high when money is cheap.

    • The coyote stayed aloft far longer than I expected in 2007/8 America when the GFC came rolling through, too. A good 6-12 month lag to the economy tanking, depending on the local. But, eventually… the coyote and the house he was in plummeted into the canyon below.

      Meep meep!

  16. Zombie Apocalypse

    The far south coast of nsw hasn’t got the memo yet. We have a business down here that provides the community with an allied health service that otherwise wouldn’t be here and we can’t find somewhere to live. Despite slowing down before the bushfires, literally everything has now sold, even the outrageously priced vacant blocks and we’re back to peak 2019 prices again. Anecdata from smug agents suggests that they’re having record winter sales, cash buyers getting out of SYD and MEL.

    • SoCalSurfCreeperMEMBER

      Well there won’t be any Melbourne buyers for a while! I know that part of the world well Zombie. It is normally a slow market.

      • Zombie Apocalypse

        You’d think so wouldn’t you. I’m hoping that we’re seeing knee-jerk demand combined with low stock on the market. You’re right about slow, when I look at some of the historic listings for acreage properties we’re interested in – it’s not rare to see 300 plus days on market before they sold. Plenty of 20-25% haircuts were taken post GFC too. Fingers crossed that things slow down again this time around. I can’t comprehend why so many retirees want to come to an area with a major lack of health services, and big distances between towns (they all do 80km/h on the Princes). The starry-eyed younger city crew with kids will get a shock too when they realise that life isn’t as perfect as the Instagram photos suggest – poor school options, generic cafe and dining options and those city friends and family won’t come down anywhere near as often as they think they will.

  17. Jumping jack flash

    Agree that immigration will cause a bit of a kerfuffle in housing but the real problem is debt saturation and the banks tightening debt eligibility criteria.

    Debt saturation was obviously solved by the use of immigrants – either the immigrants were eligible for the enormous amounts of debt that are absolutely essential, or they had their wages stolen to make someone else eligible for more debt. Either way the problem was solved. Add in a bit of interest rate manipulation for good measure and we all saw the result.

    But the end of the era of interest rate manipulation and banks tightening debt eligibility criteria to boot is another kettle of fish entirely and will have far more impact on prices in my opinion.

    “…and could ultimately solve Australia’s chronic housing affordability problem:”

    There is no such thing as an affordability problem. Everything is affordable at any price if the bank hands you enough debt to use to buy it with. There is and was only a debt eligibility problem.

  18. Hill Billy 55MEMBER

    Up in Queensland there have been a lot of sales, even exceeding the rush after the election last year. It will be interesting to see what happens with our borders being closed as the drift north is stymied.