Immigration bust slices housing demand

New research from the National Housing Finance and Investment Corporation (NHFIC) claims the COVID-19 pandemic could cut demand for Australian housing by up to 232,000 dwellings over the next three years:

The organisation found that international border closures had effectively shut down net overseas migration, which accounted for 59 per cent of population growth since 2007.

The most pessimistic scenario implies a reduction in the population increase – from peak to trough – of 214,000 from 2019 to 2021, which implies a decline of 0.8 per cent of the population over the two-year period, which has only been surpassed by World War I and the unwinding of the peak of the baby boom in 1971.

NHFIC also found international students were the “swing factor”, accounting for 50 per cent of net overseas migration, and that large falls in underlying dwelling demand were already putting upward pressure on vacancy rates and downward pressure on rents, particularly in some inner-city areas.

If sustained, this could cause a contraction in construction activity that would add to the recessionary forces impacting the economy.

NHFIC CEO Nathan Dal Bon said the research “highlights the strong relationship between population growth, increasingly through net overseas migration, and underlying dwelling demand with the outlook for population growth due to COVID-19 highly uncertain.”

Research released earlier this month by CoreLogic noted similar, with Sydney and Melbourne most impacted:

Recent forecasts from Treasury indicate annual population growth across Australia is set to slow from around 1.4% pre-COVID, to 0.6% through the 2020/21 financial year. In raw numbers, that implies Australia’s annual population growth will reduce from around 350,000 in 2019 to 154,000 over the year ending June 2021 – a reduction of 56% relative to 2019 levels.

If the Treasury forecasts are right, this means the rate of population growth (a proxy for underlying housing demand) will be the lowest since 1917. Most of the forecast decline in population growth is due to stalled net overseas migration, which is expected to drop from around 232,000 net migrants in the 2018/19 financial year to just 31,000 in 2020/21. This will be disruptive to housing demand. However, the impact will not be evenly spread…

Geographically, stalled NOM will impact on Melbourne and Sydney the most. Last year 84% of all overseas migration flowed into the capital cities. Three quarters of those capital city migrants arrived in Sydney and Melbourne…

The impact of the sharp fall in overseas arrivals can already be seen in surging inner city rental advertisements, with rental listings more than doubling across some key inner city unit precincts…

Analysis released by CBA last month also forecast that population growth would drop to ~180k in 2020/21, reducing the underlying demand for new housing from ~185k dwellings per year (i.e. based on the assumption of 2.1 persons per dwelling and the demolition rate) to 95k. This, in turn, will drive a significant oversupply of housing:

No wonder the property lobby are squealing like stuck pigs and seeking to reboot mass immigration ASAP.

Leith van Onselen
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