Pandemic reinvigorates Australia regions

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Deloitte Access Economics’ weekly economic briefing has examined Australia’s latest population data, which shows that the regions have led the way on growth over the pandemic, reversing the long-term trend of migration to the cities:

Prior to the pandemic, our capital cities were growing at a faster pace than regional economies – an average of 1.9% per annum compared with 1.0% per annum for the regions…

However, harsher restrictions in cities, and the greater use of flexible and remote work options, has seen regions now dominate our (overall more modest) population growth.

The most recent regional population release by the ABS for 2020-21 shows that regional Australia grew by 70,900 (or 0.9%), while capital cities fell by 26,000 (or -0.1%) – a reversal of the substantial capital city population growth we’ve seen in recent years, as seen in Chart 1 below.

This shift has been driven by the loss of overseas migration. Migrants typically settle in capital cities, and have been a key driver of capital city population growth over recent years. As a result, capital cities saw net overseas migration (NOM) in 2020-21 plummet to a negative NOM of -84,700 people, while regional areas saw a negative NOM of only -5,200.

The shift away from capital cities has been particularly prevalent for Melbourne, the city hit hardest by COVID restrictions over 2020 and 2021.

Greater Melbourne experienced the lowest NOM (-54,400 people) and the lowest net internal migration (-33,500 people), with greater Melbourne’s population falling by 60,500. This is a significant turnaround from the strong population growth experienced over the ten years pre-COVID – where the average population increase was 104,300 per year.

The shift has flowed through to property prices, with regional house price growth outpacing the capital cities. CoreLogic reports that housing values across regional areas rose at more than three times the pace of capital cities through the March quarter, resisting the slowdown in the housing market. In the year to March 2022, combined regional house values rose 24.5%, while combined capital values rose by 16.3%.

This is putting significant pressure on the regional housing market, with a 22.1% fall in total advertised housing supply in the year to March 2022 (significantly higher than the 4.0% fall in capital cities). This means that, while there is significant demand for regional housing, the flow of new listings just can’t keep up. Regional rental markets also remain extremely tight, with vacancy rates at record lows.

The 2022-23 federal budget has measures which may help to consolidate this rapid regional growth, with significant dollars allocated for projects in regional Australia. $7.1 billion in transformational infrastructure has been allocated to regional Australia. The budget also included the establishment of a $2 billion regional accelerator program, to invest in skills, education infrastructure, export market development and supply chain resilience in the regions.

Amazing isn’t it? For generations, policy makers tried to decentralise Australia’s population and failed at every turn. Yet, the pandemic has achieved this goal in only two years, in part by accelerating and normalising the shift to remote work.

That said, population growth will soon accelerate across the capital cities, especially Sydney and Melbourne, thanks to the planned reboot of ‘Big Australia’ mass immigration, which is projected to flood the nation with 235,000 net migrants ad infinitum:

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Australian immigration

Big Australia immigration is behind Australia’s housing supply woes.

The never-ending crush-loading of housing, infrastructure, wages and living standards will soon return with a vengeance. Big Business, Big Property, and the Edu-Migration lobby demands it.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.