July 17, 2020

Lower immigration means less property demand but the declining supply will limit the imbalance


Net overseas migration has been a significant contributor to housing demand in Australia in recent times, making up around 60% of Australia’s total population growth (which was 1.4% as at December 2019). A recent study by Monash University Business School Senior Lecturer Daniel Melser and RMIT University student Morteza Moallemi (“The Impact of Immigration on Housing Prices in Australia”) estimates that national housing prices would have been around 1.1% lower each year had there been no immigration between 2006 and 2016.

With immigration levels expected to fall as COVID-19 restricts border crossings, estimates on the impact on housing demand vary. The federal government has said Australia could expect net overseas migration to fall to 34,000 in 2019/2020, an 85% decline from 2018/19 levels. AMP estimates that the fall in immigration would lower population growth to 0.4%, which would result in demand for housing being reduced by ~80,000 dwellings per year. Deloitte Access Economics is slightly less pessimistic and forecasts population growth of 0.8% in 2020, followed by 0.6% in 2021 before a recovery to 1.1% growth in 2022. This scenario would see 480,000 fewer people in Australia by the end of 2022 compared to pre-COVID expectations, and CBRE projects this could result in 200,000 fewer dwellings being demanded over the 3-year period.

It is important, however, to consider this fall in residential housing demand alongside the outlook for supply, which was already beginning to fall prior to the pandemic. Dwelling completions fell 7.5% in 2019 to just over 200,000 units, and declining building approvals and building commencements indicate further falls are ahead. CBRE had estimated (pre-COVID) that total dwelling completions would fall to ~140,000 dwellings per year to the end of 2020, resulting in net undersupply of ~45,000 new dwellings over the 3-year period. They now see downside risk to these forecasts of between 50,000 (modest decline scenario) and 124,500 (severe decline scenario) dwellings.

Under the severe decline scenario, the ~169,500 reduction in supply is more than offset by the lower demand from falling immigration. However, the migration analysis has so far been focused on lower arrivals, with less attention given to the impact of COVID-19 on the ~300,000 annual departures. Any improvement in population retention from Australians preferring to “stay-at-home” can be expected to cushion the impact of lower overseas arrivals and reduce the demand/supply imbalance.

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