The closing of Australian borders to defend against the spread of COVID-19 has predictably given rise to numerous economic challenges, including a deterioration in our country’s population growth.
The Treasury forecasts for FY20/21 indicate the lowest rate of population growth since 1917. This dip is mostly contributed to low overseas migration, which will fall from approximately 154,000 people in FY19/20 to around -72,000 people in 2020–21.
But what does this mean for the property sector?
Weaker rental demand
The drop in overseas migration is likely to have a softening effect on the rental market. Geographically speaking, Melbourne and Sydney will experience the greatest hit. In 2019, 84 per cent of all overseas migration flowed into the capital cities – three quarters of which arrived in Sydney and Melbourne.
Bolstering this analysis are recent statistics shared by Domain stating that the length of time that Melbourne rental properties remain advertised jumped a staggering 40 per cent in November 2020 compared with the previous year. Additionally, more than a quarter (26.1 per cent) of all
Melbourne houses and apartments listed for rent had their asking price reduced.
Developer projects – existing and future
The developer market plays an integral part in the rental sector, with both existing and future projects key to meeting occupant demand. The question on everyone’s lips is how will low migration impact this prominent area within Australia’s property industry?
According to the Reserve Bank of Australia (RBA), in Sydney and Melbourne, the number of apartments estimated to be completed over the next two years is equivalent to around 4 per cent of the non-detached dwelling stock. In Melbourne, over half of apartments in the pipeline are located in the city and inner suburbs.
The President of the Urban Development Institute of Australia (UDIA), Simon Basheer, stated “Healthy migration levels into Australia have been one of the key catalysts for strong and prosperous economic conditions in this country. With the impacts of COVID-19 in terms of low net migration levels into Australia, we are at a risk of drag on the economy and housing markets until we return to pre-COVID levels. When COVID-19 hit, housing markets were impacted and this was a key reason the Commonwealth Government was quick to implement and extend the HomeBuilder initiative which has had a powerful impact on jobs, trades, construction and wages – particularly in the greenfield housing market. It has been a stellar example of smart, targeted and effective policy making and stimulus.”
However, HomeBuilder grants do not benefit the entire property industry and the return of normal migration levels will be critical to the recovery of the semi-detached and apartment products sector.
Simon goes on to say that “The UDIA is encouraging the Commonwealth Government to think through a strategy that ensures immigration returns as soon as practicable, so the market is sufficiently able to meet the future demand and Australia avoids an imbalance between supply and demand. That is particularly true of the higher density apartment market – including the build-to-rent sector. Build-to rent is at an embryonic phase in Australia, so hopefully the slowdown in immigration and population growth won’t impede its growth”.
Nevertheless, property developers are staying positive. In a recent interview with ABC News, Jason Goldsworthy, national manager of build-to-rent for Mirvac, said “We really see COVID as a bit of a speed bump not dissimilar to the dip in the market of about two years ago.”
Although the drop in overseas migration has had its effect on the property industry, the market holds strong. In December 2020, 79,187 settlements took place nationally, recording a two year high. While it may be some time before our population growth returns to normal, there is optimism that the market will be able to hold steady as the pandemic is seen off.