Theresa Worrell: How is Australia’s lower population growth going to affect our property markets?

Immigration has been a key driver of Australia’s population growth and economic growth, but what happens now that our borders are closed?

Migration The coronavirus is driving the biggest population decline in Australian history, with 300,000 tourists, temporary workers and students already departing this year in an exodus that threatens to deepen a consumer spending slump and hit the housing market.

Research obtained by The Australian predicts a further 300,000 people could leave the country to return home by the end of the year, which economists warn could further erode consumer demand and cause a slump in the rental and housing markets.

This dramatic fall in net migration in 2020 will result in very low population growth, and impact our economy and our property markets.

Right back to Federation, Australia’s population growth has been underpinned by immigration and it has been estimated that an average of 220,000 net migrants each year since 2006 has increased our population by 5 million.

Federal and state governments both favour high population growth, and over the last few decades net overseas migration (NOM) has accounted for 60 per cent of our annual population growth.

While population growth in 2020 has been estimated to slow to its lowest rate since the Second World War due to our success in limiting the spread of the coronavirus, Trent Wiltshire, an economist at Domain, suggests Australia could attract overseas students, skilled workers and backpackers as soon as next year, meaning a rapid turnaround in population growth.

So with very low migration, Australia’s population growth in 2020 is likely to be around 0.75 to 1 per cent in 2020.

This is a population increase of 190,000 to 250,000 people, well below the average annual increase of 370,000 over the past decade.

The last time population growth fell below 1 per cent was in 1932 and it remained at or below 1 per cent until after the Second World War (see graph).

Source: Domain

Who’s been coming here?

The Australian Bureau of Statistics has advised that people on temporary visas accounted for 63.4 per cent of overseas migrant arrivals in the year to June 2019, with 118,000 of those on temporary visas entering Australia for higher education.

Most temporary visa arrivals are students but there also plenty of skilled workers and working holidaymakers.

Source: Domain

Temporary migration is uncapped: there are no in-principle limits on the number of temporary migrants who can come here.

This is by design, so the program can meet the skill needs of our economy at any given time.

Migration However, the government has a number of tools it uses to contain the program and target the right skills.

Yet the number of international student arrivals are likely to fall over the next 18 months because of the impact of COVID-19 on their home economies.

There will be always be those who suggest that we should not import migrant workers while unemployment levels are high, instead delivering training in reskilling opportunities for Australian workers so they can feel Australian jobs.

The problem is that no matter how good our foresight now education and training we will always have needs for external expertise in areas of emerging importance.

Training local workers for projects that suddenly become important can take years, during which those projects would stall.

Immigration helps our economy

Australia introduced our postwar immigration program because it was “populate or perish” at the time.

Immigrants and their immediate and extended families were sought not only to fill the labour shortages but also to contribute to long-term nation building.

As a result, immigration has been a major driver of Australian economic growth.

In genral migrants are younger, at family formation age, quickly employed and fill important jobs where there are shortages.

And educating international students is Australia’s largest service export.

While strong population growth has boosted aggregate economic growth, it has obscured weak growth in per person terms.

Australian GDP, the value of goods and services produced in Australia, increased by 26 per cent between 2010 and 2019, but GDP per capita (GDP divided by the population) only grew by 9.5 per cent.

The impact won’t be felt evenly

NSW and Victoria attract the most migrants, leading some commentators to suggest Melbourne Sydney property values will be hit the hardest.

In recent years while Sydney has attracted a large number of migrants it also lost residents to other cities.

This trend might be reversed, at least in the short term, as people stay home and don’t cross borders.

Source: Domain

While population growth is important for our big capital cities’ economic growth, it is not as critical affect in property price growth as some people suggest.

Do you think about it, new immigrants tend not to buy properties for it, at least for the first couple of years, instead renting, usually close to the job.

Even in Melbourne where population growth has boomed around 2.4% per annum, and assuming that around 60% of this is related to immigration, a much bigger factor in property price growth has been the property decisions made by the other 98% of Melburnians.

Population Up till recently, a booming economy and increasing personal wealth, together with the fact that more and more people want to live in the same prime suburbs of our 3 big capital cities has been a bigger factor in property price growth than immigration.

If you think about it… most immigrants, when they eventually choose to buy a home, buy in the new outer suburbs where there has been a significant supply of new properties meaning these areas have underperformed with regard to capital growth, while they have obviously over performed with regard population growth.

Of course the decreasing temporary Visa immigration and student immigration will negatively impact our rental markets, particularly in the CBD’s of our capital cities and close to our universities.

Why we need immigration

The two charts below from Michael Matusik show that without overseas migration Australia’s population would, in due course, start to shrink.

While some are currently suggesting this is a good thing, sadly, our economy would suffer.

Chart 1 tells shows that Australia’s baby boom continues, albeit at a slowing pace,- see the red line and left-hand scale on chart 1.

Deaths are also rising (grey line and right-hand scale) due mostly to our ageing population.

As a result, natural increase – chart 2 – is on the slide. Natural increase is simply births minus deaths.

Natural Increase 1320x990

The longer-term outlook

After each previous recession, a new national immigration debate seems to emerge.

While no one knows when our borders will reopen, it is likely that Australia will remain an attractive destination for a variety of migrants due to work opportunities as well as from a lifestyle and health perspective.

By the way…permanent migrants don’t take Australian’s jobs – if anything they create jobs for others.

Research conducted for the Committee for the Economic Development of Australia found that the impact of recent migrants (post 1996) on the employment prospects of Australian-born workers was close to zero.

Long Term Invest If anything, the impact on wages and labour force participation of locals was positive.

Opponents of Australia’s strong immigration program are misguided.

It has not only boosted gross domestic product and budget revenue, as would be expected when with more people, but also living standards – measured as GDP per person.

This is evident in relation to international students and working holidaymakers.

Their absence has created a crisis for the Australian tertiary education and agricultural industries.

The unemployed do not travel out of the cities for seasonal agricultural jobs ( we have a geographically immobile labour market), while local students do not inject the cash of international students.

The last thing that the Australian economy needs now as we’re working our way through the economic side effects of Coronavirus, is to hamstring the prospects for economic recovery by impeding the economic stimulus that immigration brings.

Australia’s migration program is the envy of other countries.

Indeed, its success has prompted Britain to consider changing its system to an Australian skills-based system assessed through points.

Temporary migration is certain to look very different over the next few years than it has over past few.

That’s its purpose – to adapt to changing circumstances.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

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