CoreLogic explains link between migration and the housing market

Other factors influence supply, property values, and rents, research head says

CoreLogic explains link between migration and the housing market


By Mina Martin

Discussions around overseas migration and its impact on the housing market intensify as housing affordability and availability deteriorate. But Eliza Owen (pictured above), CoreLogic head of research, contends that numerous other factors influence supply, property values, and rents.

“National home values have increased 7.2% in the year to date, and rent values rose 6% in the same period,” Owen said. “Heated discussions around migration are drawing more focus as housing affordability worsens. But there are many other factors driving values and the rental market, and long term, strategic migration policy should not be influenced by short-term volatility in migration and property markets.”

Here are five essential facts to understand about overseas migration and its relationship with the housing market.

Migrants tend to rent homes more often in the short term

Changes in overseas migration primarily affect the rental market more than property purchases, Owen said.

ABS data showed that around 60.8% of recent migrant arrivals within the five years to 2021 rented their homes. The rate of homeownership increased with more extended residency in the country. As of 2021, 55.6% of migrant arrivals between 2012 and 2016 and 70.6% of those who arrived before 2012 own their homes.

For temporary migrants, around 68.9% of those aged 15 and older were renters in 2021, including such 91.6% of temporary skilled visa holders and 83.5% student visa holders.

The temporary restrictions are a factor behind the current high migration rates

In March 2020, Australia closed its borders to non-citizens and non-residents and fully reopened in July 2022. By March 2023, the annual population growth hit 2.17%, the highest since 2008. Net overseas migration is currently at a record high, with 454,000 people added to the population in the past year, compared to the pre-COVID decade average of 217,000.

Owen said that assuming an average household size of 2.49 people, the year to March would have seen demand for about 182,000 additional dwellings, exceeding the 175,000 dwellings completed. That’s not to mention the increased domestic household formation, driven by young Australians moving out, buying their first homes, or starting families.

The surge in net overseas migration is partly due to the travel ban, concentrated overseas arrivals, and a 22% drop in departures compared to the historic average.

If not for the ban, historical migration trends suggest net overseas migration for the year ending in March would likely align much more closely with historical averages. However, it's important to note that there have been fewer arrivals since COVID than would have occurred in the absence of travel restrictions.

“The strong spike in migration this year will normalise in time and should not be an influence on long-term migration policies,” Owen said.

The COVID migration ban led to volatility in rental markets

A temporary migration cap may alleviate immediate housing demand, but the longer-term effects have been highlighted by COVID-19.

“Because housing demand is more liquid than housing supply, the re-opening of international borders created a demand shock, which quickly pushed up rents and worsened an already tight rental market,” Owen said. “The demand shock also came amid constraints to new available supply, as sellers were put off by rising interest rates, and new home completions were delayed by increased material costs and labour shortages.”

Historically, regions with high net overseas migration, such as Melbourne's South East and Inner SA4, Sydney’s Inner South West and Parramatta, saw rent values increase by an average 18% from July 2022 to October this year. This reaffirms the short-term impact of overseas migration on rents.

In contrast, some markets with high exposure to overseas migration witnessed a significant drop in rent values at the start of the pandemic, with Melbourne's Inner region seeing only a 1.1% rise in rent values between March 2020 and July 2022, in contrast to the national increase of 16.4%.

In the long term, rent values exhibit a weaker correlation with overseas migration, with resource-based markets and Perth experiencing the most significant rent growth over the past five years.

High overseas migration areas have seen more modest rent growth, ranging between 20% and 30%, due to initial demand shocks from COVID border closures and extensive high-density development. Imposing migration caps may diminish incentives for long-term investment housing in these regions, potentially creating a demand shock if such caps are lifted, Owen said.

Housing costs are rising due to various demand-side factors, not just migration

Owen noted that early in the pandemic, the number of people per household sharply declined, leading to an increased demand for dwellings, equivalent to around 120,000 households, largely while border restrictions were being implemented. This was likely facilitated by higher household income resulting from government stimulus and low interest rates, which encouraged people to invest in larger homes.

Over the long term, smaller household sizes on average have been influenced by factors such as an aging population and declining marriage rates. The demand in the private rental market has also risen over the years due to declining homeownership rates and a decreasing share of social housing within the housing inventory.

“The role of these other factors became evident between March 2020 and July 2022, when international borders were largely closed to overseas arrivals, and rents over that time rose 16.4% nationally,” Owen said.

Reducing migration intake would come with trade-offs

Australia operates a largely unrestricted temporary visa program, and imposing long-term migration targets for both temporary and permanent migrants could allow better planning for infrastructure, housing, and services. However, restricting temporary migration involves economic trade-offs and can be very complex to implement, Owen said. Moreover, increased levels of skilled migration could potentially address the current housing shortages in Australia.

In Western Australia, the state government introduced a grant of up to $10,000 to support skilled migrant settlement in construction, aimed at boosting housing completions. Recent ABS data showed a net influx of skilled migrants of around 71,000 in the year up to August, well above long-term averages, which may contribute to boosting the country’s economic productivity, a crucial aspect in a high-inflation environment.

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