How Does Migration Impact Housing Supply? 3 Things to Know
Many folks say that overseas migration plays a big role in our housing market. Even when things like high interest rates, not-so-happy consumers, and expensive houses make the housing market problematic, home prices and rents are still increasing. It has been tougher to find empty homes in cities and regional areas because there are more people moving here from overseas.The value of homes has gone up by about 7.2% this year, and rentals also went up by 6.0%. It’s a sign that the housing market is revitalising from the downturn experienced during the pandemic. But is this mainly from the surge of overseas migration? Or are there other factors involved?
Migration and Housing Supply: 3 Things to Know
Let’s discuss the top three findings that experts show about how migration and homes are connected.
1. Most Migrants Choose to Rent First
When people first move to Australia, they usually rent a place to live rather than buy one. In fact, about 61% of permanent migrants rent homes. Migrants decide to purchase a dwelling only after a few years or over time. In 2021, over half of the people who migrated from 2012 to 2016 bought homes.
Aside from permanent migrant residents, those who hold temporary status also understandably choose to rent. Student visa holders and temporary skilled migrants comprise a big portion of renters in Australia.
Migration hit 2.17% this year, the highest it has been since 2008. In terms of housing supply numbers, the migration increase would translate to a demand of about 182,000 additional homes needed for the incoming population.
2. The pandemic migration ban created rental market changes
The migration cap implemented during the COVID-19 pandemic may have relieved the housing demand in the short term, but when migration was finally allowed again, the re-opening of borders actually created a demand shock in the market. What came next was rental hikes, as the sudden demand for homes pushed rents higher and worsened an already tight rental market.
The demand shock also came amid delays in home completions, which are caused by increased supply delays, rising construction costs, and labour shortages.
Some parts of the country that usually have more proportion of people moving in and out – like Melbourne’s South East and Inner areas, and Sydney’s Inner South West and Parramatta, saw rents go up by about 18% in 2022 when the borders opened.
But there’s another dynamic to migration and rental. Studies show that in the long run, rent prices don’t always follow the same pattern as migration. In fact in some areas, like Perth, experience only a moderate level of growth coinciding with high migration.
One possible reason for this is that when COVID-19 border closures started, the ban gave the area a negative demand shock. Capping migration might discourage people from investing in homes in these places. What’s more, lots of homes have been built over the years in cities and regions with high migration. Thus, having more houses may have kept rent growth relatively slower.
3. Migration is only one factor pushing up housing costs
Aside from overseas migration, there are also other factors that have contributed to increasing property costs. Since the pandemic, Australians have reduced the number of people per household – from 2.6 to 2.5 persons per dwelling. It may not sound much, but the RBA estimates that fewer residents per household means pushing up housing demand by as many as 120,000 additional homes.
Lessening people per household has also been linked to higher household income from government stimulus, an aging population, and falling marriage rates.
These factors have made rental prices and housing more expensive even when international borders were largely closed to overseas arrivals.
Migration + Housing Supply: The Takeaway
In summary, overseas migration to Australia is indeed a big factor in the demand pressure on housing, especially for short-term rental needs. However, migration is not necessarily the big cause of pushing property costs. Australians are now living in fewer numbers per household, which means more people are actually looking to buy homes.
As far as migration, what happens if we keep limits or temporary caps on it? The data shows that it may not be a good solution to regulate housing supply and prices. Investors may be discouraged from delving into property, and once a short-term migration cap is lifted, it may result in a demand shock that spikes rental prices.
A strategic, longer-term plan for migration could ease the imbalance between housing supply and demand and give both investors and homebuyers stable outcomes.
