Housing demand, rents fall as overseas migration comes to a halt
Border closures caused by the coronavirus pandemic are expected to impact housing demand by between 129,000 and 232,000 dwellings over the next three years, according to new research by the National Housing Finance and Investment Corporation (NHFIC).
Housing demand in capital cities is typically fuelled by population growth, but the NHFIC estimates Australia’s population could fall by up to 214,000 between 2019 and 2021. This would represent the steepest decline since World War I.
Driving this contraction is the closure of international borders, which has brought the number of people arriving to Australia’s shores to a near standstill.
This has been most keenly felt in the capital cities, where new arrivals tend to gravitate. Last year, 84% of migrants to Australia settled in a capital city, with three quarters opting for Sydney or Melbourne.
The decrease in underlying demand adds to the mounting problems currently facing the construction sector. After about 162,000 homes were built in 2019, the NHFIC estimates this could drop to 137,000 this year, and 108,000 in 2021.
Rents on the way down in inner-city markets
Since 2007, net overseas migration has accounted for nearly 60% of population growth, with international students making up half of that number. So when the flow of migrants comes to an abrupt halt, we can expect property vacancies to increase.
This has put plenty of downward pressure on rents, particularly in inner-city markets. In Sydney, the drop in demand saw advertised rents fall by almost 25% in Darlinghurst and 15% in Haymarket and The Rocks.
In Melbourne, the increase in available rental stock has seen advertised rents in the CBD fall by more than 22%. Meanwhile, advertised rents in Elwood and Southbank have fallen by nearly 20% and 15%, respectively.
How soon international students return will depend on a few factors, with how successful Australia and other countries are in containing the virus high up on the list. As the NHFIC notes, past downturns also provide a few important lessons.
“The global financial crisis (GFC) revealed that economic factors, including unemployment and the exchange rate, are important for international students studying in Australia,” it said.
“It took around four years for student numbers to recover to pre-GFC levels. A protracted COVID-19 recession could easily lead to a similar path of recovery once borders reopen.”
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