How Does Migration Affect The Property Market?
Most of Australia’s population growth comes from overseas migration.
With COVID-19 restrictions forcing a large drop in migration, what impact will this have on our property market?
Population growth is one of the drivers of the property market.
Most of Australia’s population growth comes from overseas migration. In the 2018/19 financial year, Australia welcomed 232,000 migrants from overseas. Due to COVID-19, this is predicted to drop to only 31,000 migrants in 2020/21.
Just how does migration affect the property market, and will the drop in migration impact prices in Sydney’s east?
Overseas migration reduced
Net overseas migration has accounted for more than 60% of Australia’s population growth since 2016.
But according to recent Treasury forecasts, Australian population growth overall will slow to 0.6% in 2020/21, down from 1.4% pre-COVID.
A dramatic reduction in overseas migration is the reason for the forecast decline in population growth. Since the rate of population growth is a reasonable proxy for housing demand, it’s fair to expect that the fall in migration will influence the property market.
However, it’s important to note that the impact will not be felt evenly across the property market.
What does it mean for the property market?
In 2019, approximately 70% of Australian migrants arrived on temporary visas, with the remaining 30% on permanent visas. Australian Treasury research has shown that the vast majority (80 – 90%) of both temporary and permanent migrants live in rented accommodation when they first arrive – at least for a little while.
Therefore, it is likely that the impact of the reduction in overseas migration will be felt as weaker rental demand rather than a drop in demand for established home sales – at least initially.
It is also expected that there will be reduced demand for new home construction targeted at the rental market, and builders and developers who target this market may need to focus their attention on more active sectors of the market.
What about migration within Australia?
Given the drop in overseas migration, other drivers of housing demand will likely come to the fore. One of these is interstate migration. Movements between states are currently restricted, but it is reasonable to assume that internal borders will open before international ones do. We know there’s a lot of migration between places like Sydney and the Southern Highlands of NSW, or Melbourne and the Gold Coast. And this is likely to continue once it can.
Interstate and intrastate migration
Whilst pre-COVID Sydney’s population growth was overwhelmingly supported by overseas migration, internal migration within Australia was a different story.
Even before COVID, Sydney was losing more residents to elsewhere in Australia than it was gaining. Australian Bureau of Statistics regional migration data from June 2019 shows that in 2018/19, 25,000 net residents left Sydney, primarily for regional NSW and southeast Queensland locations. This can most likely be attributed to high housing costs in Sydney.
There is now a suggestion that the pandemic may lead more people to leverage remote working opportunities and consider a sea or tree change. In fact, realestate.com.au has already reported an uptick in regional searches.
However, 94% of respondents to a June 2020 survey conducted by the Australian Bureau of Statistics indicated that COVID would not influence their plans to move house in the next 12 months. Around 12% of respondents were planning to move in the next year, and the majority of those (91%) were planning to stay within the same state or territory.
Migration within Sydney
The ABS survey, which shows that most people planning to move will stay in the same state, tallies with what we already know about our own local area – people often stay within their neighbourhood.
When buying property, residents of Sydney’s east often buy in the east. Domain data from July 2020 shows that two-thirds of buyers for eastern suburbs properties already live in the area. Interestingly, whilst information about other areas indicates people are moving from one part of Sydney to another, the east is in the only area where demand from locals outnumbers interest from out-of-area buyers. The out-of-area interest comes from residents in other parts of Sydney – the city centre, inner west and lower north shore.
Population growth is one of the drivers of the property market – but it’s only one of them.
With locals who love the area and want to stay, and residents from other parts of Sydney looking to join us, the eastern suburbs property sales market is well-placed to withstand any impact from reduced overseas migration.
Get in touch with our team today to find out more about buying or selling in Sydney’s eastern suburbs.