Migration to Australia has returned strongly in recent months amid already tight rental markets. Where will we see the impacts of that extra demand?
In the month of August, estimated gross temporary visa arrivals increased to more 300,000 for the first time since the pandemic began, based on Australian Bureau of Statistics data
That’s a significant increase from the near-zero arrivals during the Covid years, although still below pre-pandemic levels.
Temporary visitors account for the vast majority (more than two-thirds) of overseas arrivals, so that cohort will have little impact on rental demand.
But we are also seeing other temporary migrants return as well. There were more than 40,000 student arrivals in August – still fewer than at the same point in 2019, but not by much. [1]
Of course, the data on gross arrivals is just that: gross. It measures the total number of people arriving in Australia, not the net increase in population from migration – as in, it does not account for departures. The net figure is what matters for population and thus housing demand.
Unfortunately, net migration data isn't as timely. Even so, the data we do have paints a clear picture.
Net overseas migration for the March quarter of 2022 was very strong, at just under 100,000 persons for the three-month period. That helped lift annual population growth to 0.9%.
That increase in population will put upward pressure on rental demand amid already tight conditions.
The number of properties listed as available for rent on realestate.com.au is down by a bit under a fifth in capital cities compared to last year. And regional areas have seen greatly reduced availability for most of the pandemic period, with very marginal signs of improvement at best in recent months.
Extra demand from returning migration amid tight housing availability will contribute to the ongoing rapid advertised rent price growth we are seeing.
We’re already seeing signs consistent with that dynamic. Rents are growing especially quickly in areas that recent migrants typically move to – these are mostly inner-city areas, often near major universities.
Unsurprisingly, this pattern is the reverse of what we saw during the pandemic when borders were shut. During 2020 and 2021, inner-city areas had very weak rental markets and saw large declines in advertised rent prices, particularly in Sydney and Melbourne.
The silver lining is that many of the areas seeing very fast rent growth now – and where increased migration will add additional demand – are areas where rents fell during the pandemic.
In general, areas that have seen the fastest rent market growth over the past six months are those inner-city pockets where rent prices slumped during the pandemic. [2]
This pattern probably partly reflects some catch-up for underperformance during the pandemic, and partly the fact that rental markets are now tight and getting tighter in these areas.
In the near-term, rents are likely to continue growing briskly. Vacancy rates are low across much of the country and, with population growth returning, rental demand shows little sign of tempering.
But there are some signs that investors are returning. New lending to investors is up 6.5% compared to the same time last year, though it has come off in recent months.
That will start to help bring more supply back to the rental market, but it will be a slow process. The number of new investors relative to the size of the rental market is small.
[1] Gross student arrivals are, unsurprisingly, very seasonal so I compare with the same month in 2019 for consistency; in August 2019 there was nearly 55,000 gross student arrivals.
[2] Part of this negative correlation between rent growth across the pandemic and the past 6 months reflects regression to the mean, since monthly advertised rents are measured with noise; but a placebo test running this exercise for three years ago shows a much weaker (though still negative) relationship.
Source: Realestate.com.au