Will Immigration Cuts Impact Property Prices?
There is little doubt that much of Australia’s economic success has been built on the back of a very open policy towards immigration. Last year, 163,000 permanent migrants were granted places all across the country, in what was hotting up as a key election issue only weeks ago.
Population growth is clearly a controversial topic and one that has a huge bearing on property prices. As new people move to Australia, they, of course, need somewhere to live. Whether that is renting or buying, it adds to the level of demand for housing and helps boost prices year on year.
The flip side to this argument is that an ever-increasing population is starting to put too much strain on Government infrastructure and this is no more apparent than in Sydney’s East and North Shore, where traffic is bad on a good day and rents and house prices remain high.
Based on the current population trajectory, Sydney could find itself with an extra 2.7 million people over the next 30 years. That’s great news for property developers and investors but clearly needs to be managed with the natural livability issues that come with that.
Prior to the election, Prime Minister Scott Morrison released a population plan which was aimed at drawing migrants to country towns to ease congestion in the major cities – particularly Sydney and Melbourne. The PM proposed that 23,000 regional visas for skilled migrants would be granted in a move that would encourage more people to move into the regional areas.
Those in the real estate sector were also quite concerned with the Government’s plan to cut the overall cap of visas in the permanent migration program, down to 160,000 places each year, from where it was previously at 190,000.
The key takeaway for the housing and construction industry as a whole is that even with a cut in the number of visas to 160,000, that is really just pulling it back into line with what we have been seeing in the previous few years. So the migration cap, although it is 30,000 lower than the present cap, is actually broadly in-line with the current level of new arrivals.
Last year permanent migration fell to its lowest level in a decade as a result of visa restrictions and other measures aimed at tightening the application process. So while the headline cut to 160,000 could be perceived as a negative, it is actually just in-line with what we have been seeing in recent times based on the natural economic cycle and tighter requirements.
That said, the current intake of 163,000 is actually the lowest rate since 2007 when it was just below 159,000. Since 2011, Australia’s rate of permanent migration has been capped at 190,000 and almost every year the cap has been met.
Net Overseas Migration Under Previous Governments (Source: James Elton)
From 2011-2016 the cap was virtually filled each year, which did, in fact, coincide with the strong increase in housing prices in Sydney and Melbourne. To say migration was the reason for the strong run-up in house prices, wouldn’t be accurate as there was a huge influx of foreign investors, namely the Chinese, looking to buy Australian property any way they could during that period.
Clearly, there is now more of a focus on bringing in skilled workers. The government itself has said that the new migration program is looking towards those with skills, with the number of employer-sponsored skilled places rising from 35,528 in 2017-18 to 39,000 in 2019-20. So there is still plenty of room for more job seekers to arrive when demand warrants it.
Putting the focus on skills-based migration increases workforce participation, which in turn boosts GDP growth, and certainly helps contribute to the government’s budget bottom line. All of which flow-through to the property sector.
A good example has been what has taken place in Perth in the last decade. During the height of the mining boom, net migration was around 50,000 per year in 2011-12. By the time the boom finally busted, that number fell all the way to 15,000. That type of scenario is highly unlikely to occur in Sydney and Melbourne as both cities aren’t tied to an economic cycle quite as volatile as that of commodity prices. It does show that workers follow jobs though.
So while a lower overall level of immigration could be viewed in a negative light, as we read more into the numbers there is still plenty to be bullish about in terms of what it could mean for property prices.
More skilled migrants, who demand higher wages will help boost demand as property buyers, while the tighter application process has reduced numbers even before the cap was cut.
Despite the changes, Australia will still have a higher rate of population growth from migration than any other western country on a percentage basis. That means more than New Zealand, Canada, Britain, Germany and certainly the US.
So while the unemployment rate remains low compared to recent decades at 5.2%, I wouldn’t expect the new immigration cuts to have a negative impact on property prices.