International border restrictions are expected to dampen Australia's population growth, blocking net migration abroad until next year. What will be the impact of this phenomenon on the housing market?
Australia's annual population growth is expected to moderate from around 1.4% pre-COVID-19 to 0.6% in fiscal year 2020-2021, according to recent Treasury forecasts . This could imply a reduction in annual population growth from around 350,000 in 2019 to 154,000 in June 2021.
"If the Treasury's forecast is correct, that means the population growth rate will be the lowest since 1917," said Tim Lawless, research manager at CoreLogic.
With this scenario, Lawless stated that there were four likely outcomes for the housing market. The first impact will occur in rental markets, which would be significantly affected given their reliance on net migration abroad.
"A higher volume of rental announcements and lower rental values ??in the main inner city areas. This phenomenon is already being seen, especially in central Sydney and Melbourne," said Lawless.
While things should improve once international student arrivals start to normalize, Lawless said investors, in the meantime, will continue to face high vacancy rates. and lower rents, both of which could reduce their ability to pay off their mortgages.
"This can lead to more difficult sell listings in these areas," he said.
The second possible result of reduced population growth is lower unit valuation. Lawless said this could be because the downtown district was at the end of an increase in the supply of new apartments.
Figures from ABS show that there were 50,000 units under construction in New South Wales at the end of March and 45,000 in Victoria. Those units could be set to a lower value, Lawless said.
"A large portion of these projects are high-rise buildings located in inner city areas. Many of these projects that have yet to be completed will be settled as rental housing remains vacant and rents fall. , which can put downward pressure on property values, ”he says.
The construction industry is also likely to be caught in the chain reaction resulting from low population growth, especially due to reduced demand. However, Lawless said the impact on the industry would likely be uneven.
Lawless said demand for owner-occupied multi-unit housing would be less affected, while unit projects for investors are expected to slow for an extended period.
"Greenfield subdivisions are also less affected by the reduction in net out-migration, with early reports indicating that the HomeBuilder subsidy, coupled with low interest rates and incentives to buying a first-time home is a huge boost to demand, ”he said.
In that case, Lawless thinks developers and builders may need to look to these more active industries, at least as long as net migration abroad remains low.
The final impact of low population growth would be the change in the engines of growth. As net migration abroad slows, the demand for housing will likely depend on organic factors such as fertility rate and interstate migration.
"There are already signs that large regional centers are benefiting from increased demand as some people seek to flee large cities, taking advantage of remote work opportunities, more affordable housing options and lifestyle considerations, ”Lawless said.
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