John McGrath – Is Australia’s place in the sun set to rise?
The Reserve Bank’s decision to raise the official cash rate by 25 basis points, after four consecutive months of 50-basis point rises, was a welcome relief for buyers and homeowners this month.
The RBA Governor, Philip Lowe made it plain in his comments that rates would likely continue to rise. But it seems the RBA board is willing to slow down the pace of rate rises for now. That’s good news for the stability of the market.
Another aspect helping the market along right now is the return of expats, migrants and international students. This will boost our population and provide additional demand for property, particularly rentals, over the next few years.
As discussed in our new McGrath Report 2023, there was an initial rush of migrants and expats returning to Australia after the borders reopened.
The impact on property demand was immediate. CoreLogic has reported a recovery in many of the markets that were most adversely affected by the pandemic, citing a decline in listing numbers and the return of temporary migrants, such as university students and visitors, as factors in that recovery.
In fact, many cities and regional areas of Australia are facing a rental crisis, with low vacancy rates and increasing rents.
The national dwelling vacancy rate hit its lowest point on record -- just 1.1% -- in September, according to new figures from CoreLogic.
Since August 2020, national dwelling rents have increased by 20%, which is equivalent to an extra $90 per week in income for landlords.
A long-running downturn in investment activity has contributed to a shortage of rental stock, and with migrants returning, we can expect more strong rental demand, especially in inner city precincts and international education hubs.
Net overseas migration is forecast to return to pre-COVID-19 trends and remain steady at 235,000 people from 2024-25 onwards.
Migrants show a tendency to settle in major urban areas of Australia, with the majority calling Sydney, Melbourne or Perth home.
Whilst overseas migration will ultimately add to housing demand and support prices over the medium to long term, most migrants will generally rent before they buy.
CoreLogic research shows a typical ‘tenure cycle’ for migrants begins with renting and shared accommodation. Then home ownership increases over time so that the proportion of overseas migrants who eventually own property is on par with the Australian-born population (almost 70%).
There are a variety of factors that determine where migrants will want to live. These include employment opportunities, housing affordability, visa conditions, the location of friends or family, and the makeup of the community.
According to Australian Bureau of Statistics 2021 census data, 30% of people living in Victoria were born overseas, while in NSW it’s 29.3%, Queensland 22.7% and Western Australia 32.2%.
Whilst migrants and international students are returning and placing pressure on our rental markets, their numbers won’t get back to pre-COVID-19 levels for another two or three years.
The resulting impact on property prices is expected to be small at first, but will grow over time.