September was a turbulent month for Australia. A massive bushfire that was raging for many days in central Australia was threatening to spill over to the popular tourist town of Tennant Creek. Tennant Creek, a location that is an abode to nearly 3,000 residents, is a favoured pit stop for tourists journeying through the remote outback region along the Stuart Highway. The fires which were first reported on 4 September spread over 20,000 square kilometres, which in real estate parlance is a land area that could have provided shelters for a good number of people who are currently struggling with no housing options. While climate change undoubtedly has the Australian property market in a fix, as of recently, most are of the opinion that the unprecedented flow of migrants into the country is adding fuel to the fire and is acting as a major reason why there is a co-existence of a housing shortage and a housing unaffordability.
The correlation between housing prices and overseas migration
In the last ten years, Australia has witnessed a substantial influx of immigrants, with an annual net overseas migration averaging around 240,000 individuals. Australia has become an attractive destination for most foreigners and as the number of people settling in the country continues to rise, there will also be a heightened need for housing. An increased demand for housing boosts the economy and leads to higher property values, simultaneously. Major cities such as Sydney and Melbourne have seen the most significant spikes in property prices, with Sydney’s median house price surging by more than 100% in the past decade.
Westpac; a prominent bank in Australia, is of the opinion that the housing prices will surge even more in 2024 and that it will have nothing to do with interest rates. Stephen Johnson, the economics reporter for Daily Mail Australia writes about how according to Westpac’s treasury’s forecasts, the country is expecting a total of 350,000 new arrivals in 2022-2023, followed by another 300,000 in 2023-2024. When you add up the two values, it would equate to 650,000 new migrants over the time span of two financial years. This number as such would mark a new record, surpassing the 15-year high of 303,700 migrants recorded in the year ending September 2022. This figure consists of permanent arrivals such as skilled workers, family reunion migrants, and humanitarian migrants, as well as long-term arrivals like international students. Westpac has also made a keen observation that reflects how one-third of these migrants eventually become homeowners, typically securing a house within six months after their initial arrival.
Owing to the fact that there is a very evident relationship between population growth, demand for housing and thus the prices, and also because Sydney and Melbourne are considered to be the two main cities that absorb most immigrants, as of the end of 2022, the median house price in Sydney was $1,221,367, and Westpac anticipates a 1% price growth in 2023, which would bring it to approximately $1,233,581, according to CoreLogic data. Looking ahead to 2024, a 5% increase would push the prices further up to around $1,295,260. In Melbourne, the median house price was $905,894 at the end of the previous year. Westpac predicts a 1% decline in 2023, which would lower it to approximately $896,835. However, they also forecast a 5% increase in 2024, which would raise prices to around $941,677.
Despite the fact that Australia has a history of migration, most of these migrant gains are unexpected. Which is why the Australian property market has been pushed to a corner. Therefore every time there is a spike in demand, supply cannot happen on cue. Especially not with the interest rates that are in place that affect the cost of construction. Even though most conventional thinking bodies posit that drawing a line on overseas migration is the solution to the housing crisis, it must be comprehended that border control is not even a small part of the solution. Building walls to restrict access to migrants will take a huge hit on the broader economy of Australia. Primarily because the country’s migration programme does not function on goodwill and compassion but on the income that immigration brings into the country. Second, immigrants are equipped with much-needed labour skills that hold the economy together. Therefore, what needs to be tackled head-on, are the structural potholes that underlie the entire housing issue.
Is putting the blame on the influx of immigrants a way to divert attention from the actual problem?
The influx of immigrants is definitely a part of the problem. No one can deny that. But it is not ‘the’ problem. The additional half a million people who are expected to enter the country in the following year or two need places to live in and they can’t pack their houses into their suitcases. As a result, they have to compete with the local residents in the rental market, where vacancy rates are exceptionally low, and rents are increasing at a double-digit rate. This will spill over to the housing market because there is a shortage of homes available.
First and foremost, Australia is not constructing enough new homes to accommodate the increasing population, and building approvals for dwellings have fallen to levels not seen in a decade, ultimately leading to a discrepancy between supply and demand. This drives up house prices, making it challenging for many, particularly first-time buyers, to enter the property market. Consequently, more Australians are finding themselves priced out of housing, worsening the housing crisis.
However, the implications of an undersupplied housing market go beyond personal struggles. Rising rental and purchase costs create a burden for those seeking housing, and the lack of affordable options can lead to increased homelessness, social inequality, and financial stress for many households. These effects ripple throughout the broader economy as well.
High housing expenses can deter skilled migrants from considering Australia as a destination, as they may question why they would come if there’s a housing shortage. This, in turn, limits the talent pool available to businesses and hampers economic growth. Similarly, elevated living costs can discourage Australians from spending in other sectors of the economy, further impeding overall economic growth.
An amalgamation of problems such as dramatic increases in the cost of building new houses, persistent spikes in property prices, time taken to build new houses and housing shortages could deceive a country into thinking that ‘border control’ is the easiest way out of this dilemma. But capping immigration until the housing market has enough housing to accommodate foreigners, (no one can predict when that would be), is not the solution. Because, if one digs deep enough, one can discover that the housing supply is a chronic problem.
(Sandunlekha Ekanayake)