The Federal Government’s announcement to increase our permanent migration intake from 160,000 to 195,000 per annum is the most significant news item of the year from an investment perspective.
It’s gotten a little bit lost in the news cycle of rent freezes, interest rates and the Queensland Government’s changes to land tax.
But it is easily the news that will have the biggest impact on the property market and the Australian economy more broadly over the next 12-24 months.
For some background, the Australian population has grown by roughly 375,000 people per annum over the past decade.
Of that population increase, roughly 145,000 relates to natural increase (i.e., more births than deaths).
The balance 230,000 (six in 10) per annum has come from overseas migration.
Overseas migration across 2020 and 2021 (during the pandemic) saw a net loss of 8,000 people over the two years.
That effectively means we would have had 450,000 extra people in Australia right now if the pandemic hadn’t interrupted out migration program.
Could you imagine the state of our rental crisis right now if that was the case!
On the one hand, the announced increase in migration intake is cause for concern given there is nowhere for these new migrants to live. The vacancy rate in Australia today is just one per cent. A total of 36,741 dwellings. That’s just over one month’s worth of population growth.
I’d imagine the Government were in an impossible position; either having to bring in migration causing further pain to renters or cause deeper economic pain for businesses and consumers.
In making the decision to increase migration, it chose to prioritise the economy over our housing crisis.
Put simply, Australia needs more people. If the pandemic hadn’t happened, we would have had 450,000 more people working jobs in Australia than we do today.
That we don’t is partly the reason for our high inflation – there’s not enough people to deliver the goods and services being demanded. We are seeing it in the form of short supply of fruit and vegetables at the local supermarket, and long queues at airports.
The unemployment rate in Australia is three-and-a-half per cent today – the lowest it has been for 46 years.
For the first time in Australia’s history, there are more job openings than unemployed people. Literally. There are 480,000 job openings today, compared with 473,648 unemployed people (a ratio of just under one unemployed per job).
For comparison, in the decade prior to the pandemic there has always been roughly three unemployed people for every one job opening.
The Government had no choice but to increase migration, and quickly, to get more workers into our country. And Australia has long been a country that has been seen as a very attractive place to migrate to. We have fantastic weather, a relaxed and laidback way of life, a world best healthcare system, and we are one of only six countries in the world (out of 195) that has enough energy and food to not only provide for itself but export it.
What does it mean?
In the short term, I think rents will increase in most capital cities by 10 per cent per annum, like they are today (and have been since the pandemic started). It has already started with overseas searches for Australian rental properties nearly doubling since the start of the year.
In the more medium to long term, I think we are going to see an acceleration toward denser living in Australia. The solution to affordability – whether to buy or rent.
More townhouses and apartments, and smaller blocks of land is a trend that we have seen in Australia since the middle of the 20th century.
It’s likely that this decade is the last time we see a 400m2 block delivered in new housing developments.
It sounds crazy but I’m sure it sounded crazy in the 1980’s that blocks of land would be built smaller than 600m2 (a small block at the time). Our population was 15 million then; it’s 25 million today and will likely hit 30 million before the end of this decade.
