Changes to migration policy would dampen housing demand, likely impacting the New South Wales housing market more than others.

The latest population data from the Australian Bureau of Statistics was released recently, which showed the national population is rapidly approaching the 25 million mark, with 395,613 more people residing in Australia over the twelve months to September 2017. 

From a housing market perspective, population growth can be regarded as a proxy for housing demand – more people means a larger requirement for dwellings.  With this in mind, its interesting to note that the states where population growth is tracking substantially faster than the long term average (Victoria, New South Wales, ACT and Tasmania) are generally the same markets where dwelling values have risen the most over recent years, while the alternative is also true:  areas with lower than average population growth have shown weaker conditions.

Overseas migration comprised the largest component of population growth in Australia, at least at a national level.  Over the twelve months to September 2017, net overseas migration accounted for 63.2% of Australia’s population growth, with the remaining 37% coming from natural increase (ie births minus deaths). Early 2008 through to late 2009 was the last period where net overseas migration made up such a high concentration of population growth, a period when the world economy had weakened in response to the Global Financial Crisis while Australia’s economy remained reasonably buoyant thanks to the commodities boom.

Most of these overseas migrants are arriving in two states:  New South Wales (39.5%) and Victoria (35.4%).  There has never been a period historically, at least as far back as June ‘81, which is when the ABS demographic series commences, when overseas migration has been so concentrated within two of Australia’s states.

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Outside of the broad ranging debate about whether a ‘big Australia’ is a positive or negative thing, the fact that overseas migration is so concentrated within two states potentially poses some housing market risk should overseas migration slowdown.   This risk is particularly relevant to New South Wales, where the other components of population growth, interstate migration and the rate of natural increase have been weak. 

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Overseas migration comprised 80% of New South Wales population growth over the twelve months to September 2017, while natural increase accounted for 33% of growth and interstate migration was a drain of 13% on the states population.

If the flow of overseas migrants into New South Wales were to slow, which is a possibility if migration policies were changed, we could expect housing demand to slacken, especially considering the interstate migration outflow is gathering some pace and the rate of natural increase is tracking about 8% below the 30 year average across New South Wales.

Most other states are showing a more even split between the three components of population growth which should help to support broad based demand for housing.

Although a date for the next federal election hasn’t yet been set, the population debate is likely to be a main feature of political platforms.  While strong population growth helps to support economic growth, it also creates additional housing demand, more competition across labour markets, higher usage of transport systems and places additional pressure on essential services such as schools and health care.

If we were to see migration policies tightened, its likely both the Sydney and Melbourne housing markets would see a reduction in demand for both buying and renting dwellings.  Considering interstate migration is such as large component of overall population growth in Victoria, the Melbourne market would be less affected by lower overseas migration rates.

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