How does migration affect the housing market?
Overseas migration is often blamed for being one of the primary reasons influencing the housing market, but there are so many other factors driving property values.
Historical data indicates that more than two in three migrants become renters. This means overseas migration most immediately impacts the rental market rather than purchases.
This reaffirms the upward pressure overseas migration has had on the rental market in the short term. Historically, longer term growth in rent values is far less correlated with overseas migration.
Foreign investors largely underpinned the pre-sales of many of Australia’s apartment projects built in the last two decades. Since the Federal Government doubled the fees foreign investors must pay to buy a property in Australia on top of the removal of savings on stamp duty, pre-sales have dried up. Property developers need to pre-sell a large percentage of the units in their apartment building projects before they can get development finance to start construction.
This is one reason why there are currently very few large apartment projects coming out of the ground. The other reason is because they are not financially viable amid soaring construction costs and completion uncertainty.
Taking away a stream of buyers when the market is tight is only going to worsen the current rental crisis. Without finance, these buildings won’t be constructed and without an increase in apartment supply, the number of rental properties will only tighten further, forcing rents to continue rising.
Foreign buyers cannot buy established residential properties, they can only buy new or off-the-plan residential properties. This means they are not competing with Australian home buyers or investors.
We need overseas buyers to start buying apartments again so property developers can commence construction of more apartment buildings. This will take some of the pressure off soaring rental increases.
Data from the ABS (Australian Bureau of Statistics), also shows the arrival of skilled migrants helps boost the productivity capacity of our economy which is important for the ongoing growth of the Australian economy and the wealth of the country. We need a measured approach to population growth with a controlled number of new arrivals, for a healthy economy.
By Paul Kounnas
