Dwindling migration is set to drag Australian population growth to a 103-year low with potentially disastrous results for the housing market.
Property research group CoreLogic warned the slowdown would have an impact on construction, rents and off-the-plan apartment sales.
Group head of research Tim Lawless said the construction sector was particularly exposed.
Fewer overseas arrivals would reduce housing demand which in turn would stall new projects, he wrote in CoreLogic’s latest Property Pulse.
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Lower migration could have the added effect of causing a protracted drop in rents within inner city areas considering overseas arrivals normally make up a large share of the tenants.
Falls in rents could also force down prices as there would be fewer investors willing to purchase units they may struggle to tenant.
This would increase “settlement risk” for buyers of units sold off-the-plan – a situation where the value of a property drops below the purchase price in the time it takes to get built.
CoreLogic head of research Tim Lawless.
But Mr Lawless added these impacts would not be evenly spread, with Melbourne and Sydney to be the worst affected.
Nearly 85 per cent of overseas migration last year flowed into capital cities and three quarters of the that movement went to Sydney and Melbourne.
“Overseas migrants are generally centred around the CBD … or transport hubs such as Parramatta in Sydney or Clayton in Melbourne,” Mr Lawless said.
“The impact of the sharp fall in overseas arrivals can already be seen in surging inner city rental advertisements, with rental listings more than doubling across some key inner city unit precincts.
There is a long pipeline of new residential projects within inner Sydney. Picture: John Feder
“The rise in available rental stock in these precincts is already weighing on rental income.
“Every capital city is showing a larger fall in unit rents relative to house rents through the COVID period to-date, with a more significant difference in Melbourne and Sydney.”
Sydney and Melbourne unit rents were down an average of more than 4 per cent since March, Mr Lawless added.
With rents reducing the ability of landlords to service their mortgages, there could be more distressed listings within inner Sydney and Melbourne.
“A higher proportion of (new) units may settle with a valuation lower than the contract price,” Mr Lawless said.
“Many of the aforementioned inner city precincts are toward the end of a surge in new apartment supply …
Lower population growth could result in fewer new projects down the line. Picture: John Fotiadis
“Many of these yet-to-be completed projects will settle while rental vacancies remain high and rents are falling, which may put downward pressure on property values.”
ABS building activity data showed there were more than 50,000 units under construction across NSW at the end of March, and just over 45,000 across Victoria.
Mr Lawless said lower population growth would affect the market for some time.
The outlook for overseas migration remains highly uncertain and dependent on international borders reopening and, potentially, travel agreements being negotiated between countries.
Recent forecasts from Treasury indicated annual population growth across Australia is set to slow from around 1.4 per cent pre-COVID to 0.6 per cent through the 2020/21 financial year.
Inner Melbourne attracts Australia’s highest numbers of new arrivals.
That implied Australia’s annual population growth will reduce from around 350,000 in 2019 to 154,000 over the year ending June 2021 – a reduction of 56 per cent relative to 2019 levels.
This would be the lowest rate of population growth since 1917.
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