The Australian government has predicted that immigration would fall by 15% during fiscal 2020 and would fall further again by the end of June 2021. The 2021 financial fall could be as high as 85%.
This would represent a fall of almost 200,000 permanent overseas arrivals this financial year relative to fiscal 2019.
The decline will undoubtably result in a significant drop in household formation.
According to research commissioned by the National Housing Supply Council there are, on average, 3.3 people per immigrant household in Australia. Applying this ratio, the reduction in immigration between fiscal 2019 and 2021 would imply demand for around 60,000 fewer dwellings than would have otherwise been the case.
There have been recent reports of larger expected falls in new housing demand over the same time period, with some as high as 80,000. Most of these forecasts are based on the lower 2.6 average Australian household size rather than 3.3 which applies to immigrant households.
Yet despite then higher number of people per household, some 50% of immigrants reside in apartments (this obviously takes into account overseas students), with 30% living in detached housing and 20% in townhouses or similar type housing.
So, as many have been stating, any fall in immigration is felt the most in the apartment sector.
In summary, Australia’s near future population will be smaller – and older – than we previously assumed because of the sharp drop we are likely to see in net overseas migration.
Just how long this will be the case is anyone’s guess.
The average age of an adult Australian immigrant is 34 years of age. Fewer immigrants will see less first home consumers in the home buyer mix.
Also, in their absence – by default – the potential size of the downsizing buyer segment will be much larger in coming years. Yet what often stops this market from shifting from their large homes to smaller dwellings is stamp duty.
We should be reducing – better still, removing – stamp study transfers.
The introduction of the GST was supposed to eliminate such taxes. It is time action was taken. Such action will see more people sell and downsize into smaller digs, which in turn will generate more new housing construction, thereby helping to reduce the impact of lower immigration on new dwelling starts.
What would also help would be that any extension of the HomeBuilder incentive embraces attached dwelling construction.
There will also need to be changes in the current, overly restrictive, town planning mindset regarding infill development in many local councils.
Another thing getting in the way of downsizers buying property – and in this case investment stock – is the recent changes in the way loans are accessed for folks over 50 years of age. It is especially hard, given these changes, for those who are self-employed.
Since late July many lenders have demanded that older loan applicants nominate a date of for their retirement plus show evidence of their superannuation assets. There is also the assumption that their super assets will not grow in value.
These rules apply to anyone whose retirement age may occur during the life of the mortgage.
At present the property market is struggling with the absence of investors – as opposed to owner-occupiers — yet the new policy cuts straight into the age group that traditionally provides the market with property investors.
And despite what you read in the papers, rental vacancy rates are very tight across much of Australia, including in many parts of our capital cities. We need more investment housing.
Put simply, the odds have been raised against older investors entering the property market.
Hopefully this will be reassessed as part of Josh Frydenberg’s current lending leniency.