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Immigration surge putting short-term pressure on rental markets

The flood of overseas migrants has put extreme pressure on the rental market and the Federal Government needs a more consistent long-term target, according to an expert.

Nearly 500,000 immigrants have landed in Australia in the past 12 months, which has contributed to a double digit surge in rents in places like Sydney, Melbourne and Perth.

According to CoreLogic, vacancy rates have fallen to 0.9 per cent across the capital cities and 1.2 per cent in regional markets – the lowest levels on record.

CoreLogic, Head of Research Australia, Eliza Owen said areas like Melbourne’s South East and Inner, as well as Sydney’s Inner South West and Parramatta were typically the locations where overseas migrants looked to move to and they have seen rents rise by nearly 20 per cent.

“Between July 2022 (when international travel restrictions eased) and October this year, these areas had among the strongest increases in rent values, averaging 18 per cent growth in rents,” Ms Owen said.

“This reaffirms the upward pressure overseas migration has had on rents in the short term.”

She said typically overseas migrants looked to rent, which is why rents had skyrocketed.

“Fluctuations in overseas migration most immediately impact the rental market, rather than purchases,” she said.

“ABS data on permanent migrant settlement outcomes showed 60.8 per cent of migrant arrivals in the five years to 2021 were renters.”

She said for temporary migrants, 68.9 per cent were renters in 2021, including 91.6 per cent of temporary skilled visa holders, and 83.5 per cent of student visa holders.

Source: CoreLogic

Ms Owen said Australians were also living in smaller households compared to pre-Covid times, putting more strain on supply.

“Assuming the average household size of 2.49 people per dwelling in January this year, the year to March would have seen demand for around 182,000 additional dwellings, in a year when around 175,000 dwellings were completed,” Ms Owen said.

“That’s not to mention new household formation domestically, as young Australians move out, buy first homes, or start their own families.”

Ms Owen said longer term, there’s a lower correlation between immigration levels and rising rents.

“The reason high overseas migration markets have more moderate rent growth long-term may be that the onset of Covid border closures saw a negative demand shock to these markets initially,” she said.

“Secondly, high overseas migration markets have attracted some of the highest concentrations of new, high density development over time, making rent growth relatively low over a longer period.”

Ms Owen said a temporary cap on migration may relieve housing demand in the short run, but COVID-19 had already demonstrated the longer-term issues with temporary migration caps. 

“Because housing demand is more liquid than housing supply, the re-opening of international borders created a demand shock, which quickly pushed up rents and worsened an already tight rental market,” she said.

“The demand shock also came amid constraints to new available supply, as sellers were put off by rising interest rates, and new home completions were delayed by increased material costs and labour shortages.”

According to Ms Owen, reducing the migration intake would have trade-offs.

“Australia currently has a largely uncapped temporary visa program, and imposing long-term targets on temporary and permanent migrants could allow better planning for infrastructure, housing and services,” she said.

She said it is better for the rental market to have less volatile levels of immigration and more focus on bringing in skilled labour.

“Domestically, other policies could be considered to ease the imbalance between housing supply and demand, such as incentivising more efficient use of existing housing stock,” she said.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.