One area that is facing a longer lasting Coronavirus impact and has an important bearing on housing is migration ﬂows.
Immigration has been a key driver of Australia’s population growth and economic growth, but what happens now that our borders are closed?
The coronavirus is driving the biggest population decline in Australian history, with 300,000 tourists, temporary workers and students already departing this year in an exodus that threatens to deepen a consumer spending slump and hit the housing market.
How this will play out moving forward was the subject of recent commentary by Westpac in their latest housing market update.
Here's what their economists had to say...
The pandemic has led to a virtual shutdown in global passenger movements – IATA reported a 55% drop in the volume of international air travel globally in March, with activity likely coming to a complete standstill in April.
With international travel a clear factor in the spread of the disease, Australia, like many countries, has introduced strict quarantine rules.
Provisional ABS estimates indicate that overseas arrivals in April were down an extraordinary 99% on a year ago.
Restrictions on inbound travel remain in place.
Looking ahead, some eventual relaxation is only likely to come late in the post–COVID ‘reopening’.
Even then, authorities will clearly retain quarantine requirements – particularly for those arriving from jurisdictions that are still experiencing uncontrolled community transmission of the virus.
That said, mandatory quarantine is likely to be less of an impediment for long term migrant ﬂows than for short term visitors, particularly if these requirements can be easily met.
Those arriving as permanent migrants will probably accept the impost.
Even those arriving on some temporary visas may be willing to accept the stand down.
In particular, foreign students could feasibly commence their study remotely while in isolation and education providers will clearly be looking to help facilitate the whole process.
Those coming in on temporary worker and working holiday visas may be less accepting due to the costs involved and (for most) an inability to work during the stand down period.
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For migrants or students contemplating a move, the lower health risks here compared to the likes of the US, the UK, Canada and Europe could be an important deciding factor.
Similarly, the prospect of a somewhat milder economic hit from the virus (‘touch wood’) may also be a material positive.
On balance we see these mitigating factors as signiﬁcant but not sufficient to avoid a material slowing in immigration.
We expect net migration to roughly halve over the next year from around 240k a year to 110k a year.
Note that this is milder than the Government’s formal view – PM Morrison has indicated that net migration is currently expected to fall by 85%.
It should also be noted that policy is a wildcard here as well.
While permanent migration programs have a looser relationship to actual net migration than they have in the past (due to the increased importance of temporary ﬂows as well as the free movement of Australian and New Zealand residents) concerns about high unemployment may see these and some temporary schemes reined in.
Either way, slower net migration will lower population growth.
Population growth will slow to 1%yr on our forecasts (0.75%yr on the government’s view).
That in turn will see slower growth in the underlying physical demand for new dwellings – from around 180k dwellings a year to 130k (100k on the government’s view).
While this is less of an issue as new building pulls back sharply near term, it may become a problem if an eventual recovery in construction runs ahead of migration.
It also means some of the key drivers of growth and housing market strength in markets such as Sydney and Melbourne will be much more muted.
Source: Westpac Housing Pulse 2020. This material contains general commentary only and is not intended to constitute or be relied upon as personal financial advice.
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