From the 21st of February 2022, the Australian Government opened the borders and welcomed double-vaccinated tourists and visa holders from around the world.
Eligible visa holders can come to Australia without a travel exemption or quarantining, and concessions are being granted to skilled visa holders in order to incentivise them to stay in the country for longer.
The latest overseas arrival data from the ABS shows total arrivals to Australia began rising sharply weeks earlier, as international students, permanent residents, and Australian citizens were welcomed back.
Overseas arrivals totaled 195,760 through December (up from 34,670 arrivals in December 2020) and provisional estimates suggest the number was higher still for January.
The return of overseas migration, and subsequent demand for housing, is expected to be slow.
However, many of the most impacted markets have already seen a recovery trend since early last year, thanks to relatively affordable rents, a decline in total listings, and more recently, temporary migrants such as university students and visitors.
Some migration data also highlights interesting trends, such as an (albeit small) pivot in skilled migration visas to Queensland, and the relatively quick return of arrivals from Singapore.
These ideas are unpacked below.
Short-term arrivals dominate
In the five years prior to COVID-19, ABS data suggests Australia would see around 1.8 million overseas arrivals per month.
While December 2021 arrivals were only 10.4% of the December 2019 level, the pattern was much the same, with around 64% of visitors being short-term (here for less than one year).
Of those who arrived in December 2021 around 34% of short-term arrivals to Australia intend to stay less than one month, 52.2% would stay one to six months, while 13.6% would stay between six and 12 months.
While priorities for entry to Australia at the end of 2021 were focused on returning Australian citizens and their relations (which could see people staying with friends or relatives), there will no doubt start to be an increase in demand for short-term accommodation.
This will mean a lift of occupancy rates and revenue across the short-term accommodation rental market and commercial accommodations (albeit off recent lows).
This would benefit popular tourism destinations like Sydney, Melbourne, and Brisbane, and regional locations such as Cairns and regional Tasmania.
Notably, recent months have seen a relatively high portion of student visa entrants, as student arrivals have been prioritised to coincide with the February / March intake of Australian universities.
Rental demand from this cohort of migrants is likely to be most concentrated across the inner city precincts of the capital cities and within close proximity to academic hubs.
Where do overseas migrants go?
For those migrating to Australia, which means intending to stay in the country for at least 12 of a 16-month period, many factors determine where they will want to live.
These include employment opportunities, housing affordability, visa conditions, the location of friends or family, and the make-up of the community (i.e, whether there is an established community where large numbers of people from the same country already live).
Historic ABS data shows around 45% of overseas migrants settle across 10 SA4 regions each year, which are located across Melbourne and Sydney.
These regions are in Figure 1.0. The flow of people arriving from overseas is different from the flow of people moving internally in Australia, which is part of why housing market dynamics have looked a little different through a period of closed international borders.
The biggest gains from internal migration are usually in the Gold Coast and the Sunshine Coast.
Most overseas immigrants tend to experience a ‘tenure cycle’, which begins with renting and shared accommodation.
The likelihood of homeownership increases with time in Australia, to the extent that rates of homeownership among overseas migrants are comparable with those that are Australian born₁.
But this means that recent arrivals to Australia are most likely to be renting, and this is where the housing market was most negatively impacted by border closures from March 2020.
Figures 2.1 and 2.2 show the cumulative change in the CoreLogic rental value indices across the SA4s from Figure 1.0.
The indices show sharp declines since the month international borders closed, with a recovery trend evident from January 2021.
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Rents across inner-city Sydney and Melbourne wound up with peak to trough rental value declines of -12.1% and -11.3% respectively, and are now the only markets where rents remain below where they were in March last year.
Growth in these markets since March 2020 is lower than the change in rents nationally (which was 11.0% between March 2020 and January 2022).
However, the bottoming out in rental values started well before international border restrictions lifted, with many of these markets seeing advertised rental stock below pre-pandemic levels (figure 3.0).
This may be because relatively affordable rents have started drawing rental demand domestically, while some investors may have sold, or held their investments off-market, amid weak rental conditions.
The pace of returns is faster in some countries than in others
While Australia has been relaxing travel conditions for international arrivals, there are still many factors that create some uncertainty around the speed of a migration recovery.
These factors include a blow-out in visa processing times, and policies of travellers’ home countries (for example, China requires arrivals from Australia to quarantine for 14 days, and the US Centers for Disease Control and Prevention recommends avoiding travel to Australia).
Another factor is the time and cost associated with travel to Australia, which was cited as a deterrent to visiting Australia in a recent survey of British residents.
There is a lingering uncertainty around COVID-19, where variants of the disease have led to fluctuations in travel restrictions.
This makes high-cost trips for tourists relatively risky.
However, there may be variations in the pace of rising arrival numbers depending on the purpose of travel and country of departure.
Figure 4.0 presents ABS counts of arrivals to Australia for January over the past five years from countries where Australia has already welcomed tourists and visa holders.
These ‘travel bubble’ relationships meant that arrivals could come to Australia late last year, and early in 2021, without travel exemptions or quarantine if their vaccination status was compliant with Australian policies.
For New Zealand and Japan, arrival numbers through January 2022 were only at about 5% of pre-COVID levels.
Singapore however, has already seen arrivals get to 24.0% of where they were in January 2020, before international border closures (though off lower levels).
The rapid rise in arrivals from Singapore may represent a relatively strong bi-lateral travel arrangement since November, as well as travel arrangements for skilled workers who have come to fill roles in Australia.
However, it is also worth noting that with a globally tight labour market, expat programs are also drawing Australians back overseas, with more people actually leaving Australia for Singapore in January 2022.
Looking forward, the return in overseas migration would most benefit the Melbourne – Inner region.
It is also noteworthy that a decline in migration through the COVID period may eventually flow through to a lower demand in purchases where overseas migrants would otherwise be further along in their tenure cycle.
This could have implications for areas like Melbourne’s West and Sydney’s inner west SA4 markets, where there have historically been high internal migration flows from the inner city to these places.
Additionally, housing preferences for skilled migrants may be subject to change over time.
According to data from the Department of Home Affairs, 12.9% of skilled visas granted in the second half of 2021 were for arrivals to Queensland, up from an average of 11.5% in the three years to June 2019.
Skilled visas granted across the board have declined, and the highest portion was still granted for NSW (43.5%).
However, it is interesting to note that the rise of popularity of regional Australia and South East Queensland domestically may eventually attract greater employment opportunities, business entries, and overseas migrants to these same locations.