Australia is ‘on the edge’ in terms of its property market, heavily impacted by immigration. With net migration figures exceeding government forecasts, the ripple effects are being felt in both the rental and sales sectors. This is becoming a critical issue for the upcoming federal election, as rising property prices and rental shortages collide with an increased demand for housing.
Let's explore how this influx of new residents is shaping the property landscape in Australia.
Rental Market Pressures: A Crisis of Supply
Australia’s rental market is under immense pressure. Net migration for the year ending June 2023 was 528,000, significantly higher than the government's revised forecast of 400,000, a trend that is likely to continue. With more people entering the country, demand for rental properties has skyrocketed, creating a tight market that leaves few options for both long-term residents and new arrivals.
Immigrants often turn to rental housing as their first option, whether they are skilled workers, students, or temporary residents. The challenge, however, is that housing supply has not kept pace with this demand. With construction delays, rising interest rates, and a limited number of rental properties, vacancy rates are at historic lows, particularly in major cities like Sydney and Melbourne being 1.2% and 1.5% respectively. The nation average is currently sitting at 1.3%.
The long-term vacancy rate averages show Sydney at 2.4%, Melbourne at 3.0%, and the national average at 2.5%.
Impact on Rent Prices: As a direct result of this increased demand, rent prices have surged across Australia. According to recent data, national rental prices have risen by approximately 10% over the past year. In Sydney’s Eastern Suburbs, the rental market has become particularly tight, with some properties receiving up to 50 applications within days of being listed.
The long-term average net migration stands at 226,000 people annually, with an average rental price increase of 3.2% per year, and an average national rental price of $439 AUD over the 10 years.
Sales Market: Strong Demand Amidst Supply Shortages
While immigration has a direct impact on the rental market, the sales market is not immune. Immigrants who gain permanent residency often look to buy homes, adding pressure to an already strained supply of housing. Moreover, skilled workers and international investors are eager to purchase property, further tightening the market.
The surge in immigration has coincided with a period of slow housing construction, exacerbating the problem. The number of new homes being built has not kept pace with demand, leading to sharp price increases in many areas. Sydney and Melbourne, two of the most popular destinations for immigrants, have seen house prices soar by 6-8% in the past year alone.
The long-term average net migration matches the earlier data at 226,000 people per year. Sydney's average median house price is $988,500 AUD, while Melbourne's is $815,500 AUD. The average number of homes sold annually in Sydney and Melbourne is 30,800 and 32,000, respectively.
Policy Responses: Caps and Constraints
The Australian government has tried to manage the housing shortage by placing caps on visas, particularly for international students, in a bid to control immigration numbers. Yet, despite these efforts, migration remains high, largely due to the need for foreign workers in critical industries like healthcare, education, and agriculture. Skilled immigrants are in high demand, and employers are lobbying the government to keep the intake high.
Labor's housing policies, aimed at easing the housing shortage, are being tested by this unanticipated surge in immigration. Meanwhile, the opposition’s pledge to drastically reduce migration numbers by up to 100,000 annually may not be a viable solution, as it could have detrimental effects on industries dependent on migrant labor.
A Rude Awakening: The Path Forward
The current housing market situation is shaping up to be a key issue in the upcoming federal election. With net migration projected to remain high, housing affordability, availability, and the impact on the rental market will be front and center for voters. Whether the government can balance immigration with sustainable housing policies remains to be seen, but one thing is clear: Australia’s property market is on a trajectory that will require decisive and innovative solutions.
Solutions are needed to balance economic growth, affordability, and urban development. These strategies could reshape how Australia manages housing demand and urban planning.
Possible avenues include:
a) Modular and Prefabricated Housing
Modular and prefabricated homes represent a faster and more cost-effective approach to addressing housing shortages. These homes are built in sections in factories and then assembled on-site, significantly reducing construction time and costs. Modular housing can provide a quick solution to the immediate housing demand driven by immigration. Governments can encourage the use of prefabricated housing for both public housing and private developments, creating affordable housing communities quickly, especially in areas with limited land availability.
Potential Benefits:
- Reduced construction time.
- Lower cost of building affordable housing.
- Adaptable designs that can meet diverse community needs.
b) Repurposing Commercial Spaces into Residential Areas
With the shift towards remote work and e-commerce, many commercial buildings, especially office spaces, are now underutilised. Repurposing these buildings into residential units can help alleviate housing demand without the need for new land. This strategy can be especially effective in cities like Sydney and Melbourne, where real estate for new residential projects is limited.
Potential Benefits:
- Efficient use of existing infrastructure.
- Less need for new land development in crowded cities.
- Creates mixed-use spaces that integrate work, life, and leisure.
c) Co-Living and Shared Housing Models
Co-living, a form of shared housing where residents rent individual rooms but share communal spaces, can offer affordable housing options for young professionals, students, and immigrants. This model encourages efficient use of space and provides affordable alternatives for those priced out of traditional housing markets. Developers and governments could promote co-living developments with amenities designed for community living.
Potential Benefits:
- Affordable and flexible housing for renters.
- Efficient use of living spaces, reducing overall demand.
- Fosters community building, which can ease social integration for immigrants.
d) Incentivising “Build-to-Rent” Developments
The "build-to-rent" (BTR) model involves developers building housing specifically designed for long-term rental rather than sale. This creates a stable, high-quality rental market with properties maintained by institutional investors or developers, ensuring better quality rental experiences. BTR can help ease the pressure on the traditional rental market by providing more purpose-built rental properties. Governments could offer tax breaks or zoning benefits to developers who engage in BTR projects.
Potential Benefits:
- Increased rental supply with long-term quality maintenance.
- Provides secure, long-term rental options for tenants.
- Supports migration-driven demand without over-inflating property prices.
e) Micro-Apartments and Tiny Homes
Micro-apartments and tiny homes are small, efficient living spaces that cater to people looking for affordable and minimalist lifestyles. These spaces are designed with multifunctional furniture and innovative layouts to maximise the use of space. Tiny homes can also be developed in urban areas or on the fringes of cities, offering affordable living solutions for low-income earners, immigrants, and young professionals.
Potential Benefits:
- Affordable housing solution for those priced out of larger homes.
- Efficient use of urban space.
- Reduces the environmental footprint of housing.
f) Digital Platforms for Housing Efficiency
Leveraging technology, governments and the private sector could create digital platforms that facilitate housing matching, reducing vacancies and underutilisation of properties. These platforms could use algorithms to match tenants with available homes or co-living arrangements based on preferences, budgets, and location. This can improve efficiency in the housing market, making it easier for immigrants and local residents to find appropriate housing quickly.
Potential Benefits:
- Reduces vacancies in both rental and ownership markets.
- Enhances transparency and accessibility in the housing market.
- Provides flexible options for renters and buyers.
g) Urban Densification with Green Building Standards
Instead of expanding urban sprawl, cities could focus on urban densification by building up rather than out. This involves increasing the number of residential units in existing urban areas, particularly around transport hubs and city centers. Using green building standards, these high-density developments can be energy-efficient, environmentally friendly, and designed to accommodate more residents without sacrificing quality of life.
Potential Benefits:
- Reduces the environmental impact of urban expansion.
- Enhances public transport accessibility and reduces congestion.
- Creates more housing within existing infrastructure.
h) Government-Backed Rent-to-Own Programs
For many, homeownership is out of reach due to high property prices. A government-backed rent-to-own scheme could help bridge this gap by allowing renters to gradually transition into homeowners. Under this model, tenants would pay rent with a portion going towards eventual home ownership. This can provide a path for new immigrants and young families to enter the housing market while relieving pressure on the rental market.
Potential Benefits:
- Increases homeownership opportunities for middle- and low-income households.
- Reduces long-term pressure on the rental market.
- Helps renters build equity over time.
i) Public-Private Partnerships for Affordable Housing
Governments can work with private developers through public-private partnerships (PPP) to build affordable housing projects. The government can provide incentives such as land or tax benefits, while private developers bring their expertise and capital to construct these projects. These partnerships can be especially effective in producing large-scale affordable housing quickly and efficiently.
Potential Benefits:
- Provides a balance between government oversight and private sector efficiency.
- Accelerates the development of affordable housing.
- Encourages long-term sustainability and innovation in housing projects.
j) Encouraging Sustainable Suburban Development
With urban centers under intense pressure, Australia could promote sustainable suburban development in less crowded regions. By improving infrastructure, public transport, and amenities in suburban and regional areas, the government can encourage people to settle outside the major cities. Coupled with incentives for businesses to set up in these areas, this could relieve housing demand in Sydney and Melbourne.
Potential Benefits:
- Reduces strain on major cities' housing and infrastructure.
- Promotes balanced regional development.
- Encourages lifestyle migration to greener, more affordable areas.
As the debate unfolds, Australians are likely to face continued pressure in both rental and sales markets. The combination of high migration and slow housing supply growth is creating a perfect storm that could shape the housing landscape for years to come.
Conclusion
Immigration is a double-edged sword for the Australian property market. While it brings much-needed workers to support the economy, it also adds significant pressure on an already strained housing supply. While some ideas in this article may challenge traditional thinking about housing, they offer creative ways to address the growing demand without sacrificing economic growth. Whether through building faster with modular housing, incentivising new rental models, or repurposing existing infrastructure, there are opportunities for Australia to reshape its housing market for a more sustainable and equitable future. Politicians and policymakers must consider bold, forward-thinking solutions if they are to resolve the intertwined issues of housing, immigration, and affordability in the years ahead.
With the federal election looming, both sides of the political spectrum will need to present viable solutions to address the critical housing challenges created by Australia’s growing population. The discussion isn’t just about numbers; it’s about homes, livelihoods, and the future of Australia’s urban and suburban environments.
Article by:
John Wills FAPI CPV JP
Principal
Wills Property
www.willsproperty.com.au
