Before the pandemic, Australia’s population grew at an average annual rate of 1.5% – the second fastest growth rate of the 30 highly-developed member countries making up the OECD. This population growth played a crucial role in shaping the Australia rental market, driving demand for housing and rental properties across the country.
Then, in March 2020, the international border slammed shut, effectively halting the inflow of migrants and international students who had been contributing to the growth of the Australia rental market.
With no overseas migrants adding to our numbers, Australia’s population shrunk by over 15,000 in the September 2020 quarter, marking the first quarter-on-quarter drop in more than 100 years, according to the Australian Bureau of Statistics. This sudden drop in population had a direct impact on the Australia rental market, reducing demand for rental properties temporarily, but only until the international borders reopened.
Fortunately, a lot has changed since then – with both migrants and international students beginning to return following the reopening of the border. This influx is having a significant impact on the Australia rental market, as demand for rental properties begins to rise once again.
And while immigration has not yet returned to pre-pandemic levels, what started as a trickle is quickly turning into a flood, further intensifying pressure on the Australia rental market, as the PropTrack graph below shows. With more people seeking accommodation, the already tight rental market faces increasing competition, pushing rental prices higher in key areas.
All those people have to live somewhere so, unsurprisingly, there’s been an uptick in overseas searches for properties on realestate.com.au since the border reopened, according to PropTrack.
As a result, combined buy and rent searches hit the highest levels on record over the four months to September.
As the graph below shows, the majority of that growth has been driven by an increase in rental search volumes – with all the top countries recording double-digit annual growth.
But here’s the thing: rental vacancy rates in many capital cities are already at record lows, according to Domain.
Take Sydney and Melbourne, the two most popular cities for international migrants to live in – with 45% of international migrants settling there.
In October, Sydney’s vacancy rate fell for the fourth month running, dropping to an all-time low of 1.0%. Rental stock also plunged to a record low over the month, tumbling by a massive 53% year-on-year.
Meanwhile, Melbourne’s vacancy rate dropped to 1.1% – equalling its record low first set in 2018. What’s more, the city saw the greatest annual fall in rental listings out of the capitals, down 64% annually.
Predictably, those extremely tight conditions are sending rents skywards with SQM Research data for November finding median weekly asking rents grew by:
- 4% year-on-year in Sydney to $696
- 8% year-on-year in Melbourne to $513
Immigration to drive property demand: Moody’s
The return of overseas migrants might be placing additional strain on already-tight rental markets in the short term.
But while most recent migrants rent at first, over time their rates of homeownership become comparable with those that are Australian-born, according to CoreLogic.
As a result, population growth has been one of the key drivers of new dwelling demand in Australia, with net overseas migration historically accounting for more than 50% of demand, according to Moody’s Investors Service.
The credit rating agency predicts the strong recovery in net overseas migration to Australia will see property prices rebound in 2024.
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