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Apartment rent impacted by migration policy

Will migration policy impact apartment rents?

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Apartment rents have been rising strongly for almost two years due in part to high net migration. With changes in Australia’s migration policy both owners and renters want to know how it will impact rental rates.

While apartment capital values are influenced by a cocktail of inputs like job security, personal balance sheet, cost of debt plus supply and demand, the rental market is a much simpler equation. It’s really driven by just supply & demand. That’s about it.

Total housing supply is stuck in a ditch. Compared to long term averages, very few new apartments or houses are being built, despite state and federal government posturing. This AFR article “Housing for 100,000 people in limbo as construction projects stall” confirms this.

Victoria’s rental accommodation stock levels may even be declining with almost all investment property offered for sale being bought by owner occupiers. Not other investors. This therefore reduces the stock of rental accommodation.

With new supply stuck, it leaves demand as the only influencer in the rental economy. Demand in Australia, and particularly Victoria, is driven almost exclusively by the level of net migration.

Here are the migration numbers from the Australian Bureau of Statistics (ABS) for 12 months to 30 June 23

  • In 2022-23, overseas migration had a net annual gain of 518,000 people.
  • In the same year, migrant arrivals increased 73% to 737,000 from 427,000 arrivals a year before.
  • The largest group of migrant arrivals was temporary visa holders with 554,000 people.
  • Migrant departures decreased 2% to 219,000 from 223,000 departures a year prior.

In the Federal Budget this month, significant changes to immigration were announced. Read the detailed analysis here.

The key number to look for is Net Overseas Migration (NOM). NOM is the net gain or loss of population through international migration to and from Australia.

From 2013 to covid in 2020 NOM was stable at around 200,000 to 260,000 per year. Remember that during those years, Melbourne had a surge in supply of new apartments and houses which serviced the steady demand over those years.

In the year to June 23, NOM shot up to 518,000 which has seen a commensurate jump in rents. In the May budget, the Federal government announced an overhaul to the migration system to reduce NOM to 395,000 in FY24 and 260,000 by FY25.

That forecast of NOM of 260,000 by FY25 is back to the same level it was for the 8 years pre covid. But over the next couple of years there will be nowhere near the supply of new homes there was in those pre covid years of 2013 – 2020. There is also some conjecture about the ability of the government to control NOM to the level it suggests and that it may exceed those forecasts.

This all points to the demand for rental accommodation continuing to out strip supply (even with falling NOM). The supply of rental accommodation will plateau at best.

With demand forecast to exceed supply for some time, we can expect rental rates to grow but at a more sustainable level as some renters look for alternative options.

Breaking down the migration numbers, of the total arrivals (737,000) in 22-23, 75% were temporary visa holders and you would imagine most of these people will be seeking permanent residency in future years. Permanent visa holders and Australian citizens coming back to Australia have remained relatively unchanged over the years.

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