Population: why zero net migration will be a shock to the housing system

For all that dwelling approvals are pumping along in Australia right now, there are factors weighing against the sector in 2021 and a few years beyond. One of the most significant is the likelihood Australia will slump to zero net overseas migration in 2021 and beyond.

Australia is one of the countries in the world that in addition to new births (more people being born than dying), has seen its population grow pretty consistently from net overseas migration (more people arrive than leave). Put the occasional posturing aside, the fact is that Australia’s consumption growth of the last decade – for everything, including but especially housing – has been driven in large part by positive net overseas migration.

As we would expect, the econocrats are onto this and have a clear view – expressed in the Federal Budget released in October – of the impact. Expectations are that in 2020-21, population growth will total just 0.2% and in 2021-22, a still lousy 0.4%.

That is because, as Ronald Mizen, commenting in the Australian Financial Review pointed out, the population growth will be so low because:

“… in the 2020-21 financial year, net migration will be in a deficit of 72,000 and a deficit of 22,000 people in 2021-22.”

What that will mean is, among other things, a whole lot less demand than would otherwise have arisen. But, lets unpick this a little further.

First, this means more people leaving Australia than coming. That will free up some housing, meaning there will be some downwards pressure on new housing demand.

Second, between half and two-thirds of migrants come in family groups and are of an age where they are ready to create housing demand for them and their family. New babies do not, generally speaking.

Third, the ‘out years’ or the period to 2023-24 see local population growth (new babies) lower also, because in uncertain times, people put off having families for a while longer, in many cases. Sure, that will not contribute to much in the short term, but it will have an impact.

So, for all that there has been a rush to get building work underway now, and even a potential drawing forward of demand, with the application of stimulus packages, once that demand is used up, there is not much around to replace it.

Perhaps Robert Harley, writing about the Federal Budget in the Australian Financial Review summed it up most neatly:

“There is a chasm between the current enthusiasm for new home building and the hard reality of demography.”

Indeed there is, and so, zero net overseas migration could put a large hole in the housing economy pipeline some time in 2021. When it does, the only real questions will be how deep is the hole and how long is it going to take us to dig out of it?