Surge in Immigration Boosts Australian Housing Market Despite Interest Hike: Forecast Reports

A new wave of reports is predicting that Australian housing prices will continue to rise into next year, overriding previous forecasts of a downturn, due to increased immigration demand and shortage of housing supply. Data from Domain suggests a recovery across Australia, with housing prices set to reach record highs in multiple capital cities by the end of the next financial year.

“Sydney, which led the fall in home prices last year as the Reserve Bank began lifting its cash rate, will also power the rebound,” said Peter Hannam of Domain. Sydney house prices are expected to rise 6-9% by the end of June 2024, taking the median price to over AUD 1.6 million. Melbourne, Adelaide, Perth, and Brisbane are also predicted to see significant rebounds in house prices, albeit at a more modest rate.

Meanwhile, Jim Malo’s report, also echoing Domain’s forecast, suggests that the combined capital cities could see house prices rise 2-4% by the end of the 2024 financial year. This resurgence is also expected to influence unit prices, which could rise by 1-3%.

Despite the Reserve Bank lifting its cash rate at the fastest pace for three decades since May last year, property prices are expected to rise. This trajectory is seen as counterintuitive by some, however, Domain’s chief of research and economics, Dr. Nicola Powell, argues that other economic factors will outweigh the downward pressure from declining borrowing capacity and sluggish real wages growth.

“It’s a steady recovery. This isn’t a snap-back into a boom phase,” Powell stated. According to her, this growth is fundamentally underpinned by two primary factors: the lack of housing supply and robust population growth. The recent surge in population, largely due to net overseas migration, and undersupply of housing are instrumental in stabilizing the market and encouraging price growth.

Domain’s estimates show that net overseas migration will create a demand for nearly 130,000 extra dwellings across Australia in the coming financial year. The tight rental market will further push newcomers into homeownership sooner than typically seen.

In contrast, Gareth Aird, the Commonwealth Bank head of Australian economics, also believes that Powell’s forecast is reasonable. He maintains that the strong immigration coupled with the tight rental market and steady building approvals will support home prices despite the recent increase in the cash rate.

However, not all experts share the same optimism. Tapas Strickland, NAB head of market economics, argues that the impact of migration on the housing market might be overstated and that affordability constraints due to rising rates cannot be underestimated.

Despite these contrasting viewpoints, the market trajectory suggests a steady recovery for the Australian housing market driven by robust population growth and limited housing supply. Only time will tell if these predictions hold up against the potential economic headwinds.

References:

Hannam, Peter. (2023). “House prices will keep rising into next year, says Domain, as immigration boosts demand.” Domain. https://www.theguardian.com/australia-news/2023/jun/21/house-prices-will-keep-rising-into-next-year-says-domain-as-immigration-boosts-demand 

Malo, Jim. (2023). “House prices were set to fall 20 per cent. Now there’s talk of record highs.” Domain. https://www.smh.com.au/property/news/house-prices-were-set-to-fall-20-per-cent-now-there-s-talk-of-record-highs-20230621-p5dic3.html