Predictions of falling house prices will turn into a price rise if immigration is aggressively ramped up, warns leading economist By Ben Graham
There was supposed to be some relief on the horizon for Aussies wanting to buy a home in a crazy market, but now there’s a big issue.
Trying to get a foot on the property ladder in Australia right now is harder than it has ever been but for Aussies looking to buy, there have been predictions that have given them some hope for the future.
When the pandemic hit, some of us looking to buy mistakenly believed that prices could tumble amid widespread economic turmoil.
Precisely the opposite has materialised – with economists predicting Australian house prices will have surged by a whopping 22 per cent by the end of the year.
But the good news, for those looking to buy at least, was that a “cooling period” would come in the coming years.
However, one of the nation’s leading economists has now warned that already skyrocketing house prices could rise even further – because of government plans to aggressively increase the level of immigration into Australia in the coming years.
AMP Capital chief economist Shane Oliver told news.com.au the red hot property market was showing signs of slowing down.
“Even though the annual gain this year has been very strong, there has been a progressive slowing in the monthly increases from about March, which was the peak,” he said.
“More recently we’ve slowed down to around 1.5 per cent a month. And I suspect that slowing will continue through next year.
“And that’s because of a gap in fixed mortgage rates, worsening affordability which makes it harder to get in. And then we’re also seeing an increase in interest rate buffers from the Australian Prudential Regulation Authority (APRA).”
By 2023, he had predicted this slowdown would have started to see house prices drop “somewhere between 5 to 10 per cent”.
This was predicated on the idea that immigration increases very gradually in the coming years – like the federal government was projecting as recently as the budget.
However, there are now powerful government figures like the NSW Premier Dominic Perrottet and the federal Treasurer Josh Frydenberg advocating for much higher levels of immigration.
Mr Perrottet is lobbying for an increase in Australia’s net migration to an unprecedented 400,000 a year for five years, meaning the nation would welcome two million migrants in that period.
And Mr Frydenberg says Australia needs to rethink its migration targets after losing almost 100,000 people last financial year.
Mr Oliver said such plans would have a big impact on house prices in the coming years.
If immigration is suddenly ramped up again, as the New South Wales Government has been proposing, and you’re actually running immigration above pre-Covid levels for a while to make up for the shortfall that occurred through the pandemic, that could turn a price decline in 2023 into a price rise,” he said.
He predicts that if the NSW Government’s immigration plan was followed, house prices would jump about 5 per cent by 2023 and rents would lift about 7 per cent.
He said that for every 250,000 immigrants that come into the nation, Australia would need to build 80,000 houses.
“In recent times we’ve been sort of getting on top of the supply shortfall in Australia because of the lack of immigrants,” he said. “If we quickly ramped up immigration again, then that would rapidly take us back into severe supply shortfall. Which would put upward pressure on rents and prices.”
Immigration is not the only factor influencing house prices – and economists predict a lot will depend on other variables such as interest rates and any further restrictions on borrowing – however it adds to the already sky-high demand for housing.
Mr Oliver said he wasn’t against immigration in any way, saying it was a “good thing” for Australia, but he and other economists are calling on governments to increase housing stock to keep up with rising demand.
Another big issue in the post-Covid aftermath is whether people continue to want to move to regional Australia, taking pressure off cities.
“If you see an ongoing push away from away from cities towards regional Australia then that can take pressure off city prices and becomes a permanent phenomenon,” he said.
The good news for buyers is that it’s becoming increasingly likely that interest rates will increase earlier than expected and this could see house prices drop by up to 20 per cent for every 1 per cent increase.
Experts believe it is becoming more likely the Reserve Bank of Australia (RBA) will be forced to increase interest rates earlier than expected due to rising inflation.
ANZ senior economist Felicity Emmett said recent inflation reports had prompted a rethink of Australia’s outlook over the next year or so.
“It was very different to nearly everyone’s expectation,” she told news.com.au.
Ms Emmett said it was initially thought that supply bottlenecks due to the pandemic would only see a temporary rise on the prices of goods but there also seems to be the beginnings of a pick-up in wages.
“Labour shortages will possibly see through to higher wages,” she said. “And that’s a lot more of a permanent feature.”
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