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Tuesday 11 October 2022

3 implications of the immigration rebound

Net immigration to surge

Justin Fabo of Macquarie Macro certainly has a knack for picking economic turning points, and showing the potential implications thereof. 

In this graphic he articulates better than I can why the rebound in net immigration will be of profound importance for Australia's economy.


Shortages followed by gluts

Australia's natural population growth (births minus deaths) will likely run at around 130,000 per annum going forward.

And then if you add in the projected net long-term permanent and long-term arrivals over the next couple of years we're going to get some serious growth in headcount...quite possibly the highest population growth we've seen in Australia. 

This has a few implications.

Firstly the labour shortage issue should resolve itself pretty quickly from here as 40,000 students arrive per month, as aggregate demand is curtailed, and as construction activity falls away. 

That means wage price pressures in Australia will likely dissipate soon. 

Secondly, there will be significant and growing pressure on housing, and particularly rental markets. 

Thirdly, this article from the Sydney Morning Herald points out some of the reasons why many borrowers will need some respite from the 300 basis points lending assessment buffer, with landlords being clubbed out of the market, and a growing queue of "mortgage prisoners" as fixed rate loans fall due to be reset. 

Ongoing uncertainties

There are still plenty of uncertainties ahead. 

For example, there's still a fair pipeline of dwellings under construction and to be completed.

Also, perhaps more Aussies may decide to start heading out into the world, which might change the immigration dynamic. 

And further, how much further will interest rates rise? Hopefully not too far!

Price pressures easing

Shane Oliver of AMP provides a neat graph of the NAB Survey readings, showing price pressures now in decline.


Source: Shane Oliver, AMP

Welcome news! 

Rental listings rise

It's just one week, but it was interesting to see national rental listings increase this week on SQM Research's data series.

Rental listings are still declining in Sydney, and more notably Melbourne.


Source: SQM Research

Hobart remains extremely tight, with no apparent end in sight for the rental market crisis in Tasmania.

Recent population growth figures for the state were revised upwards, partly helping to explain the crush. 

But perhaps we've now seen a reversal of the lifestyle/working from home moves.

The Sunshine Coast is a decent bellwether thereof, and has seen rental listings trending consistently higher for the past six months now.