Rye Yang came to Australia in search of a new life, but didn’t have the best start.
“I have never in my life experienced anything remotely as hard as finding a place to stay in the Australian rental market,” the American migrant, who arrived in Melbourne in June, told The Business.
“It is orders of magnitude more challenging than the United States to find a place here.”
Rye and their Australian partner put together a spreadsheet to keep track of over 100 suitable properties. They inspected about 60 properties and applied for about 30.
It took them several months to find this small apartment in Melbourne’s east, and have just moved in.
“It’s a full-time job when you’re going out to do these inspections day after day,” they said.
“But between my visa status and not being able to find a job immediately, many property agents were not willing to even consider us as applicants.”
The record-breaking level of migration has triggered a public debate around its impact on Australia’s inflation problem and a full-blown rental crisis.
The latest data from the Bureau of Statistics show the population grew by 2.2 per cent to 26.5 million in the year to March, with net migration reaching a record 454,400 for the period, twice the amount of the decade average.
More than 500,000 people are expected to come into Australia this calendar year.
Although that largely reflects a catch-up effect after international borders were shut due to the pandemic, which saw a plunge in migration levels, the now rapid growing population is having noticeable effects on the rental market, which could make the job of the Reserve Bank to curb inflation harder.
A topic that’s giving Rye “conflicted” feelings.
“I am a skilled worker who’s bringing value and looking to really integrate into culture here,” they explained.
“On the other hand, I do really feel for Australians who have been negatively impacted by the rental and housing crisis.”
Views that record immigration puts pressure on inflation
Former treasurer in the Howard government and outgoing Future Fund chair Peter Costello said in a recent speech that while the current pace of migration benefitted the economy, it put pressure on inflation through the rental market.
“Australia has always been a migrant country and I’ve always supported immigration. But the levels of immigration now are extremely high,” he said earlier this month.
“I’m pro-immigration, but I think it’s very, very important that we do it in a gradualised way, rather than have these huge licks that are putting pressure on the housing market.
“Rents a big driver of inflation, so [immigration] is good but it’s got to be managed in a careful and considerate way.”
Australia’s inflation rebounded in the September quarter, with fuel (up 7.2 per cent), rents (up 2.2 per cent), new dwelling purchases (up 1.3 per cent) and electricity (up 4.2 per cent) contributing the most.
While the annual growth in rents was the largest since 2009, at 7.6 per cent, the ABS said it would have been worse (up 2.5 per cent) without government intervention of Commonwealth Rental Assistance.
The bureau also warned back in April that rents account for about 6 per cent of the Consumer Price Index (CPI), making it the second-largest contributor to the index.
‘Only part of an inflation story’ but affects rents
It is an issue that has concerned the Reserve Bank of Australia (RBA) and been central to interest rate decisions.
In April, board members discussed the difficulties rapid population growth may present in reducing inflation.
“Members noted this could put significant pressure on Australia’s existing capital stock, especially housing, which would in turn manifest in higher consumer prices.”
Independent economist Chris Richardson, however, cautions that record immigration “is only part of an inflation story”.
“I will be more worried about immigration and the impact on housing than I am around immigration and the impact on inflation,” Mr Richardson, who has previously worked for the International Monetary Fund and the Australian Treasury, told The Business.
“Think of all those skill shortages that Australia was having, that was part of the inflation story, and a whole bunch of migrants has reduced the skill shortages problem.
“In some ways, migration is making bits of inflation, less of a problem. In some ways, it’s making bits of inflation more of a problem. Rents is something where it’s more of a problem.”
CoreLogic’s head of research, Eliza Owen, said rents have gone up significantly at a pace that “we have not seen for a very long time”.
“Throughout the 2010s, average annual growth in rent values was only about two per cent a year. And at the latest recording CoreLogic is noting about 8 per cent growth over the past year,” she said.
“Cumulatively, rent values have increased around 30 per cent since the onset of the pandemic in March 2020.”
Ms Owen said a range of factors have sent rents soaring on the demand side, such as reduced household size, a decline in home ownership and a lack of social and affordable housing, and not just because of the current migration levels.
Fixing housing is the key
In its November statement on monetary policy, the RBA noted housing supply has not kept pace with the increased demand for housing.
“The result of a decrease in average household size since the beginning of the pandemic, robust nominal income growth and the increase in population growth,” the RBA pointed out.
“Advertised rents have increased 30 per cent since prior to the pandemic, much more than the increase in CPI rents so far.
“Together with historically low vacancy rates, and little sign that tight rental market conditions will ease in the near term, this is expected to keep rent inflation elevated for some time.”
The central bank also concluded that overall the population growth was not adding to inflation pressures.
“The supply and demand effects of stronger-than-expected population growth appear to have roughly offset in aggregate, while helping to alleviate labour shortages in specific sectors, such as hospitality,” the RBA argued.
“This has helped to contain wage pressures in some affected industries and geographic areas, though increased migration has not materially affected aggregate wages growth.”
Mr Richardson said the more urgent issue here was to fix housing.
“It’s not that we’ve messed up migration, it’s that we’ve messed up housing, but we’ve messed up housing so much. And the fix to that is so slow,” he said.
“Even if you’ve got perfect policy tomorrow, it will take many years longer than a decade.
“That is incredibly challenging on a range of fronts. The ultimate fix lies in housing and yes, in my backyard. In the meantime, though, we may need to pull back a bit on the pace of immigration.
“There’s potential around dropping back the number of foreign students studying here.”
Last week, RBA governor Michele Bullock endorsed the importance of Australia’s immigration program, but with a subtle caveat.
“Immigration, I think in general, is a good thing for Australia. It’s always been a good thing. Obviously, there’s contention for housing and things that the government has got to think about, but the concept of immigration in and of itself, I think, ultimately is a good thing – if it’s run well,” she said at the Australian Business Economists dinner.
The federal government is due to release the Migration Strategy by the end of the year, which will give some more indications on how the government views the impact of migration on inflation and housing.
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