The biggest collapse in Australia’s population growth since World War I will drive a huge fall in new home construction that could hold back the nation’s recovery from the coronavirus recession.
Research released on Monday by the federal government’s National Housing Finance and Investment Corporation forecasts that demand for housing could be cut by between 129,000 and 232,000 dwellings over the next three years in a development that would hit the vital construction sector.
Rents, particularly in the inner suburbs of Sydney and Melbourne, also face a sharp fall as a lack of international students exacerbates an expected fall in the number of migrants wanting to call Australia home.
About 60 per cent of the nation’s population growth over the past decade has been driven by net overseas migration, which totals 2.7 million residents. But the closure of the border, as well as concern globally among people moving between nations, is expected to lead to that collapse.
The corporation, which provides advice to the government on housing demand, estimates that in a worst-case scenario there would be 214,000 fewer people in the country than if the coronavirus had not occurred, between 2019 and 2021.
It would be the biggest slowdown in population growth since 1916 and 1917 when hundreds of thousands of Australians were overseas involved in World War I.
That sharp fall in people will feed directly into fewer dwellings.
If population growth holds up a little better, the market would bottom at 110,000 in 2022. Even that would be the worst annual performance since the 1980s.
The drop-off in construction would then amplify the economic pain being felt by the country.
“If this decline is sustained, it could cause a contraction in construction activity that will add to the recessionary forces impacting on the economy,” it found.
The corporation says the drop in population growth will also hit rental markets, particularly those dependent on international students.
In Melbourne’s CBD, advertised rents are down by more than 22 per cent since March. and in neighbouring Southbank they have dropped by more than 13 per cent.
Sydney’s Darlinghurst has been one of the worst-hit areas in the country, with advertised rents down by almost 25 per cent. They have fallen by 15 per cent in The Rocks and across Haymarket.
Research by the Reserve Bank’s economics department, released on Thursday, also highlighted the likely impact of coronavirus outbreak on the rental market.
It found rents in inner-city suburbs will be subdued for an extended period.
“The closure of international borders magnified the demand shock, as the flow of international students and other migrants who typically rent has slowed,” they found.
“Over the next few years, it is likely that rents in these inner-city areas will remain lower than expected pre-pandemic given lower population growth and the anticipated supply of apartments coming on line in these markets.”