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How will international boarders opening impact house prices. Image : Pexels
  • With the vaccine roll-out underway, international borders could open soon
  • Immigration levels are set to rise steadily from this year
  • Experts predict that in 2023 the housing demand may exceed supply

With the vaccine roll-out in action there is a light at the end of the tunnel for international border restrictions. But will the reopening of international borders inflate house prices even more in Australia?

There is record growth across cities in Australia. Data recently published by CoreLogic showed  a monumental 2.1% increase in Australian house prices in February. To put this into perspective, this is the highest month-on-month gain in 17 years.

Data from SQM Research confirms a spike in house asking prices in recent months.

Sydney is breaking records with the median house price hitting $1,406,364 in March 2021. This is an all time high for the city, according to SQM Research.

Shane Oliver, AMP Capital’s chief economist, advises that a gradual and careful approach to reopening borders would be necessary.

“You can argue from the point of view of affordability that the best option would be to slow any rise in immigration that will occur with the reopening of borders,” he said.

“So, rather than allow immigration to suddenly jump back to what it was before, a better option would be to more gradually phase its return to enable the property market to adjust without becoming even more overheated.

“If we were to allow a return to normal immigration levels then you’re suddenly doubling demographic demand again at a time when the property market is still hot from low interest rates, then that could cause a real problem in terms of adding pressure on prices and worsening affordability.”

Shane Oliver, chief economist, AMP Capital

Based on data from the Australian government’s Centre for Population, it could be a decade before immigration returns to pre-pandemic levels.

The predicted net immigration for the 2019 – 2020 financial year was 238, 600. The reality turned out to be 154, 100 overseas immigrants.

National Population Projections. Source: Centre for Population

The National Housing Finance and Investment Corporation (NHFIC) predicts that from 2023 supply will struggle to meet demand. This will happen as the economy strengthens and the migration levels return to positive levels.

The NHFIC CEO, Nathan Dal Bon, highlighted the opportunity we now have as immigration is paused to “ensure policy frameworks,  including planning and approvals, can accommodate future population growth and housing supply without adverse consequences for affordability.

“NHFIC’s State of the Nation’s Housing report showed that after a short period – this year and 2022 – where supply is expected to exceed new demand,  the situation could reverse and new demand for housing could outpace new supply.

“The longer-term trends of declining affordability, particularly for low-income households in the private rental market, are likely to persist, particularly if supply does not respond when demand recovers.”

Nathan Dal Bon, CEO, NHFIC

Gareth Aird is the CBA’s head of Australian economics. He says that while international borders reopening would impact house prices, the greatest pressure will still be from the record low interest rates.

“If we had interest rates where they are today and the international borders were open you would see even more demand for housing,” he said.

“But what’s going on right now is all about where mortgage rates are and that is, by far, going to have a bigger impact on the property market in the short term than what’s happening in terms of population growth.

“It’s quite amazing to think how fast prices are rising right now given the international borders are closed, but I think it just highlights how important interest rates are in terms of what someone is prepared to pay for a property right now.”

Gareth Aird, head of Australian economics, CBA

The CBA forecasts national house prices to rise 14% over the coming two years.

“We think prices could rise very, very quickly over a short amount of time.”

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