COVID-19 came as quite a shock to Australia's migration numbers. Australia went from an average net migration intake of 228,370 between 2016 to 2020 to -84,940 in 2021. This was the biggest fall in migration numbers since the First World War (see chart below).
Numbers recovered in 2022 but only to 170,920. Key Australian sectors such as tertiary education are hoping for a stronger rebound in 2023. However, those looking to buy or rent residential property may be less enthusiastic.
The historical importance of immigration to Australia
Modern Australia has always had a testy relationship with migration. From 1788 to the White Australia Policy, and multiculturalism to “boat people”, there has been no shortage of controversy.
However, parallel to the controversy has been the existential cry of “populate or perish”. Economic development and growth has always been one of the key drivers of migration and this has only strengthened as fears based on race have faded. As a result, since the 1988 Fitzgerald Report on Immigration policy, immigration policy has focused more on skilled migrants who can contribute to the future of Australia.
Between 2000 and August 2021, 3 million permanent migrants arrived in Australia with 59% being skilled migrants (see chart below).
Since the early 2000s, international students on temporary visas have also played an increasing role in Australia’s net migration (see chart below). They have provided additional revenue to Australian educational institutions and have provided a pathway for permanent skilled migration.
The impact of COVID-19
When Australia closed its borders during the pandemic, migration plunged. The worst affected visa holders were Temporary Visa Holders, which includes students, temporary skilled, and working holiday visa holders (see chart below).
On Census Night in 2016, there were 487,012 student visa holders, 170,407 temporary skilled, and 129,442 working holiday visa holders. On Census night August 2021, there were 363,900 students (a -25 percent decrease compared to 2016), 95,600 temporary skilled (a -44 percent decrease), and 31,300 working holiday visa holders (a -76 percent decrease).
The fall in international students hurt educational institutions while the fall in working holiday visas hurt farmers as those visa holders remain an important source of extra labour. Citizens from several countries are eligible for an additional year on their working holiday visa if they perform agricultural work in selected areas.
All three categories should rebound further in 2022-23. Working holiday visas will see a bounce in 2024-25, as the new Australia-UK free trade agreement has raised the age limit for working holiday visas and increased the maximum stay to three years. However, UK citizens will no longer be required to perform agricultural work to extend their working visa past the first year.
Migration and housing
29.3 percent of permanent migrants between 2000 and August 2021 settled in Greater Sydney while 26.6 percent settled in Greater Melbourne. Similarly, according to the 2021 Census, 25.9 percent of temporary visa holders settled in Greater Sydney and 23.7 percent settled in Greater Melbourne. This puts additional pressure on residential housing demand in those cities, both for purchases and renting.
As migration rebounds this year, expect increased housing pressures in Sydney and Melbourne from international students and permanent and temporary workers.
What does this mean for Private Debt in Australia?
Migration has long been essential for Australia’s economic growth. It provides young skilled workers that fill gaps in the labour market and contribute to consumer spending. It also slows down Australia’s ageing population. As migration rebounds this year, this will help the economy and improve general conditions in the public debt market.
While a rebound in migration will increase pressure in the residential property market, it will have little impact on commercial property which is beneficial to private debt funds exposed to the commercial real estate sector.