High population growth has been the silent strength for the Australian economy for the past five years. National population growth averaged 1.8% per annum from 2007 to 2013. Strong population growth during 2012/13 contrasts with the evidence of negligible jobs growth in 2013. To some extent, there are sound reasons for this divergence. In particular, skilled 457 workers are needed to fill specific gaps, and with an ageing population, the labour market will need more people from overseas to supplement the workforce.
However, we can look through the trend drivers and look for signals in terms of cyclical forces for 2014 and 2015. While the most recent national population growth rate (as at June 2013) remained at 1.8%, the national unemployment rate has now risen to 6%, which poses the questions: will population growth slow and for how long?
To address these questions, we need to decompose the sources of overseas migration. Most of the fluctuation in overseas migration comes from temporary residents, rather than permanent migrants. In recent years, there have three waves of increase in temporary residents:
- A surge in overseas student numbers during 2007 and 2008
- A large increase in the net inflow from New Zealand from 2009 to 2012
- A jump in skilled worker (457) visas in 2011 & 2012 – led by very substantial gains in Western Australia & QLD, but evident in all states.
For each group, the population impact is counted as long-term visitors, rather than being counted in the permanent migration target. The national target for permanent migration is currently set at 190,000, having been edged up over the past three years.
A key distinction in terms of temporary residents is that the great majority of these people will leave Australia, which forms a population decrease. Continued population growth from temporary residents requires that there are more people arriving than there leaving, from year to year. If the temporary arrivals slow down and equal departures, then the eventual demographic impact is a zero contribution to population.
On this score the lead indicators are not promising in a number of respects:
- Overseas student visas: numbers have recovered from the 2008 slump, when the criteria for PR were tightened. However, the rate of enrolment has levelled out, which means that this group are now making a smaller contribution to population growth.
- New Zealand migration: the net inflow to Australia has slowed, and Australia’s unemployment rate is now on par with New Zealand. Relative conditions in Australia have become much less favourable, due to recovery in the NZ construction sector and falling AUD-NZD.
- The national number of Skilled Worker 457 visas granted has fallen sharply, down 24% during the second half of 2013. This outcome reflects weak jobs growth, particularly in QLD & WA.
These impacts follow with a lag, as persons on 457 visas can be employed for up to 4 years – but the length of lag depends on the rate of decline in the new arrivals. Moreover, measurement will take some time, as the official statistics track population growth with a lengthy lag.
Nevertheless, the recent 457 visa data is unequivocal – there will be a net decline in the national population gain associated with this component. The pending downturn in mining construction is a major part of the 457 visa decline. National numbers for the construction, mining and professional services sectors have slowed much more quickly than the aggregate. Overall, we expect that the national population growth will slow progressively during 2014/15 and 2015/16, reaching a low of 1.5%.
This outcome would have a variety of impacts for the property sector. It should alleviate demand-based inflation, removing some upward pressure on the cash rate. It would also alter the medium-term outlook for Australian growth, and create some downward pressure on the AUS-USD.
These financial market drivers are positive factors for new housing, as low rates support local demand and currency depreciation would further boost overseas investor demand. On the other hand, as underlying demand is (temporarily) reduced, and the sales prospects for any given project becomes more dependent on the magnitude of pent-up demand for housing – where shortages are most pronounced due to a decade of under building, activity can still enjoy solid conditions.
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