There is a concern that Australia’s housing market is in dire straits. The country has now decided to limit the enrolment number of international students to 270,000 for 2025, as the government looks to rein in record migration that has contributed to a spike in home rental prices.
The decision follows a raft of actions since 2023 to end COVID-era concessions for foreign students and workers in Australia that helped businesses recruit staff locally while strict border controls kept overseas workers out.
Concerns over immigration
“There are about 10% more international students in our universities today than before the pandemic and about 50% more in our private vocational and training providers,” Education Minister Jason Clare told a press conference, while adding, “The reforms are designed to make the international student sector better and fairer, and this will set it up on a more sustainable footing going forward.”
International education is one of Australia’s largest export industries and was worth A$36.4 billion ($24.7 billion) to the economy in the 2022-2023 financial year. However, polls have shown voters’ concerns about large influxes of foreign students and workers putting excess pressure on the housing market, making immigration one of the potential major battlegrounds in an election less than a year away.
Net immigration hit a record high in the year to September 30, 2023, surging 60% to a record 548,800, higher than the 518,000 people in the year ending June 2023. Australia boosted its annual migration numbers in 2022 to help businesses recruit staff to fill shortages after the COVID-19 pandemic brought strict border controls, and kept foreign students and workers out for nearly two years.
However, a new report asserts that there is no basis for blaming international students for an undersupply of housing or rising rental fees in Australia. Research commissioned by the Student Accommodation Council, a peak body for the country’s purpose-built student accommodation sector (PBSA), found no alignment between the return of international students to Australia and rents increasing.
Instead, the report mentions, “Rents began rising in 2020, when there was no international student migration and most students had returned home. Between 2019 and 2023, median weekly rent increased by 30%. Over the same period, student visa arrivals decreased by 13%.”
The research further found that international students make up only 4% of all renters in Australia. Domestic students compose 6.2%, and the remainder are non-students. Also, the majority of international students do not live in the houses. Only 3% live in detached houses suitable for couples or families, while 74% live in PBSA (Purpose Built Student Accommodation) close to universities.
The Student Accommodation Council attributed the housing crisis in Australia to “a complex web of supply and demand drivers, including the rise of smaller and solo-person households, intrastate migration, rising construction costs, planning delays and a trend to re-purposing second bedrooms into home offices, amongst others.”
The study has pointed out a great need for increasing the supply of PBSAs, since vacancy rates in major Australian cities are currently around 1%, and rental prices have been climbing for months.
The Student Accommodation Council also mentioned that looking at the pipeline of new PBSA currently (7,770 new beds), there will not be enough supply to ease pressure on the rental market from international students by 2026. That would only be accomplished if there were 84,000 beds ready by that time.
Provinces feel the pinch
New data has revealed that the province of Victoria is grappling with an unprecedented property crisis, with more people in housing stress than any other part of Australia. Housing advocates have urged the government to urgently act on social housing, pointing out that the state needs over 6,000 new homes each year for the next decade.
The Australian Institute of Health and Welfare reported that “the top 10 months on record for people in housing stress visiting specialist homelessness services all belong to Victoria.”
“Victoria’s numbers are critical, with approximately 30% more individuals in housing stress and seeking assistance compared to New South Wales or Queensland. This is the face of Victoria having the lowest amount of social housing as a proportion of total housing stock in Australia, with just 2.9% of dwellings being public or community housing,” CityHub reported.
“These unprecedented levels of housing stress will increase homelessness unless we act urgently to build more social housing,” Council to Homeless Persons CEO Deborah Di Natale told the media.
Post-COVID housing stress has been especially intense in Queensland. Brisbane property prices have climbed by 65% since the beginning of the pandemic, almost doubling the Australian capital city average (34%).
According to new data released by CoreLogic in June 2024, Brisbane now has the second-most expensive housing in the country, behind Sydney. Prices rose by 1.4% in May, with the median property price hitting $843,231. Across the state, new tenancy rents have gone up by 45% in just four years. Adjusted for inflation, that’s a 23% increase in real terms, much more than the residents’ income growth.
Soaring rents have squeezed people on lower incomes particularly hard. As per the City Futures Research Centre, UNSW Sydney, the share of new lettings at rents low-income households can afford has slumped from 23% to 10% of all private tenancies since 2020. And less than 1% of available Queensland rentals in March 2024 were affordable to a single person earning minimum wage or a pensioner couple. These conditions are pushing some people into homelessness, with “tent cities” appearing across Brisbane.
To combat this, the provincial government has started a flurry of constructive housing policymaking. Queensland has begun to reverse a long-term decline in its social housing stock, apart from boosting homelessness funding and services. However, the sector called “Social Housing” has been in a long-term decline across Australia. Investment has been minimal since the 1990s. By 2021, social housing was down to barely 3% of all occupied dwellings in Queensland.
However, in the past five years, due to the increasing state investments, the number of social housing dwellings has begun to grow. The Queensland government pledged in early 2024 to add 53,500 social housing units by 2046, expanding the stock of public and community housing by 73%.
Compatible with this target, a medium-term goal is to expand annual output to 2,000 units by 2027-28, a fourfold increase in the late 2010s. Adding 2,000 social housing units a year by the late 2020s would reverse the sector’s historic decline. If sustained over time, it would begin to expand social housing back towards 5% of all housing, where it once was.
All eyes on policymakers
The 2024-25 Federal Budget has unveiled a series of initiatives aimed at bolstering housing supply and supporting the construction sector. The government will collaborate with states, territories, and local governments to introduce reforms enhancing housing supply and affordability as part of the National Housing Accord over the next six months.
Key measures to incentivise housing supply include reducing the withholding tax rate for eligible managed investment trust fund payments attributed to newly constructed properties. Additionally, the capital works tax deduction (depreciation) rate for newly constructed build-to-rent developments will increase from 2.5-4% per year, potentially unlocking 150,000 new rental properties over the next decade.
The National Housing Finance and Investment Corporation’s liability cap will be raised by $2 billion, facilitating more lending to community housing providers for social and affordable housing projects. Furthermore, $350 million over five years has been committed under the National Housing Accord to support the delivery of 10,000 affordable homes by states and territories.
The government is also in discussion with states and territories to make an additional 300,000 TAFE and vocational training places fee-free, focusing on industries like construction to develop a skilled workforce.
The Anthony Albanese-led government’s task is straightforward: To deliver “1.2 million new, well-located homes” and to achieve this target, the authorities need to build 240,000 new homes each year, or 20,000 a month. However, the last time Australia got even close to building 240,000 new homes in a single year was 2017, when the country built 223,563 housing units.
As per property analyst Cameron Kusher, in 2017, the interest rate back was a pleasant 1.5%. In 2024, the same ratio stands at 4.5%. Even though new homes get built at a rapid pace, who will buy them in a high interest rate regime? Plus, construction companies, especially the mid-tier types that build medium-density apartment buildings, are shutting down their shops. By March 2024, according to ASIC, 1,913 construction companies had so far gone bust, three times as many as at the comparable point in 2021/22.
Banks aren’t financing these companies the way they used to. Some of these ventures also got involved in fixed-price projects during COVID, and now can’t afford to implement them. Also, due to the high interest rate regime, building materials have become about a third more expensive than they were before the pandemic. There is a significant shortage of tradies, partly due to a decrease in apprenticeships. In 2012, there were 376,800 apprenticeships, but by 2020, that number had fallen to just 134,800. Additionally, Australia’s tradie workforce is ageing and overworked.
Poorest Australians hit hardest
The 2023 Rental Affordability Snapshot by Anglicare surveyed 45,895 rental listings, only to find affordability crashing to record lows. The social advocacy organisation is now calling for more social housing to end the shortfall of 640,000 homes, apart from advocating for better protections for renters, including an end to no-cause evictions and limits on unfair rent increases, and tax reforms to make housing more affordable.
Although post-COVID factors like Aussies’ preference for more space, the return of international migrants, and rising interest rates, can be blamed for the above-mentioned distressing trend, for Rachel Ong ViforJ, ARC Future Fellow & Professor of Economics, Curtin University, the rental affordability crisis pre-dates COVID, as affordability has been steadily declining for decades, with successive governments failing to make shelter more affordable for low-to-moderate income Australians.
“At the lower end of the rental sector, the growth in the supply of social housing persistently lags behind demand, trending at under one-third the rate of population growth. This has forced growing numbers of low-income Australians to seek shelter in the private rental sector, where they face intense competition from higher-income renters. At the upper end, more and more aspiring home buyers are getting locked out of home ownership,” Ong ViforJ noted.
As per another study, more Aussie households with higher incomes are now renting out their spaces. Households earning $140,000 a year or more (in 2021 dollars) accounted for just 8% of private renters in 1996. By 2021, this tripled to 24%.
According to Ong ViforJ, this trend is crowding out lower-income households who are now facing a shortage of affordable homes to rent.
While current policies focus on supply, more work is needed including fixing labour shortages and providing greater stock diversity. However, the housing affordability challenge is not solely a supply problem. There is also a need to respond to the supercharged demand in the property market.
“An overheated market will undoubtedly place intense pressure on the rental sector because aspiring first home buyers are forced to rent for longer, as house prices soar at a rate unmatched by their wages. Yet, governments continue to resist calls for winding back the generous tax concessions enjoyed by multi-property owners,” Ong ViforJ commented.
The main help available to low-income private renters, the Commonwealth Rent Assistance scheme, has been poorly targeted with nearly one in five low-income renters who are in rental stress deemed ineligible, while another one in four receive it despite not being in rental stress.
Experts are pitching the theory of filtering: A market-based process by which the supply of new dwellings in more expensive segments creates an additional supply of dwellings for low-income households as high-income earners vacate their former dwellings.
Proponents of filtering argue building more housing anywhere, even in wealthier ends of the property market, will eventually improve affordability across the board because lower-priced housing will trickle down to the poorest households. However, the persistent affordability crisis faced by low-income households and the rise in homelessness are crucial signs of filtering not working well as a parameter to produce lower-cost housing.
As per Leith van Onselen, Chief Economist at the MB Fund and MB Super, Australia has one of the largest construction workforces in the world relative to its population. Citing independent economist Tarric Brooker, Onselen stated that Australia completes more homes per capita than almost anywhere in the developed world. However, when the population is constantly growing at such a large rate, “even a world-beating level of construction still can’t keep up.”
Australia’s structural housing shortage has more to do with demand, and excessive levels of population growth, than an inability to build housing. To prove his point, Onselen cited the massive rise in Australia’s net overseas migration (NOM) from the mid-2000s. In the 15 years to 2004, Australia’s NOM averaged 91,000 a year. But in the 15 years to 2019, Australia’s NOM averaged 220,500 a year, representing a 142% increase in annual NOM.
Even over the last four calendar years (2020–2023), Australia’s NOM has averaged 245,500 per year. Population growth across the major cities has been extreme, with Melbourne (1.7 million) and Sydney (1.35 million) experiencing the strongest growth in numbers terms and Brisbane (60%) and Perth (59%) recording the strongest growth in percentage terms.
According to Australian Bureau of Statistics (ABS) projections, Australia’s population will grow to 43.9 million people by 2071, representing an increase of around 16.5 million from the current population of 27.4 million. As per Onselen, this is the equivalent of adding another Sydney, Melbourne, Brisbane, Perth, Hobart, and Canberra to Australia’s current population in only 48 years.
“It would also require the construction of at least 7.5 million homes accounting for demolitions to accommodate the projected population surge. It is also worth pointing out that it took Australia 212 years to reach a population of 19 million people in 2000. Yet, the population is officially projected to grow by another 24.9 million people in only 71 years! Melbourne (9.5 million) and Sydney (8.4 million) are projected to have larger populations than Australia’s entire population in 1950,” he noted further, while concluding that the country will never be able to build enough homes as long as its population grows like “an out-of-control science experiment.”