The history of Australia’s white settlement is also a story of almost continuous overseas arrivals: an ongoing influx and resettlement of people that helped to shape and change our housing markets.
Immigration continues to have a profound effect on our larger capital cities and is responsible for some of the most dramatic changes in housing rents and prices that occur. Understanding the effect that overseas arrivals have on property markets is crucial to knowing which areas may provide the best cash flow and price growth potential as well as which ones to avoid.
MIGRATION HAS FASHIONED OUR CAPITAL CITY HOUSING MARKETS
Our first big immigration boom took place during the gold rush years from 1850 to 1870 when an influx of fortune hunters from Britain, Europe and the USA led to a trebling of Australia’s population to 1.7 million residents in just twenty years. This dramatically changed the balance of our population from convicts and their descendants to a multi-cultural society composed of recently arrived and enthusiastic free settlers.
As the gold rushes came to an end, the diggers settled in the newly created suburbs of Sydney, Melbourne and Brisbane – cities that their gold had helped to build. The second migrant boom occurred after the First World War, when our young nation welcomed refugees from the war torn countries of Europe on such a large scale that the population growth rate in the early twenties was over 2% per annum, and this was exceeded after the Second World War with our highest ever population growth rates of over 2.5% per year in the early fifties.
Yet Figure 1 shows that house prices marched to a different tune, with large price rises in the immediate post-war years of 1918 to 1922 and 1946 to 1952 followed by years of little to no price growth at all, even though the population was growing at its fastest rate in our history at that time.
This presents us with an apparent contradiction, as common wisdom says that rising populations lead to house price growth, yet during these population booms the price of housing did not follow suit. The answer lies in the source of population growth and the type of housing demand it created.
The huge house price rises shown in Figure 1 immediately after each war ended were caused by returning soldiers keen to start families after years away and who were provided with government loans to help them buy houses. The source of the subsequent population growth was overseas arrivals. Huge numbers of families poured into our capital cities, but they had no jobs or access to finance and so they had to rent. Although the demand for housing continued to grow steadily during each post-war era, it gradually shifted from purchase demand to rental demand and rents soared as prices started to level off, as clearly shown in Figures 2 and 3.
The pivotal year after the First World War was 1922, when rents started to rise and prices stopped growing. Following the Second World War, 1951 was the year of change when rents started climbing and prices levelled off. This historical perspective shows us that overseas migration causes a dramatic rise in rental demand rather than purchase demand, but raises two questions – where do these rises occur and how long do they last?
OVERSEAS ARRIVALS CAUSE HIGHER RENTAL DEMAND IN CAPITAL CITIES
Recent arrivals prefer to live in our largest cities because of the public transport, housing and employment opportunities they offer, but also because there are usually established communities of residents from similar social and cultural backgrounds who can assist newer arrivals to settle in.
In the post-war years this led to the establishment of inner suburban precincts in Melbourne and Sydney with a pronounced Italian, Greek or Portuguese flavour and this process has continued with the arrival of large numbers of people from other areas such as Vietnam and the Middle East.
In Adelaide the sixties witnessed the arrival of immigrants from northern England, many of whom settled in the city’s northern suburbs of Elizabeth and Salisbury to work in the heavy manufacturing and automotive industries. Each wave of new residents led to rises in rental demand in the areas where they preferred to live and the process continues as arrivals from the Middle East, the Indian sub-continent, eastern Asian countries, the Pacific or Africa jostle for homes in the suburbs vacated by earlier migrants from Italy or Greece.
The aim of new arrivals is to become securely settled in their new homeland as soon as possible and this means that they tend to buy a home of their own within an average of four years after arrival. Some will choose to purchase a home which symbolises and demonstrates their successful re-establishment in Australia, which will usually be a new home located in the outer suburbs. Others prefer to retain their ethnic ties by purchasing an existing home in older established suburbs where suitable religious, educational, recreational and cultural institutions have been developed.
OVERSEAS ARRIVALS CAUSE HIGHER PRICE GROWTH IN CAPITAL CITIES
No matter whether they purchase their first home in an older inner locality or an emerging outer suburb, the preference of overseas arrivals is overwhelmingly to purchase a home in a capital city. This has been a constant trend ever since migrants comprised a significant source of our population growth and has led to a more or less on going shortage of housing in capital cities, especially Sydney and Melbourne. The effect on housing prices is demonstrated in Figure 4, which shows the price difference between country Australian house prices compared to city house prices for each year from Federation in 1901 to the present.
During the early years of our nation, there was no appreciable difference between house prices in cities and those in country areas. In fact, prices in rural locations tended to be higher until during and after the First World War, when country housing market prices fell by comparison to city prices as most of the new households arriving from overseas preferred to live in cities.
Although there was some recovery in the ensuing years, the same process occurred after the Second World War. Figure 4 shows that average country house prices fell to just 50% of their city house price equivalents and have never fully recovered, with a downward trend that seems destined to continue. This does not mean that country house prices are falling, but that their price compared to capital city equivalents is diminishing.
The main reason is that overseas migrants have generated most of our population growth since the end of the Second World War and they have overwhelmingly preferred to live in our capital cities. The lesson for investors is that capital city house prices will continue to rise more in comparison to country house prices as long as overseas migration continues to generate most of our population growth.
Figure 5 shows that this is likely to be the situation in future as the percentage of overseas born Australian residents has now reached 30% of our total population and the graph also shows that the percentage of overseas born residents is rising rapidly.
In fact, the percentage of overseas born residents is now higher than it has been at any time since the gold rush years ended in the 1870s, one hundred and forty years ago. The effect that overseas arrivals have had on housing markets may lead us to wonder what our cities would be like if there had been no massive influx of migrants, especially since the end of the Second World War.
WHAT WOULD OUR HOUSING MARKETS BE LIKE WITHOUT MIGRATION?
Without overseas migration the populations of Sydney and Melbourne would be far smaller, with less suburban expansion and housing prices closer to those of Adelaide and Brisbane. They would also be far less cosmopolitan and retain the cultural uniformity still seen in many rural towns. There would also be a significant difference in the type of housing being developed, with houses continuing to outnumber units and apartments.
The greatest influence in housing markets generated by overseas migration has been the acceptance of medium and high density living. Overseas arrivals and their children have embraced units and apartments in a way that completely evaded Australian born residents for generations. Not only is this a style of living with which many overseas arrivals are more familiar and comfortable, the growth in demand for units they have generated has led to a dramatic improvement in the features and facilities of home units and apartments, along with their locations.
Old derelict or decaying factory, warehouse and dock precincts littering the rivers and harbours of our inner cities have been transformed into desirable locations. The result of this inner urban transformation is also visible on the skylines of our central business districts, where new high rise residential buildings compete with the older commercial and administrative edifices. City streets which turned into ghost towns outside business hours and on weekends a generation ago have become lively recreation, entertainment and dining hubs. Naturally, this change in the desirability of units and apartments is reflected in their price.
Figure 6 shows how the price of home units in our capital cities has grown by comparison to house prices since the 1930s when they first became a viable accommodation alternative.
Capital city units and apartments were priced at around 60% of house prices before the Second World War because they formed a boutique form of living most Australians did not aspire to. Following the war they became the first home buyer’s entry into the market, a means to an end, rather than desirable in their own right.
All this has now changed, and well-appointed new apartments in prime suburbs of our capital cities fetch prices approaching the median price of houses, because they offer benefits such as views, location, facilities and features only available to a select few house owners.
WHAT FURTHER CHANGES TO HOUSING MARKETS SHOULD WE EXPECT?
Not only has overseas migration transformed our nation in the past, it is highly likely to do so in future. Migrants help shape and change our identity and play a crucial role in bringing about economic and social change. Their effect on housing markets will also grow because every household needs a place to live. Each arriving family generates demand for a home, usually renting at first, which means that we can expect rental demand to grow in areas that recent arrivals favour, which is largely determined by where they will come from in future.
People escaping from the horrors of war and social disruptions will favour ethnically supportive communities with schools, religious institutions and social networks encouraging them to re-establish themselves. Migrants from Europe and Eastern Asia will look for areas with good public transport connections, educational opportunities and recreational facilities.
Despite government attempts encouraging new arrivals to live elsewhere than in capital cities, their preference for city living should prevail, because most of the new arrivals are likely to come from highly urbanised communities in China and India as well as England, Europe and New Zealand. After arrivals have settled in and buy their first homes, this is likely to keep pressure on city prices over the long term and also strengthen the drift to unit living as a way of life. Unless there is a specific dynamic in a rural house market which is likely to generate a significant increase in housing demand such as retiree arrivals, overseas tourism or new industries, city housing unit markets will provide better long term investment opportunities as long as migration continues.
Australian National Library on line Trove facility Mitchell Library archives Capital City House Price Indexes, 6416.0, ABS Housing Australia a Statistical Overview, ABS 1991, 1996, ABS Migration and Population Futures, Department of Immigration and Border Protection