The travel ban placed on China to stop the spread of COVID-19 prevented around 75,000 Chinese students from entering Australia to commence their studies.
New research from CoreLogic’s Eliza Owen suggests that the loss of international students is having a detrimental impact on rental markets in inner Sydney and Melbourne, alongside Airbnb being transferred to the long-term rental market:
As Australian borders remain closed to tourists, and government policies restrict short-term rental arrangements, Airbnb rentals are converting to long-term rental supply. The added supply means rents could go down.
This is compounded by a decline in demand. Rising job losses are seeing some tenants negotiate lower rents, or find alternative accommodation, such as choosing to move back with parents. A pause on the flow of international student and migrant numbers could see more properties sitting empty, while domestic students are less inclined to rent close to universities, as they access study remotely.
Several datasets point to Inner Sydney and Melbourne being the most affected.
Preliminary listings data estimates that between the week ending 22nd of March and the week ending 26th of April, the number of properties for rent have increased 0.8% across Australia.
But the most remarkable increases were in the inner-city regions of Melbourne and Sydney, where rental listings have risen over this short period by 36.2% and 34.1% respectively…
As well as elevated levels of recently completed dwellings, part of the reason for higher vacancies in these areas is a negative demand shock from employment and temporary restrictions on migration.
Rental markets are particularly susceptible to declines in overseas migration, because the majority of new migrants seek rental housing upon arrival in Australia.
This will impact Inner Melbourne, which has previously maintained stable rental conditions amid high housing supply, because of rapid growth in international migration. According to ABS migration data, the Melbourne council region population increased by 8,638 over 2018-19. But 99.5% of this increase was attributable to overseas migration. This means that new rental demand in this area is almost entirely sourced from overseas migrants…
Between high levels of migration and susceptibility to job loss, inner city Sydney and Melbourne are already experiencing a sharp rise in rental supply. This will have a range of implications, including the potential for downward pressure on purchase values, an erosion of rental yields and added settlement risk for off-the-plan purchases approaching completion.
The Department of Education’s international student database shows that NSW universities (64,000) had the highest number of Chinese student enrolments in 2019, followed by Victoria’s (54,000):
Advertisement
Sydney and Melbourne also received the overwhelming majority of migrants in 2018-19:
Advertisement
Accordingly, Sydney’s and Melbourne’s rental markets are most exposed to the collapse in Chinese students, alongside reductions in overall migration.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
