What do closed borders mean for Australia and each of our States? So far the conversation has largely flowed around tourism and international education, but what does it mean for property?

Population growth or decline drives the consumption of property. Generally a pretty simple concept that gets even more simplified into the common expression of “supply and demand”, which really misses the point of market and product nuances - a topic of discussion for another day. The three drivers get broken down into;

1. Natural increase (Net births minus net deaths);

2. Net interstate migration (those coming to the State minus those leaving the State) and

3. Net international migration (Those coming to Australia minus those leaving Australia).

At present, there are two contrary views on what natural increase will look like. The first adopts the approach that of a very minimal impact due to the pandemic. The exception being that consumer confidence is at record lows which may make prospective parents put their plans on hold until they have greater certainty about the future. Opposing this argument has been the baby spike speculation of people/couples working from home… The author is yet to form an opinion one way or the other, but acknowledges that both have their strengths and weaknesses and to some extent may in fact revolve around what industries people are employed in.

Interstate migration however is highly problematic for many State’s and a blessing for others.

Queensland becomes a significant loser the longer the borders are closed. At present, interstate migration represents circa 27% of the State’s population growth. By contrast New South Wales will benefit from the closure of borders through the retention of residents who are now unable to move to Victoria or Queensland, as will South Australia, Western Australia and the Northern Territory. If the closed borders were to continue for a year, Queensland would need almost 9,000 fewer dwellings and New South Wales would require almost 9,000 additional dwellings. That is a significant impact on any economy when one considers the employment generated as well as the downstream multipliers that are associated with increased retail spending, demand for services and general day to day living expenses that keep local communities afloat.

Whilst these numbers are significant, they pale into comparison for New South Wales and Victoria when international migration is considered.

International migration has been one of the most significant economic drivers of these two States since September 2016 when it really started to gather momentum. Again, should this closed borders approach last for 12 months limiting the number of people coming into the nation, NSW and Victoria would lose dwelling demand of circa 31,500 new homes per annum, per State. That would result in the loss of billions of dollars for those economies and is one of the reasons that the construction industry has been allowed to continue with their projects thus far. However, at some point it will slow as point of saturation is reached. Worst case scenario is that the industry finds itself in a position where settlements fall over on a large scale and values come under pressure, meaning purchasers need to find more equity or can’t complete. During the GFC, many people were able to walk away from contracts having lost thousands in deposits. This is not an outcome that anyone wants to go through again.

This speculation has led to discussions around what this may mean for prices. The longer the borders are shut, the greater the risk for unemployment and the greater the potential for property prices to decline along with weekly rents. Speculation around unemployment rates exceeding 10%, asset values depreciating and stock markets doing a dead cat bounce all work against the Australian population trying to reach some form of normalcy and confidence in looking for the light at the end of the tunnel.

This is NOT the new normal and so long as the word pandemic is associated with any economic commentary in the current circumstances, most readers would be well advised to take it with a grain of salt. The media loves a crisis and what a year it has been for them. Drought, climate change, fire and now the pandemic…oh the glee, the glee.

Matthew Gross | Director | mgross@nprco.com.au

Suite 93/26 Felix Street | Brisbane | QLD | 4000

The Demographics of Closed Borders

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