Australia’s population growth is likely to slow to its lowest rate since the Second World War due to the border closures and economic impacts caused by the coronavirus. This dramatic slowdown will contribute to a fall in property prices and new home building.

But due to Australia’s success in limiting the spread of the coronavirus, its economy is poised to rebound faster than many comparable countries, particularly if contact tracing and testing becomes more widespread.

As a result, Australia could attract overseas students, skilled workers and backpackers as soon as next year, meaning a rapid turnaround in population growth.

But the possibility of a second wave of the virus later this year or because potential migrants are deterred due to the exclusion of temporary visa holders from government support during the crisis mean a return to high rates of immigration may not happen anytime soon.

Immigration has been a key driver of Australia’s population growth and economic growth

Australia’s population growth has been driven by immigration throughout most of its recent history, but particularly in the past 15 years. Net overseas migration (NOM) has accounted for 60 per cent of the five million increase in population since 2006 (an average of 220,000 net migrants each year).

Most NOM is made up of temporary visa holders, with temporary migration accounting for 78 per cent of the 248,000 net migrants that arrived in 2018. Most temporary visa arrivals are students but there also plenty of skilled workers and working holidaymakers.

Immigration has been a major driver of Australian economic growth. Migrants are more likely to be younger and to be employed, workers fill important jobs where there are shortages, and educating international students is Australia’s largest service export.

While strong population growth has boosted aggregate economic growth, it has obscured weak growth in per person terms. Australian GDP, the value of goods and services produced in Australia, increased by 26 per cent between 2010 and 2019, but GDP per capita (GDP divided by the population) only grew by 9.5 per cent.

Net migration is going to fall dramatically in 2020 resulting in very low population growth

COVID-19 will likely cause Australian population growth to slow to the lowest rate since at least the Second World War and possibly the Great Depression. The decline in immigration will be the key driver of the decline in population growth.

The closure of Australia’s borders on March 20 has meant few new arrivals, and few job opportunities and university campuses shutting down resulted in many migrants deciding to leave. Around 300,000 tourists, temporary workers and students have left Australia in recent months. One forecast has the number of temporary migrants dropping to 1.82 million, down from more than 2.4 million at the start of 2020.

Two scenarios for NOM in 2020 are outlined below.

Pessimistic scenario: NOM of 50,000 and population growth of 0.75 per cent in 2020

NOM is estimated to be 50,000 in the March quarter of 2020. This is a 40 per cent decline year-on-year and is mainly due to the China travel ban and impact on student numbers. We predict that NOM will fall to -20,000 in the June quarter due to students and workers returning home, but this will be partly offset by returning Australian expatriates. Then an estimated NOM of zero in the September quarter as Australia remains under a partial shutdown and the borders remain closed. NOM rises to 20,000 in the December quarter as the economy emerges from the shutdown.

Optimistic scenario: NOM of 110,000 and population growth of 1 per cent in 2020

NOM is estimated to be 70,000 in the March quarter (a 20 per cent decline year-on-year). In the June quarter NOM is predicted to be zero, with the number of students and workers returning home offset by returning Australian expatriates. In the September quarter NOM is 10,000 as expatriates continue to return home due to Australia’s success in controlling the virus, but with minimal movement of foreigners as Australia borders remain closed. NOM rises to 30,000 in the December quarter as the economy recovers after the shutdown and there is some net migration from New Zealand.

It’s almost certain that in 2020 net migration will fall to the lowest level since the early 2000s and it’s possible that NOM will be at the lowest level since the early 1990s recession (see graph).

So with very low migration, Australia’s population growth in 2020 is likely to be around 0.75 to 1 per cent in 2020. This is a population increase of 190,000 to 250,000 people, well below the average annual increase of 370,000 over the past decade. The last time population growth fell below 1 per cent was in 1932 and it remained at or below 1 per cent until after the Second World War (see graph)

The longer-term outlook for NOM is uncertain

The outlook for migration in 2021 and beyond is uncertain. Net migration could rebound rapidly and return to numbers before the coronavirus outbreak, or it could remain sluggish. Three possible scenarios are outlined below.

1) Australia becomes an attractive place to migrate to if COVID-19 is eradicated and the economy rebounds strongly

There are very few new COVID-19 cases in Australia with eradication of the virus now a possibility. If this continues, the economy should be able to rebound faster than many comparable countries. This will make Australia an attractive destination for a variety of migrants due to work opportunities as well as from a lifestyle and health perspective.

This rebound will be more likely if testing becomes more widely available and faster to administer, and if contact tracing improves. If this is the case, arrivals to Australia may only need to spend a few days in quarantine while they get re-tested.

Supporting the rebound theory is that governments will support higher immigration as it will help businesses and boost economic growth. Strong population growth will also reduce the government’s debt burden more quickly.

2) Potential migrants are reluctant to come to Australia due to treatment of temporary visa holders during the COVID-19 crisis

Many potential migrants may be reluctant to come to Australia due to how temporary migrants were excluded from government support during the crisis, even if COVID-19 is eradicated and Australia’s economy is growing strongly.

In the early days of the crisis, the government stated that temporary visa holders who couldn’t support themselves should go home. This was a harsh message for many temporary residents who had set up a life in Australia.

The government also excluded temporary visa holders from the financial support packages. Temporary migrants are not eligible to receive the JobSeeker and JobKeeper payments (although New Zealand citizens living in Australia are eligible and temporary visa holders in financial hardship are allowed to access their superannuation). Finding a new job in the economic downturn will be very difficult, so the temporary migrants that stay but who lose their jobs or have their hours cut will be under significant hardship.

These decisions may damage Australia’s reputation, making it harder to attract skilled workers and students in the future.

3) Australia might see a recurrence of the virus and have to shut down the economy multiple times

While Australia has been very successful in controlling COVID-19 so far, there is the possibility of an outbreak at a later stage if Australia’s shutdown ends too early, or if contact tracing and testing fails as the economy is reopened. Another outbreak will also mean strict border controls will remain.

If another shutdown occurs when other countries are rebounding from the economic downturn, then Australia will struggle to attract migrants, which will mean NOM remains weak in 2021.

Lower population growth will be a major contributor to falling property prices

Lower immigration means reduced demand for property, which will put downward pressure on prices.

Lower population growth will be one of a number of factors that will contribute to property price falls in 2020. Other factors are rising unemployment and concerns about job security, expectations of price falls, larger households due to people wanting to save money, some forced sales, and restrictions on transacting real estate (such as the ban on auctions and open for inspections). Property sales are likely to decline by even more than prices.

The impact of lower NOM won’t be felt evenly across the country as NSW and Victoria attract the most migrants by a significant margin. In recent years Sydney has tended to attract a large number of migrants, but then lose residents to other cities and regions.

So it’s possible that Sydney and Melbourne will be hit hardest by the reduction in migrants, which would mean a larger fall in property prices in Australia’s two largest cities. But this might be mitigated by less outward interstate migration from these cities by residents. So smaller cities and regional areas may also experience a significant decline in population growth in 2020 due to fewer Sydney and Melbourne residents arriving and also because of fewer overseas migrants.

Lower population growth will mean fewer homes are built

Housing construction looked to be turning around in late 2019, with approvals and commencements bottoming out and property prices, a leading indicator of construction activity, rising (see graph). But weak population growth in the year ahead will likely mean low rates of home building for at least the next year.

Lower population growth, and larger households, will mean fewer homes are needed in the short-term. Developers will likely delay commencing building and will likely hold off buying land for new developments. UBS forecast that housing starts will fall to their lowest level since the 1960s. The Grattan Institute estimates that over 20 per cent of construction workers will be out of a job in coming weeks due to the economic downturn. This is worrying news for the 9 per cent of Australian workers in construction.