Surging overseas migration: a Covid correction or the new normal?

Anyone following the news cycle in the lead-up to the federal budget will have heard the figure of ‘400,000 people from overseas coming to Australia this year’. That level of migration has created headlines because it is unprecedented in the history of Australia’s overseas migration programs.

As population forecasters, the level of overseas migration is an important assumption in our forecasts, and such a change, if sustained, would be significant for the future of Australia.

Even in the midst of a period as disruptive as the pandemic, the assumptions that underpin our forecasts are evidence-based, and we need to see credible evidence before we consider changing those assumptions and updating our forecasts.

Our view, and that of the Federal Treasury who are responsible for the population forecasts that underpin the federal budget, is that this is a ‘covid correction’ that will impact the 2023-24 and 2024-25 financial years, before overseas migration returns to a more historically normal level.

In this blog we explain why overseas migration is an important assumption in our forecasts, how we’re accounting for this new information, and what it means for you if you’re planning infrastructure and services.

Where does the figure of 400,000 come from?

The Budget Papers released with last night’s Federal Budget (you can find it here in Budget Paper #3 under ‘Parameters and further information’) reference forecasts prepared by the Commonwealth Treasury’s Centre for Population.

The Centre for Population provide population forecasts for Australia and its States and Territories. Our specialisation as forecasters is in micro-geographic population forecasting which gives our clients detailed insights about how the big picture changes play out at the local level. And while we make independent assessments of these significant drivers of population change, we typcially respect and align with the Centre for Population’s assumptions regarding future levels of overseas migration.

Why is Net Overseas Migration important to population forecasting?

In recent years, Net Overseas Migration (NOM) has influenced the growth of Australia’s population more than any other factor. Since the mid 2000s, NOM has been the dominant-driver of population growth in Australia, stimulated by federal government policies to attract skilled migrants, support the tertiary education sector and balance Australia’s ageing population. The previous peak in overseas migration was 316,000 people in the 2008 calendar year during the Global Financial Crisis.

What happened to NOM during the pandemic?

When international borders were closed in March 2020, Net Overseas Migration was halted overnight. With new migrants not able to come to Australia, and many temporary migrants, including skilled migrants and overseas students returning to their country of origin, Australia recorded its first population decline since World War One.

What is the demographic profile of overseas migrants?

Migrants typically have a younger demographic profile than the rest of the population. At a stage of life where they are more easily able to move elsewhere for work or study opportunities, migrants who come to Australia from other countries are typically skilled migrants, students, and young families.

In 2020, we published an eBook Demographic delays: how closed borders will impact the future demand for services, that quantified the forecast impact, including the forecast that Australia would have 1.9 million fewer people in 2041 that previously forecast, as a direct result of the pandemic.

Part of this story was the ‘multiplier effect’. As overseas migrants are typically in these younger, family-forming age groups, we wouldn’t just be missing that initial wave of migrants, but the children they would have otherwise had in Australia when they settled in Australia.

What does this new level of overseas migration mean for planning in Australia?

NOM is an important assumption in our forecasts, and such a significant change, if sustained, would have a material impact on the level of forecast demand for services and infrastructure that would be concentrated in particular pockets of the nation where these ‘recent arrivals’ tend to settle.

A covid correction

Our view, as forecasters, is consistent with that from the Centre for Population, which is neatly summarised on p.59 of the Economic outlook statement accompanying last night’s budget.

Once the temporary catch-up effect from the pandemic subsides, net overseas migration is expected to return to more normal levels, falling back towards historical trends of 235,000 per year, which is the assumed level into the medium term.

The housing impact

In the midst of an affordable housing crisis, one concern people have is that more migrants will lead to further pressure on already strained housing stock.

As this covid correction is expected to be – in large part – a return of overseas students who weren’t able to commence their studies in Australia during the pandemic, we do not expect to see a significant impact on the overall demand for new dwellings.

The main housing impact we expect to see is a reduction in the student accommodation vacancy rates and further pressure on private rental accommodation in areas with high concentrations of young people.

Purpose Built Student Accommodation (PBSA) is a common source of dwellings in ‘student cities’ such as Sydney, Melbourne and other capital cities, as well as university towns elsewhere in the country. In 2020, in the early days of the pandemic, Kieran McConnel published this blog about how cities might re-use these dwellings that had already been constructed and were lying vacant after the pandemic saw their clientele leave the country. These students are now returning.

Does this information change our population forecasts?

We consider these forecasts from the Centre for Population credible and significant enough to update our forecasts. We will be publishing a new set of national forecasts that will form a top-down constraint for all our forecast updates at the State and Territory, Regional and Small area forecast levels.

You can register here if you would like to be notified as soon as we release these updates to our forecasts.

What does this mean for people planning services?

It depends what type of services you are planning. The first and most important point is that the impact of overseas migration is highly spatial. To put that in plain language, it will affect some places much more than others. Based on well-established demographic patterns, we expect the majority of these additional migrants will settle in Melbourne and Sydney – in particular, the university areas, and greenfield growth areas with access to affordable housing.

In terms of the industry-specific impacts, this depends on the clients and areas you service. Here are some things we would recommend our clients in specific industries might consider;

Education

• Tertiary education providers would expect to see an immediate impact on student enrolments
• Primary and secondary schools may consider the possibility of a higher number of primary- and secondary-aged school students in the years ahead as a result of more migrants at family-forming stages of life coming to the country.

Retail

• Retailers in areas with a high proportion of recent arrivals and students can expect an immediate increase to their short term retail sales forecasts
• It is likely there will be more growth in areas that have high concentrations of migrant families

Utilities

• Despite the immediate expectation of a spike in overseas migration, the overall forecast for population growth is expected to be lower than the pre-pandemic forecasts

Our forecasts help our clients understand how these macro-demographic factors influence population change and future demand for services in different parts of the country. For more information, subscribe to updates from our forecasters here, or contact us to discuss how we can provide an evidence base for a current project.

Also published on Medium.