Migration has been blamed for the housing crisis, but it’s not that simple

The government and the opposition have both promised cuts to migration in response, at least partially, to Australia’s housing crisis. But how much does immigration actually contribute to the cost of housing and rent?

While Labor has pledged to cap the number of students studying in Australia, the Coalition has flagged a 25% cut to permanent migration and a plan to restrict purchases by foreign buyers.

Cutting Australia’s migration intake would affect the lives of Australians trying to reunite with loved ones, as well as migrants themselves. Experts say the cuts could also cost Australia billions of dollars over decades – and they may only marginally improve the housing crisis, if at all.

So let’s dig into the numbers.

First, it is absolutely true that net migration is now at the highest level it has ever been. Net overseas migration (NOM), which is the number of people who arrived in Australia in a given year minus the number of people who left Australia, has surged after the lows of the Covid-19 pandemic.

As the chart shows, the most recent year-to-date figure for NOM was 518,000.

Current high offset by pandemic decline

Looking at the figures as a departure from the pre-Covid average shows the current high numbers are, for the moment, entirely offset by the decline in migration during the pandemic.

Related: Peter Dutton’s migration cuts would cost budget $34bn over coming decades, thinktank calculates

This is because much of the recent surge in migration is a temporary “catchup” from when borders were closed. The last few federal budgets have all forecast a return to long-run average migration levels, with the most recent budget population forecast still below that of pre-Covid population forecasts.

Housing construction falling behind

Australia has been pretty good at matching dwelling construction to migration over the long run. As Peter Dutton himself noted, in the last 10 years – apart from during the pandemic – “the number of … new dwelling builds has roughly matched the number of people coming in through the migration program at about 170,000”.

The disconnect only starts during the pandemic, with population and migration first dropping then increasing, even as the number of completions and commencements stays roughly the same.

According to RBA assistant governor Sarah Hunter, this disconnect is due in part to the increased cost of building since the pandemic due to inflation in labour cost and building materials.

Rising interest rates is another factor, and Hunter said that “many dwelling construction projects are funded by debt, and so higher interest costs will dampen the flow of new housing supply”.

Another interesting point Hunter makes is how changes in household formation have also driven up demand for housing: “The average number of people living in each household has trended lower, from around 2.8 in the mid-1980s to around 2.5 of late.

“This may sound like a small change. But, if for some reason average household size rose back to 2.8, we would need 1.2m fewer dwellings to house our current population – no small difference.”

This is another area where the pandemic has affected things, with a shift in preferences towards more physical living space per person and an increase in people working from home.

Will limiting permanent migration help?

Experts say Dutton’s proposed 24.3% reduction in the permanent migration intake in the first year may have little impact in the short term. That’s because many of the people applying for permanent migration are already in Australia on temporary visas – and would simply stay longer on temporary visas than they otherwise would have.

Many industries in Australia rely on skilled migration to fill workforce demands, particularly in the healthcare and education sectors. Experts say migrants are a “massive economic benefit to this country”, and over the long run they help increase productivity, benefiting other workers.

What about temporary or student visas?

The majority of the migration surge has been among temporary rather than permanent migrants, who are more likely to impact the market for renting than buying.

This is because temporary migrants tend to have different housing needs than permanent migrants. They are more likely, for example, to form group households than permanent migrants.

More than 10% of student visa holders lived with six or more people, and 12% live in communal accommodation – and student visas make up the bulk of recent temporary migration.

More than twice as many students arrived in 2022-23 as the year before, even as the number of students departing actually decreased.

A widely-cited report from the Property Council of Australia contends that international students are not to blame for the housing crisis, as they only make up 4% of the rental market.

However, there are some issues with the property council’s estimate – while the 4% figure is correct, it is based on figures from the 2021 census during which international student numbers were unusually low because of the pandemic and border closures.

ABS data showed there were 348,556 people on international student visas at census time in 2021, compared with education department statistics for early 2024 which show 687,840 people studying in Australia on a student visa.

Related: NSW government reveals where 377,000 new homes will be built in Sydney and regional areas by 2029

Using the proportion of international students who were renting at the 2016 (pre-Covid) and 2021 censuses to estimate the percentage of the rental market in 2024 would give us a percentage share of 6.8% to 7.2%, quite a bit higher than 4%.

The property council of Australia report is correct in that the impact of international students on the housing market is unequal as there are particular areas with higher numbers of students closer to universities and city centres.

We also know from ABS data that the majority of students are in the private rentals, rather than in homes they own themselves or student accommodation.

These figures show there is clearly scope to increase the supply of purpose-built student accommodation, as currently it doesn’t account for much student housing overall.

Elsewhere, the Grattan Institute estimated that for every extra 100,000 migrants we “didn’t expect” rents may be pushed up by 1%. It recommended carefully reducing some parts of the migration program to address this.

In response to the migration trends, both parties have proposed capping student numbers, and the government has also introduced tighter restrictions on student visas.

It is this aspect of recent migration proposals that could marginally improve the housing market for renters. But as the Grattan Institute also pointed out, building an additional 200,000 homes could make rents 4% lower than they otherwise would have been.

What about foreign buyers?

Another target of the Coalition’s new housing policy is restricting purchases of established dwellings by foreign buyers for two years.

However, as Labour politicians have pointed out, this policy is so specific that it only covers a very small number of dwellings and is likely to make very little difference to housing affordability.

Data from the foreign investment review board shows foreign buyers prefer new dwellings over established ones, and on average, only 1,200 established dwellings are bought by foreign buyers a year.

So where does that leave us? It isn’t clear that cutting permanent migration would change much without simultaneous changes to temporary migration.

Capping student numbers will help a little, as will increasing the amount of housing available to students.

Indeed, increasing the amount of housing overall, including social and affordable housing, is widely-regarded as an effective way to address the housing crisis. Other measures people have proposed include limiting tax breaks that encourage investment in property, and removing barriers to downsizing.