Population growth in Australia is set to slow considerably in 2010/11 and 2011/12, as net overseas migration declines from record highs, according to leading industry analyst and economic forecaster, BIS Shrapnel.
This outlook is a key factor of BIS Shrapnel's newly released medium-term forecasts which are part of its Building in Australia 2010 report.
BIS Shrapnel's Senior Economist, Jason Anderson, says that strong population growth, which equated to 2.1 per cent in 2008/09, has filtered through the Australian economy in many ways.
"Public attention has been directed towards housing markets, particularly the rebound in residential property markets, but there is also undeniable evidence of tight rental markets and acceleration of rental growth," says Anderson.
However, BIS Shrapnel is forecasting a sustained decrease in net overseas migration over the next two years. Net overseas migration is expected to be down to 175,000 persons in 2010/11 and 145,000 persons in 2011/12. As a result, national population growth is expected to slow to about 1.5 per cent in 2010/11, and 1.3 per cent in 2011/12.
BIS Shrapnel says the source of this shift is found in evaluating the impact of long-term visitors and departures, which comprise a large proportion of net overseas migration.
"Most of the rise in net overseas migration over the past three years has been the result of a surge in the number of long-term visitors, not permanent migrants," says Anderson.
BIS Shrapnel says there have been two main groups behind this rise in long-term visitors - skilled workers under Temporary Business (Long Stay) visas (the 457 category), and international tertiary education students. While a proportion of these long-term visitors will be aiming to obtain permanent residency, the great majority do not.
"The bottom line is that long-term departures will rise - particularly at a span of about four years from 2007 and 2008, when the long-term arrivals numbers jumped," says Anderson.
BIS Shrapnel expects that the number of skilled worker visas will flatten out and the high Australian dollar will deter overseas students over the next two years.
As a result, the annual increase in long-term departures is expected to be greater than the increase in long-term arrivals from 2010 to 2012. BIS Shrapnel says the net inflow of long-term visitors will make a much smaller contribution to population growth, and a slower rate of population growth is expected to feed through the national economy.
"We should expect to see some dampening of household spending growth but there should also be some alleviation of inflationary pressure that has resulted from the strong demand growth for domestic goods and services," says Anderson.
"In terms of the housing sector, shortages will remain and there will be less upward pressure on interest rates."
BIS Shrapnel says even with lower population growth, the rate of new dwelling construction will remain below underlying demand, so shortages will persist and rental markets will stay very tight.
"If net overseas migration had stayed at the 2008/09 level of 300,000 persons per annum, then the queues for some rental properties would have started snaking around the block," says Anderson.
BIS Shrapnel expects the Reserve Bank of Australia will make only two interest rate rises in 2010/11, so the standard housing variable rate will be about 7.9 per cent by June 2011.
"Overall, a few years of weakening population growth will have some mixed effects on the economy," says Anderson.
"It will lead to more moderate growth in household spending, at a time when the income gains from the commodity cycle will already be boosting national income.
"This combination would allow for a relatively benign interest rate environment, which would be supportive of residential property markets, and enable a sustained increase in dwelling construction, which is badly needed to address the shortages that already exist", he concluded.