Immigration changing the face of Australia’s housing market

Record immigration levels are literally changing Australian cities before our eyes and has played a big part in Melbourne’s amazing growth, which is predicted to see it overtake Sydney’s population in the next decade.

Such strong growth comes with some negatives, with incredibly tight rental markets with tiny vacancy rates right across Australia causing real pressure on people to find shelter.

Housing supply has remained constricted and the affordability of buying housing is also a significant barrier with high prices and higher interest rates.

In such an environment it is difficult to see many signs of hope but behind the scenes, the rental market is beginning to change in many ways.

Mum and dad property investors on the wane

The traditional Australian model of individuals running investment properties has been waning in the face of tougher rental standards, higher land tax and lending costs and in its place there is the beginnings of a more corporate sort of rental property.

Build to rent and rent to buy models have been growing and some of them have even been bankrolled by superannuation funds.

Facing up to a $3.7 trillion opportunity

With Australian super funds investing a hefty $3.7 trillion on behalf of members, the opportunity this represents is difficult to overstate, with even a tiny percentage of those funds capable of making a very large difference to the availability of rental properties.

One example of how the entry of big super funds into the property market is the decision by Aware Real Estate to build more than 700 homes across two major developments in Melbourne’s inner and northern suburbs.

The property group has launched large-scale housing developments at Queens Road, in Melbourne’s inner south, and Preston in the city’s north, expanding its new found role as one of the largest build-to-rent (BTR) developers in Australia.

Aware building 726 new dwellings in Melbourne alone

With a construction value of $320 million, the two projects will provide 726 dwellings, lifting the number of homes in Aware Real Estate’s Melbourne portfolio to more than 930 across four sites.

That is a welcome addition given that Melbourne’s rental vacancy rate is currently bouncing around the 1% mark due to a surge in immigration which is turbocharging demand.

Aware Real Estate chief executive Michelle McNally said the projects “are in areas of strong demand, supported by important infrastructure, key transport links, and sought-after amenities.”

“At all our sites we aim to foster connected communities, attracting a broad range of residents to create great places for people to live, and these developments will be no exception.”

Aware Super chief executive Deanne Stewart said Greater Melbourne was on track to be Australia’s biggest city within a decade and there was an urgent need to be able to house more than six million people.

“Housing is at the very core of the community’s needs and while no one investor can single-handedly deliver the number of homes Melbourne will require over the coming decade, we’re pleased we can be part of the solution with investments that fit squarely with our objective of delivering strong long-term returns for our members,” said Ms Stewart said.

Construction is already happening at the Preston and Queens Road developments, which are set to be entirely build to rent housing.

The Preston development should be finished in early 2026 while Queens Road should be ready by the middle of the same year.

Super funds not keen on the idea of using super for a house deposit

The rise in superannuation investments in rental housing comes at an interesting time because the Super Members Council (SMC) has been warning that encouraging young Australians to use their superannuation for a house deposit could dramatically drive-up house prices and deplete their retirement savings.

Liberal Senator Andrew Bragg has been championing the idea of young Australians being able to withdraw part or even all of their super for a house deposit, saying that using super for a house deposit provides “significantly better outcomes” than lifetime renting.

He pointed out that super is just part of retirement planning and that owning a house and other assets are also an integral part of retirement planning, although the superannuation industry remains largely opposed to this concept.

Funds want super quarantined

“We all desperately want more Australians to own their own home, but this idea won’t achieve that – it would just make that goal even harder for first home buyers by making house prices more expensive,” said SMC chief executive Misha Shubert.

The SMC said Senator Bragg’s plan would be a “trap for young Australians” that would result in higher home prices, less super and a greater reliance on the age pension.

The Association of Superannuation Funds of Australia (ASFA) also said it was disappointed that super was being used as a “political football” in the lead up to the next election.

“After having this proposal soundly rejected at the last Federal election, Senator Bragg has brought back the same policy which will leave young people behind and entrench intergenerational inequality,” said ASFA chief executive Mary Delahunty.