Labour supply headaches could wane as arrivals improve: Westpac

New provisional figures released by the Australian Bureau of Statistics (ABS) show that the number of people arriving into the country continues to recover.

The number of visitors and immigrants coming to Australia has been quickly improving since the country’s international border fully opened in February.

According to the recent Overseas Arrivals and Departures figures from the ABS, there were just over 1.2 million arrivals in December, the highest figure recorded since the borders reopened.

Noting the provisional data, several commentators have flagged that labour supply constraints - including those for the construction of new houses - could recover with the influx of new arrivals.

Westpac economist Ryan Wells noted the “robust monthly increase of 79.2k” in the arrival figures, adding: “In the six months following the full international border reopening in February, both arrivals and departures surpassed 50 per cent of their respective pre-COVID levels.”

He continued: “However, it is also worth mentioning the strong progress in short-term visitor flows as well.

“Constructive for the outlook, our estimates suggest that within this category, the seasonally adjusted three-month average growth rate for arrivals (11.4 per cent) is well above that of departures (6.5 per cent).”

An important year of continued recovery

Citing the federal government’s official forecast for net overseas migration — which assumes a return to pre-pandemic levels of 235,000 for 2022/23 — Mr Wells put the December result into context.

“So far in that period, we have already seen seasonally adjusted short-term visitor arrivals hold at an average of 65k/month above departures,” he highlighted.

“While that covers tourism as well as longer-term migration flows, the evidence so far suggests there may be some upside risk to the Government’s net overseas migration forecast.”

Other types of traveller segment have also picked up, which were heavily impacted by the intense backlog of visa applications through the middle of last year.

“Net arrivals among key visa categories have swung from a sustained period of net outflows to a historic recovery,” Mr Wells continued.

“This was most evident among the ‘temporary work’ category (including skilled, working and other temporary visas) and student visas…”

He added that net arrivals among ‘temporary workers’ and students had held in “substantial net positive territory”, at an average of +12.4k/month and +17.1k/month, respectively.

“This not only further emphasises the upside risk to the Government’s net overseas migration forecast, but it also represents important progress in the alleviation of labour supply constraints, which featured prominently in 2022,” Mr Wells continued.

“Indeed, with the ABS noting that growth in the working age population surpassed pre-pandemic rates due to the pick-up in immigration, it is encouraging to see this progress already having a material impact.”

He concluded: “Looking forward, 2023 is shaping up to be an important year of continued recovery in immigration and travel.

“Once the December/January travel period is accounted for, it will be important to gauge the extent to which momentum can be sustained over H1 2023, and hence where exactly net overseas migration will land for FY23.”

Increasing housing pressure or improved supply?

Speaking to Mortgage Business about the immigration figures, Empower Wealth broker and Property Investors Council of Australia (PICA) chair, Ben Kingsley, said: “We also need to remember some of these new immigrants will have building trades, which will alleviate some of the labour shortage pressure over the course of the next year or two.

“Given labour cost makes up a large portion of overall construction costs, this would put downward inflationary pressure on housing inflation.”

However, he warned that stronger immigration could ultimately add to housing demand.

According to a pre-pandemic government publishing service document titled Understanding the Economics of Immigration, studies have shown that while some immigrants “come with enough money to buy a house straight away”, on average, it takes “about seven years for others to save enough money to start buying their own home.”

Mr Kingsley, said: “It’s certainly a much clearer bet that net overseas migration is going to drive upward pressure on rents in the short term.

“What’s less clear is the number that will take up buying over renting in the short term — albeit it’s highly probable that a percentage of the new professional arrivals will have a ‘savings war chest’ looking to take advantage of a soft buyers’ market here in the short term.

“So, whilst the average might be seven years, an average is always made up of a series of numbers — and in this case, some will act sooner to buy and some will act slower than the average.”

Mr Kingsley added that higher rents would also exacerbate rising housing inflation.

[Related: Confidence across ‘mortgage belt’ up 11%: Westpac]