Will international borders reopening revive inner-city rents?

Inner-city Melbourne apartment rents have fallen by nearly 25% over the last 2 years.

And since the pandemic started inner-city Sydney apartment rents fell 7.7%.

Of course, this was related to the impact of the border closures on these rental markets.

Source: Proptrack

So will international borders reopening revive inner-city rents?

That was the theme of a recent article by REA economist Angus Moore on Proptrack.

Moore explains that temporary migration to Australia basically stopped in early 2020

The cessation of temporary migration had a particularly big effect on two sectors: tourism and education.

For the higher education sector, this was a big change.

Overseas students accounted for a little more than one-quarter of total higher education students, Department of Education, Skills and Employment data shows.

This amounted to more than 400,000 overseas student enrolments and more than 800,000 gross arrivals into Australia in 2019.

That all changed in early 2020.

Recent migrants disproportionately live in inner-city areas

Of course, border closures also affected Australia’s rental markets.

Many of Australia’s major universities are close to the city centre, and so many overseas students opt to live in central suburbs close to campus explains Moore.

Here’s how this has affected our rental markets

Moore explains that a key feature of the pandemic has been a change in where renters want to live, and what they’re willing to pay.

This reassessment means we’ve seen inner-city rents fall in some areas, while rents in outer suburbs and regional areas have grown quickly.

For inner-city areas, the loss of temporary migrants – and students in particular – is part of the story.

With far fewer students, there has been reduced demand to rent in inner-city areas.

So what’s ahead?

Unsurprisingly, the near-complete closure of our borders has had a dramatic effect on Australia’s overseas arrivals, on the Australian economy, and on certain sectors of our property markets.

But now that our borders are reopening demand for inner-city apartments should pick up as international students are returning to Australia after almost two years of closed borders.

The number of international students in Australia increased by 29,856 in the first six weeks after the Australian government opened the border to them in mid-December.

But while some commentators are suggesting now may be a good time to consider buying an inner-city apartment counter-cyclically, I disagree.

Most inner-city apartments make poor investments and buying them cheaply doesn’t make them a better investment.

A secondary property will always be a secondary property and CBD apartments tend to have no scarcity, minimal land to asset ratio, no opportunity to add value, no owner-occupier appeal, and a limited demographic who want to rent them.

On the other hand, well-located, medium density, family-friendly apartments in our inner and middle-ring suburbs can make great investments.

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