A huge economic event is happening, not that you’d read about it. It’s influx time for foreign students, with major implications for the rest of us — especially anyone in the rental market.
The Reserve Bank of Australia (RBA) singled out service exports in its most recent statement on monetary policy. It pointed to tourism, which is limited by the number of flight arrivals, and foreign students, whose appearance is limited by the rental market. Both count as exports: they are, after all, Australian-made things being sold to foreign consumers.
Services exports have recovered further. International student commencements increased in the first half of the year and have reached their pre-pandemic levels at several universities. Demand from students from South Asia has been a strong driver of the recovery, and universities expect student commencements to grow further in the second half of 2023. However, contacts have flagged that the tight rental market may constrain increases in student numbers going forward, particularly in Brisbane and Sydney.
RBA statement on monetary policy, August 2023
You don’t hear much about the foreign student influx, because it’s hidden in the seasonally adjusted data. Economists love seasonally adjusted time series. They’re important in some contexts, showing when a fall is actually a rise and vice versa. But they can occlude as much as they reveal.
Imagine if we didn’t understand how retail peaks in December. We’d miss an important way of understanding the economy. So it is with migration. Tourism and international students all show significant seasonal variation.
As the next chart shows, foreign student arrivals are concentrated at two times of year: January-February, then July-August. That matters. The red bars show actual arrivals net of actual departures, and the most recent data point is June 2023. That red bar is negative: more students left than arrived in June. But by looking at the pattern of history we know that a fall in June will be followed by a surge in July-August, when semester restarts.
The pale black line is seasonally adjusted — it goes crazy in the pandemic when the seasonal pattern drops out, then looks high and steady ever since as students return.
Rental vacancy rates look like the inverse of the above. Rental vacancies fell in July as the student boom began, dropping from 1% to 0.9% according to Domain data.
While the economic benefit of selling education to foreign students is spread throughout the year, the hit to the rental market is concentrated on the time of arrival. Rental vacancies are already low, and if a wave of students arrives, that pressure on the rental market can be released only via higher prices. That is driving up rents right now.
SQM Research maintains a database of weekly asking rents. Unit rentals show a distinct seasonal pattern with a lift in January-February, a peak in July-August and a slackening in November.
Rising rents will put pressure on the consumer price index. Rents are one of the fastest-growing components, and our services exports are exacerbating the impact.
Interest rates, in theory
In theory, higher interest rates should dissuade exports and make imports cheaper. The higher rates are supposed to lead to a higher dollar, rendering foreign goods cheaper and making us into a nation of importers. We should be buying Italian tomatoes and holidaying in Bali, thereby reducing demand in the Australian economy. But our currency hasn’t lifted much in the recent interest rate-cutting frenzy, because most countries are in the same boat, raising rates alongside ours. In fact, despite the rate rises, our dollar has weakened against the US dollar, down to US$0.65. It is also broadly stable against the Chinese yuan and the Indian rupee.
A low-ish Aussie dollar makes Australia — including Australian rents — look relatively cheap for foreign visitors.
Even Airbnb, which will expand as inbound tourism recovers, is constrained by the tightness in the property market. And it is no surprise that it is the target of online rage, as it is perceived as taking property out of the rental market and making it even harder to find a place to live.
This is the problem with in-person services exports. They put pressure on the part of our economy that has the least capacity to respond, the least elasticity of supply — residential property. Whereas goods exports and other types of services exports, such as business services, can scale more easily.
The economic benefit involves a great deal of hand-waving.
https://www.fresheconomicthinking.com/p/australias-40-billion-of-education
Any foreign student who needs to work to pay for their education, is not an export, by definition.
And we are repeatedly and regularly told that foreign students, like all immigrants, exert no additional pressure on housing, any more than they do roads, public transport, hospital beds, school places, educational standards, etc, etc.
Mmm, Murray citing US sociologist Babones of Koch linked CIS (like IPA), USyd & in the past a Russian think tank (Russian International Affairs Council), now an expert on international education in Australia?
If the same non test were applied to Australian citizens, we could also claim no economic benefit, but what’s the point apart from kocking down on the ‘other’?
Complaining about a sector which is common globally (from generations ago), reflecting increased mobility like backpackers, but ‘analysis’ using headline data, neither presenting behaviour of students nor the financial multipliers e.g. family &/or friends visiting to spend and soft diplomacy; then making random negative links…..
Mmm, Murray citing US sociologist Babones of Koch linked CIS (like IPA), USyd & in the past a Russian think tank (Russian International Affairs Council), now an expert on international education in Australia?
Complaining about a sector which has been common globally for generations, reflecting increased mobility like backpackers, but ‘analysis’ using headline data, neither presenting behaviour of students nor the financial multipliers e.g. family &/or friends visiting to spend and soft diplomacy; then making random negative links…..
If the same non test were applied to Australian citizens, we could also claim no economic benefit, but what’s the point apart from kocking down on the ‘other’?
Australia has a fundamental responsibility to its citizens that it does not have to non-citizens.
Else, what is the point of Australia, and citizenship ?
LOL @ people downvoting the suggestion that citizenship should have value.
Nothing to offer but ad hominem, as usual.
Some of us worked 2-4 hours, maybe up to 8 hrs per week (at most) to help with expences, but any more hours than 10 and you aren’t here for an education. (unless the plan is to extend 4 years into 6 years).
Cash in hand wages feeding real estate, with the Salvos feeding the students (via donations that were meant for the local homeless).
The real “export” value of international study is as cultural soft power, and part of that is absolutely letting students immerse themselves into the local culture by some part-time employment.
But money earned and spent locally is, fundamentally, not an “export” and it is simply a lie to label it as such.
Student visa holders are also, I believe, meant to have the ability to financially support themselves without local employment as a visa condition. Clearly any of them lining up outside charities for food cannot and should be sent home.
As with most aspects of our current immigration policy, foreign students are mostly about low-cost, low-skill, easily-exploitable labour.
The point of the 1950s Columbo Plan was to educate the best & brightest from the exEmpire/New Commonwealth sothaat they could go back and help modernise their homelands.
That worked for a while until it was realised that was a big task and many, if not most, decided it was far easier to stay where the hard work of building functioning, equitable societies had already been done.
The new Commonwealth was stripped mined of talent needed to create what our enviable world.
You can see why the real estate lobbies are scream blue murder at the idea of rent caps. With the new influx of overseas students desperate for any accommodation, and presumably many of them being able to outbid the local renters, the rent hikes will be enormous, and make eye-watering profits for some. Hey, that’s what the market demands, baby; that’s capitalism. Local renters will go the same way as bilbies and bettongs after cats and rabbits were introduced.
So much is riding on increased housing. OS students, OS visitors, immigration, let alone affordable housing for those who already live here. Given that the market will add 1,000,000 homes over the next 4 years as it has over the last 4 years (or so the media informs me), nothing will change. And Labor’s great plan is to only add 50,000 affordable homes to this number over 5 years. Less than 2 for every town, city and suburb in the country. Over 5 years! In other words nothing will change over the foreseeable future. Thanks for nothing Labor.
Still short term, early 2024 could be more telling after NOM data has settled more i.e. shaking out (post) Covid border closure distortions and ‘noise’?
Housing and other behaviour of temporary residents is different vs. permanent migrants, residents & citizens, inc. homestays, on campus, specialised student & CBD apts., hostels, sharing etc.; maybe it’s time someone e.g. universities, researched bottom up vs. guesswork?
SQM data for Mel/Syd (not all of Oz) now show a sharp rise and upward trend in CBD apt. vacancies, 4%+ Mel. & 5%+ Syd.