Australian housing: How high immigration has fuelled biggest property price rises amid supply shortage

The biggest surges in Australian house prices have occurred during years of high immigration with the exception of the pandemic when interest rates were at a record low, historic data shows.

Real estate values have also soared even when interest rates have been rising, with stronger population growth underpinning buyer demand for houses, especially when there’s been a supply shortage.

“Often, when you go through periods of high immigration, it means the property market is slow to catch up so you end up with underlying demand for housing running above the underlying supply and that shows up in higher rentals, lower vacancy rates and/or higher home prices,” AMP chief economist Shane Oliver told The Nightly.

Last year’s 8.6 per cent increase in property values — taking the national median home price to $901,257 — didn’t even make Cotality’s top five list in data going back four decades.

In 1988, variable mortgage rates started the year at 13.5 per cent before rising even higher. But home values still climbed by 31.2 per cent, making it the biggest year of property price rises on record after the Black Monday stock market crash of October 1987 encouraged investors to instead put their money in real estate.

During that year, Australia’s net overseas immigration rate of 172,794 was almost double the 89,319 level of 1985 and almost triple the 59,823 intake of 1984, factoring in permanent and long-term departures.

This also produced a population growth pace of 1.7 per cent, which was even stronger than 2025 increase of 1.5 per cent.

Why 2021 was an exceptional year

The exception to the rule, of high immigration fuelling strong home price gains, was 2021 when property prices surged by 24.5 per cent.

This was despite a population growth pace of 0.5 per cent, based mainly on births, as Australia’s border was closed for the pandemic and Sydney and Melbourne endured long lockdowns.

That coincided with the Reserve Bank of Australia cash rate being at a record-low of 0.1 per cent and the banks offering fixed and variable mortgage rates starting with a “two” as professionals were given the option of working from home.

“Rates that Australians have never seen before so they borrowed heavily and piled into the property market,” Dr Oliver said.

“There was a big rush to get out of rental accommodation into houses - regions were seen as favourable relative to cities.”

The start of the millennium also saw some of the biggest house price increases, as the early years of the 50 per cent capital gains tax discount coincided with consistently higher immigration to provide more skilled workers during the mining boom.

In 2003, property prices soared by 18.1 per cent despite two interest rate rises as Australia’s net overseas migration intake stood at 110,104 — which was more than triple the annual level of a decade earlier.

Two years earlier, in 2001, property prices climbed by 15.9 per cent during a year with an immigration intake of 136,075, which was almost double the 1997 intake of 72,402.

That year also saw the RBA cut interest rates six times, taking the cash rate from 6.25 per cent in February to 4.25 per cent by December.

Rounding out the top five was 1987 with a 15.3 per cent surge in home values, during a year with an immigration intake of 136,093 and an overall population growth pace of 1.6 per cent.

The 1990s didn’t make the top five list with that decade covering the 1991 recession — in the aftermath of 17.5 per cent Reserve Bank interest rates — and net overseas immigration diving to just 34,822 in 1993 during a time of double-digit unemployment during Paul Keating’s time as Labor prime minister.

“Housing markets are influenced by more than just interest rates,” Cotality research director Tim Lawless said.

“Fiscal stimulus, credit availability, migration trends and economic shocks all play a role in shaping outcomes.”