The COVID-19 pandemic has caused a significant population shift in Sydney, with a recent surge in migration contributing to long-standing housing market pressures. Despite the whiplash effect of the pandemic, Sydney’s population trajectory remains consistent with pre-COVID trends, with net overseas migration averaging around 65,000 annually. This influx of people has exacerbated the housing squeeze in the city, with the sheer pace of growth leading to a struggle for supply to catch up with demand. This has resulted in record high median asking rents and a rental vacancy rate of 0.8 percent in Sydney.
One significant factor driving the recent population growth in Sydney is the return of international students to complete their studies or begin new courses as the higher education sector normalizes after pandemic disruptions. The influx of students has contributed to a quick rebound in population numbers in suburbs adjacent to universities, where the departure of international students during the crisis had previously triggered a population slump. This return of international students has further tightened the rental market, with many moving into student-specific accommodation.
Beyond overseas migration, other factors are contributing to the high demand for housing in Sydney. The pandemic has led to a shift in preferences towards larger living spaces, as lockdowns restricted movements and individuals sought more space for working from home. This trend, along with an aging population, has increased the demand for housing, with the number of people per household falling since the pandemic. This preference for more living space has been a significant driver of housing demand, alongside population growth.
Rising interest rates have also impacted housing dynamics in Sydney, with a correlation between rising rents and increasing interest rates since the Reserve Bank began lifting the official cash rate in May 2022. Landlords have responded to higher interest costs by raising rents, further impacting the affordability of housing in the city. Despite the population boom and rising property prices, Sydney’s housing market was already under-supplied by an estimated 70,000 to 80,000 dwellings. Residential building approvals have lagged, exacerbating the housing shortage in the city.
Sydney’s housing issues have been worsened by inadequate supply, with rising rates and soaring building costs inhibiting the construction of new homes. A chronic housing shortage existed before the recent population boom, and the city has thousands of dwellings that have been approved but not yet commenced. The high construction prices, along with pandemic-related supply chain disruptions, have created a “perfect storm” of constraints on new development in Sydney. While the post-COVID population spike is expected to be temporary, addressing Sydney’s chronic housing supply problems will require long-term solutions that may take years to implement.
In conclusion, Sydney’s housing market is facing a complex mix of challenges, with population growth, changing preferences for living space, rising interest rates, and inadequate supply all contributing to the current housing pressures in the city. While the post-COVID population surge may be temporary, addressing Sydney’s chronic housing supply issues will require sustained efforts over the long term. The need for affordable and accessible housing in Sydney remains a pressing issue, and policymakers and stakeholders will need to work together to find solutions that address the city’s housing challenges effectively.
