House prices in Sydney and Melbourne are rising faster than in other Australian cities because of growing migration, new research suggests.

While population growth is not only the key to Australia's economic growth and output, it does play a central role in housing demand and price growth, according to the research from international real estate firm Knight Frank.


House prices in Melbourne and Sydney are going up, partially due to expat migration​

Despite easing over the past 12 months, overseas migrants have underpinned Australia's recent population growth, accounting for approximately 58% of population gains over the past five years, the research report says.

It explains that the importance of overseas migration has become more apparent over the past decade as Australia's immigration policies have been geared to meet the needs of the Australian labour market, with temporary visa programmes, predominately working holiday and temporary 457 visas, accounting for over half of all overseas visas issued in recent years.

Subsequently, population growth over the past decade has been a reflection of a pick-up in temporary migration as opposed to permanent migration, it adds.

Recent population statistics published by the Australian Bureau of Statistics shows that population growth nationally has eased from its recent peak in 2009, to average 1.5% over the 12 months to September 2014 but the analysis says that what is more interesting is the rate of population growth by city. Despite remaining high by historical standards, population growth in the dominant resource capital cities of Brisbane and Perth has fallen sharply, particularly Perth, where the annual rate fell from 3.6% to 2.5% in just 12 months.

The drop in population growth in Perth is now beginning to filter through to its property market, where over the six months to March 2015, house prices and sales volumes have dropped 2.6% and 2.8% respectively.

On the other hand, population growth in Sydney and Melbourne increased over the 12 months to June 2014, supported by stronger economic prospects, underpinned by residential construction. The stronger economic environment within these cities led to an improvement in Net Interstate Migration, particularly to Melbourne, as people sought employment opportunities outside of their home state.

The pick-up in population growth has been met with solid house price gains in these cities, where over the six months to March 2015, house prices in Sydney and Melbourne are up 8.2% and 2.8% respectively.

The report also points out that the recent easing of population growth can be partly attributed to the improving New Zealand economy and expats moving back there. At the same time, more people have been arriving from China and India.

'Looking ahead, both population and house price growth favours Sydney and Melbourne, with the lion's share of overseas migrants expected to gravitate towards these gateway cities. Alternatively, fewer migrants on temporary skilled subclass 457 visas will head to resource capital cities of Brisbane and Perth given more limited employment opportunities as resource projects enter their less labour intensive operational phase. Ultimately, this is likely to constrain population and house price growth in each of these cities,' the report concludes.