Australian central bank: AUD $50bn net gain from students with minimal rent price impact

International students are not responsible for sky-high rental price hikes, according to the latest analysis produced by Australia’s central bank, the Reserve Bank of Australia.

In its latest bulletin assessing the role international students play in Australia’s economy, it estimated a AUS$50bn net gain from students and underlined their value as employees too.

Spending by international students was also an important contributor to growth in consumer demand in Australia following the pandemic, it declared.

“In periods of strong inflows of students, such as just after borders reopened after the pandemic, this likely had an important effect on aggregate demand in the economy.”

And the report pointed out that international students constitute the second largest group of temporary visa holders with work rights in Australia after New Zealand citizens.

“A greater share of international students work in accommodation and food, as well as retail, compared with the share of the total labour force,” detailed report authors.

“Further, an increasing share of students are now working in health care, consistent with strong labour demand in this sector.”

The report noted this contribution was important in helping businesses in these sectors facing labour shortages in the tight labour market that emerged post-pandemic.

The timing of the report is useful, as new ESOS legislation is considered and the government is facing calls from the sector to stop stifling international student demand – with the latest calls relating to the new visa application fee which is killing demand from short-term students.

When it comes to the political hot potato of international student populations squeezing out domestic renters or contributing to accommodation price surges, RBA was dismissive of that thesis.

The rise in international student numbers is likely to have accounted for only a small share of the rise in rents since the onset of the pandemic
_{Reserve Bank of Australia}

Models of the housing market used by the RBA suggest that a 50,000 increase in population would raise private rents by around 0.5 per cent compared with a baseline projection. The marginal effect of an additional renter may be greater in periods where the rental market is tight and vacancy rates are low, such as occurred post-pandemic.

“Nonetheless, the rise in international student numbers is likely to have accounted for only a small share of the rise in rents since the onset of the pandemic, with much of the rise in advertised rents occurring before borders were reopened.”

One area where higher international student numbers have generated a supply response has been in purpose-built student accommodation, noted the report, with rapid growth in building approvals for such projects in recent years.

Note the gov plan to expand cap for insttutions investing in PBSA.

Another interesting fact shared was that International students make up around one-third of Australia’s permanent resident intake –  around 30 per cent of international students went on to apply for temporary graduate visas in the five years to 2022, said the report citing 2022 data.

There is less expected flow into temporaray labour market now – “this is because the recent tightening in visa policy has targeted groups of students who were more likely to be seeking to work” explained RBA.

“That is, those international students who do receive visas going forward are less likely to be focused on employment opportunities in Australia on average,” said the report, citing Andrew Norton.

In sum, “rapid growth in the international student stock post-pandemic likely contributed to some of the upward pressure on inflation from 2022 to early 2023, especially as arriving students frontloaded their spending as they set up in Australia and took time to join the labour market. However, the increase in international students was just one of many other forces at play in this time that drove demand above supply in the economy, and hence higher inflation. For instance, supply-side factors were the biggest driver of the increase in inflation in 2022 and 2023 (RBA 2023; Beckers, Hambur and Williams 2023) while strong domestic demand arising from supportive fiscal and monetary policy also played an important role.”

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