By Poppy Johnston in Canberra

THE pursuit of extra home space in the latter stages of the pandemic and throughout the recovery has added around 130,000 households compared to pre-pandemic levels.

Treasury Secretary Steven Kennedy said the shift to smaller households, such as adult children moving out of their parents’ homes, was contributing to housing demand alongside the return of migration.

While net overseas migration is expected to be less than it was if covid never happened, Treasury foresees migration reaching 400,000 in 2022/23 and 315,000 in 2023/24.

This amounts to a cumulative increase of 245,000 since the October budget.

Treasury Secretary Kennedy also said the return of migration would support demand for housing investment, particularly medium and high-density developments.

“This activity is expected to be a driver of the cyclical upturn in the economy as well as providing additional supply into the dwelling rental market,” he told a parliamentary committee on Tuesday.

Rent remains a pressing source of inflation threatening the Reserve Bank’s task of returning inflation to target.

The Treasury secretary said national vacancy rates were hovering around near record lows and advertised rents were growing at 10.1 per cent as of April 2023.

He said the approvals for new dwellings had fallen and this would translate into fewer housing starts.

“This will naturally flow through to construction work done, and we expect dwelling investment to contract 2.5 per cent this year, by a further 3.5 per cent in 2023/24 and 1.5 per cent in 2024/25,” Dr Kennedy said.

“We then anticipate a strong cyclical recovery.”

New consumer confidence data from ANZ and Roy Morgan shows sentiment has been stuck at low levels, and in May returned its worst calendar month average since December 1990.

The weekly index dropped 1.1 points to 76.2, led by a 4.3-point decline in “current financial conditions”.

While the weekly reading was still not as low as when the pandemic lockdowns took hold in early 2020, it was still the fifth worst result since that period and the 13th week in a row below 80 points.

ANZ senior economist Adelaide Timbrell said cost-of-living pressures continued to weigh on households.

“Those paying off their homes still have far lower average confidence than renters and outright owners, despite housing prices lifting since mid-February,” she said.