Wealthy workers living in the same few capital cities will push up property prices: Michael Yardney

The Big Australia vs Small Australia debate was all the rage a few years ago, but that argument now seems to have gone by the wayside.

In fact, we’re growing faster than any other developed country.

The Australian Bureau of Statistics (ABS) recently released demographic data for December 2012 showing Australia's population grew by 394,200 people or 1.8% during 2012, well above its long-term average of 1.4%.

This is good for our economy and good for our property markets.

Of course a rising population on its own isn’t enough to push up property values, but a nation full of wealthy workers who all want to live in the same few capital cities is.

But I’m getting ahead of myself…

What’s happening state by state?

Source: ABS

At the state level, population growth has three components: natural increase, net overseas migration and net interstate migration.

And as you can see, growth varies considerably between the various states with population growth the strongest in WA.

While it’s interesting to see the percentage growth in each state, it’s also important to look at the absolute numbers.

In some states such as Tasmania (+400), Northern Territory (+4200) ACT (+8600) and South Australia (+15,600) the actual number of people moving in is quite small and this is unlikely to change much in the future.

The lack of depth in these particular markets is one of the reasons I avoid investing in them.

On the other hand, take a look how many people are moving into our four major capital cities.

The population of WA is booming with an increase of 3.5% last year or 83,000 people. It’s little wonder the Perth property market is performing well.

Victoria’s once again had the biggest population growth (+99,500) and this is one of the reasons its property market has confounded pundits and performed better than many expected.

And in Queensland (+92,500) and New South Wales (+90,400) the population growth continues apace.

Strong migration holds the key

Australia’s firm population growth has mainly been driven by a doubling in net migration over the last few years. Back in 2005, annual net migration was around 120,000. Today, that figure is close to 240,000.

Source: CommBank

But dwelling construction isn’t keeping pace

As you can see from the following graph from CommBank, our robust population growth has occurred against a backdrop of modest dwelling construction.

Source: CommBank

CommBank estimates our population growth would require 170,000 new dwellings this year, but as you can see, we’re not building many more houses than we were one or two decades ago.

As always, some of the new apartments are being built in the wrong place – where there isn’t sufficient demand leading to an oversupply on the Gold Coast, in the Melbourne CBD and in Melbourne’s new outer suburbs.

But the overall mismatch explains some of the issues that support house prices.

What’s ahead?

The economists at the CBA expect annual population growth will be in the 350,000 to 400,000 range over the next few years with a relatively firm birth rate and strong immigration.

That means our three big capital cities could add close to one million inhabitants each over the next 15 years.

Many of our new migrants will take up the new jobs being created, while others will replace the ageing Baby Boomers moving out of the workforce.

Of course the majority will move to our big four capital cities and many will want to live in the same suburbs; those inner and middle ring suburbs where the action and the jobs are.

And our old friend, the supply and demand ratio will support the property markets in these areas.

Some final thoughts

I can’t see the population debate being a factor in the upcoming election, but it’s likely our high rate of population growth will provide some debate in the future due to the potential problems of environmental impacts, increased need for housing, infrastructure investment and demand for essential services.

On the other hand, increases in population, particularly skilled working age population growth, increases the tax base and helps boost revenues for all levels of government. It also increases demand for goods and services across the economy.

Population growth is a balancing act; let’s hope our future governments get it right.

In the meantime, move over and make room!

Michael Yardney is a director of Metropole Property Strategists, who create wealth for their clients through independent, unbiased property advice and advocacy. Subscribe to his Property Update blog.