Population growth will drive house prices: Damian Collins

GUEST OBSERVATION

Australia’s robust population growth will continue to underpin property prices for decades to come.

Read any government or not-for-profit commissioned reports into the future of Australia and you’ll likely notice one key trend – population growth is forecast to remain strong.

Australia’s population surpassed 23.7 million in January after significant growth over the past 15 years. 

A recent report from The Australia Institute found that since the year 2000, Australia has increased in size by 4.7 million people.

This represents about a 25% rise in the country’s population and equates to adding a new city the size of Canberra every year, the report by the Canberra-based think tank found.

This has undoubtedly helped fuel dwelling prices over that time.

With the exception of Sydney, all of Australia’s capital cities have recorded annual compound house price growth of more than 7% in the same period. Of course, as we know, the Sydney market is experiencing boom time conditions now.

Source: CoreLogic RPData *15 years to January 2015.

According to many forecasts, Australia’s high rate of population growth over the past 15 years will continue.

The Federal Government’s recent Intergenerational Report predicts that about 40 million people will call Australia home by the year 2054. Similar estimates have also been forecast by The Australia Institute.

This equates to population growth of about 1.3% per year – about half of this growth will be driven by net oversea migration with the remainder comprising natural growth (births less deaths).

Subsequently, Australia will need to add more than 9 million new homes – double the current housing stock – to meet the population demand, according to the Master Builders Association.

What’s more noteworthy, though, is that almost all of these people are expected to live in Australia’s capital cities.

Melbourne and Perth will experience the biggest increases in population growth over the coming decades, according to The Australia Institute report released in March.

Perth’s population is tipped to nearly triple by the year 2061 with the addition of 3.5 million residents. The city’s population is expected to reach 5.5 million people, which would surpass that of Brisbane’s of about 4.9 million, and make it Australia’s third largest capital.

The report also found that Melbourne is forecast to surpass Sydney as the most populace capital city in Australia.

The Victorian capital is predicted to grow to 8.6 million residents by 2061, compared to Sydney with 8.5 million people.

This rapid population growth, in already sprawled metropolitan zones, will continue to drive demand for land and, in turn, apply upwards pressure on house prices

While there will be ebbs and flows in house values over the decades ahead, the ultimate trend will be an increase in prices. 

Source: The Australia Institute, Population Growth in Australia

Damian Collins is managing director of Momentum Wealth, a Perth based property investment consultancy firm. You can contact him here.