Australia's population growth is slowing. This could impact the property cycle

Bernard Salt is someone who is always worth listening to when it comes to understanding demographic trends. Here are his mist recent thoughts on the link between population growth and property prices:

Nocookies
Nocookies

Nocookies

A key passage from the article sums it up:

"There’s only so much growth that can be commandeered by Sydney and Melbourne by drawing in workers from interstate. What is required is a reversal of the trend in net overseas migration; this number needs to be pushed back towards the 180,000-mark in order to sustain housing demand and to absorb housing supply."

 

The link doesn't work so here is his article pasted in full from today's Australian newspaper:

What are the big demographic issues that will shape the market for Australian property and business over the next decade? This issue is always more easily interpreted in hindsight than it is predicted.

A decade ago in pre-GFC Australia an astute assessment of demographic factors shaping the economy would have cited the imminent rise of China, an escalation in net overseas migration, the advent of the mining boom as well as broader economic transformation affected by new technology.

More broadly a decade ago an astute observer of the Australian people might have pointed to possible behavioural changes shaped by universal connectivity. Some businesses have collapsed whereas others have arisen because of the advent of, for example, the smart phone. The mass market now researches, purchases, connects, navigates and forms relationships through technologies and platforms that weren’t invented in 2006 or considered mainstream. How the world can change within a single decade.

The most important demographic game-changer that could shape the demand for Australian property over the balance of this decade is the continued diminution of net overseas migration. The days of “big Australia” are long gone. Net overseas migration peaked at 300,000 in the year to June 2009. The number required to deliver the big Australia scenario of 38 million by 2050 is 180,000. In late 2009 the then prime minister, Kevin Rudd, made his “I believe in a big Australia” statement that triggered a national debate about levels of migration.

At this time the mining and resources boom was well underway. During 2010 and 2011 net overseas migration slowed but then recovered to a recent high of 227,000 in the year to June 2013. Australia’s total growth in this year was 390,000 driving demand for household formation in all capital cities and also in several remote mining communities.

Since then net overseas migration has dropped to 168,000 for the year to June 2015. Total growth for the nation in this year was 317,000; in just two years the national population growth dropped by 73,000 or 23 per cent. And yet oddly despite this clifftop-drop in Australia’s rate of population growth the number added to Sydney and Melbourne continued to track more or less the same at around the 80,000 and 90,000 marks respectively.

Quarterly data is available for September 2015 that suggests net overseas migration is still falling. For the year to June 2015 this figure was 168,000; for the year to September 2015 it declined further albeit by a few hundred people. Who knows what this figure is currently but the property industry should hope that September-to-December represents the nadir of the cycle

The demand for residential property in our two biggest cities is being sustained not by strong overseas migration but by interstate migration flows of workers scrambling for knowledge-worker-connected job growth. Net interstate migration to Queensland for the year ending September was 7000; this compares with net growth of 29,000 a decade ago.

Indeed there is the distinct possibility that net interstate migration to Queensland has in fact turned negative for the first time since 1947. Data to be released on June 23 will confirm whether Queensland is losing residents to interstate destinations for the first time in two generations and if net overseas migration is still dropping.

The reason for the drop-off in net overseas migration is of course the collapse of the mining boom; we simply don’t need as many 457-visa workers as we did four years ago. Plus there has been a diminution in the Kiwi intake. The Christchurch earthquake in 2011 later kickstarted a construction boom in New Zealand that improved job prospects on that side of the Tasman. Aussie-based Kiwis headed home as a consequence. Last financial year Australia’s net Kiwi intake (NKI) was 6000; at the peak of the mining boom in 2013 the NKI peaked at 33,000.

The outlook for property demand across Australia and especially in the booming Sydney and Melbourne markets is in fact tied to falling levels of net overseas migration. There’s only so much growth that can be commandeered by Sydney and Melbourne by drawing in workers from interstate. What is required is a reversal of the trend in net overseas migration; this number needs to be pushed back towards the 180,000-mark in order to sustain housing demand and to absorb housing supply.

The demographic lever that has the capacity to expose oversupply in the big-city residential property market is net overseas migration. If that level drops much further (ie below 168,000, down from 300,000 six years earlier) then I suspect that the Sydney and Melbourne property markets will be affected. This means that there could well be an uncomfortable time-lag between the supply of residential product and the market’s ability to absorb supply. It all hinges on whether the population growth is rising or falling.

Another big-picture demographic issue shaping the demand for property is the potential for an uptick in the number of visitors from China. Australia’s largest visitor (tourist) market is the 1.3 million Kiwis travelling backwards and forwards across the Tasman and largely staying with friends and family.

It is conceivable that by the end of the decade the largest international visitor segment will be the one-million-and-rising Chinese visitors who have very different spending patterns to the New Zealanders.

Amped up Chinese visitor numbers to Australia will be channelled through cities that offer direct flight access to China’s biggest and second-tier cities.

Australia’s lifestyle and tourism property sector could be fundamentally transformed by a Chinese middle class passing into a spending zone that triggers demand for overseas travel to exotic places such as Australia.

There are a range of factors that can impact the demand for Australian residential and commercial property over the coming decade. Those cited above — net overseas migration and Chinse tourism — may be augmented by policy and behaviour shifts that have yet to fully unfurl.

Regardless of the factors that actually shape the demand for Australian property in the future the underlying bedrock is always based on shifting aggregate demographic trends.

Bernard Salt is a KPMG Partner based in Melbourne and an adjunct professor at Curtin university Business School; www.bernardsalt.com.au; [email protected]

 

Thanks for the article. Interesting.

 

168,000 is still way above the long term average of around 70 - 80,000 a year. Hopefully it will keep falling back towards the long term average, as we had this conversation under Kevin Rudd. Australians don't like the idea of a big Australia and interestingly surveys show that those who know more about demographics are more likely to be against it.

 

I sincerely hope it goes back up to 300,000. I'd prefer to make money than lose it in an oversupplied property market.

Low interest rates, two income households, and lots of immigration are the three main factors for our booming property market over the last quarter century. I'd rather not loose one of those three pillars.

 

Don't forget we're still waiti g on 12K Syrians. That makes 180K.

 

From an investment pov i hope it increases.
From an environmental and amenity pov i hope it goes to zero.

Back to the investment, i think this is one if the key determinants of price growth. This is why bne hasnt been shooting up in comparison.

 

The property market isn't the only important thing though. More people = more pressure on infrastructure.

We're already at the point where multiple more schools need to be built (and they're not) to teach all the kids. As a result, our school system is overcrowding.

This applies to our health system too.

If Australians wanted a big Australia we'd need to seriously change our society to accommodate it.

Many people are opposed to the population Ponzi. More people now to support those already here is just a bigger demographic problem down the line. We can't keep importing people to fix that.

 

Can I just nominate Net Kiwi Intake (NKI) as the three letter acronym of the week!

 

Gotta have the infrastructure to support this or you will have chaos

Bullet train please.

 

That's why they have been doing it - so a few can make easy money. Trouble is everyone else has to put up with the costs. There are also other reasons that make it irresistable to our politicians; more potential supporters and funding, more taxes to rake in so bigger department budgets, more scope and influence on the World stage , etc.

 

Good! Population growth shouldn't just slow, but stop all together. I'm not just talking Australia, but world wide.
Yes, it might be better for me personally if there's a strong population growth, but it would be very bad for my great-grandchildren!

 

I couldn't have said it better myself. Overpopulation Is a serious issue as far as I'm concerned. And unlike a few years ago, no one seems to be talking about it at a higher level.

Screw factors like religious directives and ego etc, we have to think of the greater good.

 

The idea that Australia is overpopulated is ridiculous. Come on guys, we have 22 million people on one continent. And I am sorry but the argument that Australia is mostly desert doesn't hold water. You could fir the population of Taiwan into Tasmania for example.

What we have isn't a population problem, it's an infrastructure deficit problem.

And I can promise you, we would all be much worse off if we stop immigration. For example, each immigrant creates 1.2. It;s good on many levels

 

Population growth is not necessarily a bad thing - think of the long term trends in ageing population and ever increasing life expectancy. Need a growing economy - can't do that if people stop working and retire.

This is not like the UK, where every tom dick and harry with no skills crosses the pond to try their luck at a better life.

 

An ageing population is not necessarily a bad thing. Increasing population through births and or immigration is futile anyway with the increasing life expectancy you mentioned. The young people will just age in place and you will have to bring in ever more to try and change the balance (population ponzi scheme). The only way is for us to breed like rabbits then die young (we have gotten past this thankfully). As to the economy, people over 60 do work and not everyone under 60 does (children are actually a burden on the economy). Comparisons of OECD countries will show some with older populations than ours with higher workforce participation and those with younger populations with lower workforce participation than ours.

Australia's ageing population need not be a burden on taxpayers

 

They're already here.

 

That's why it's a desert...

Nah in all seriousness couldn't agree more. I'm a fan of a big Australia. Only reasons I can come up with not to be are selfish or racist so I naturally don't agree with them. I welcome a growing population through new births and immigration and welcome the diversity it brings especially when it comes to food

Of course there are challenges in some communities with certain demographics and disengaged immigrants, but this could be addressed with engagement and employment rather than turning the tap off.

 

We already have diversity without bringing in huge numbers in addition. I don't see how it is racist to question the numbers and not where they come from. Selfish, well if you think wanting a better life for those already here then I suppose that is selfish. Most quality of life indicators will decline with rapid population growth.
PS: never mind the environment.