Population Growth Doesn’t Have The Influence That You Think”.

I have a list of worthwhile websites I checkout every so often .

Came across this article which was the latest posted on Propertyology who are buyers agents who post interesting articles .

It's copywrite so link only .

Cliff

 

Interesting indeed Cliff.

 

Now I am really confused

 

Thanks for the link. I wouldn't dismiss population growth, but I think the author has some merit in pointing out that it's the economy and jobs that drive prices. For example look at the boom to bust mining towns. When there were high paying jobs on offer houses were selling for ridiculous prices and receiving ridiculous amounts of rent because the workers were getting paid enough to stimulate the costs. However, obviously that wasn't sustainable in the long-term and ended in tears for many.

As for capital cities and metropolitan population growth I think it comes down to scarcity. If a suburb dramatically increases it's population the way it usually has done it is by building high density living to accommodate the extra people. High density tends to be cheaper as it's got less land content. Exclusive suburbs and the suburbs that are well-held will never have much population growth because they're held by NIMBYs so there will always be a lack of supply, but strong demand to live in those suburbs.

 

nice summary, now I am not confused I agree

 

Population is not just the main factor, otherwise India would have the most expensive property market in the world.

 

I found this article really hard to follow at points. I dont think its very well written so i dont trust the analysis. Hopefully someone with a better grasp of statistics can critique it.

these points struck me;

- It took a very long, rambling time to arrive at the point.

- some of the terms/stats/maps were confusing, misleading, contradictory or poorly explained.

- The use of the term 'population mass' was a bit irritating. I think the author invented this term and i dont think it adds any more clarity than the usual term population size.

- The author pointed out that migration increased in 2008 while house price growth was low. i think this has more to do with the GFC (which wasnt mentioned in the article) than any negative relationship between house prices and population.

Having said all that, i didnt realise that darwin and hobart experienced the 1st and 3rd largest change in median house price 2000-2014. That surprised me.

 

I think it can be dangerous and misleading when stats are viewed over a long period ie 10+ years because there are so many variables in between that can distort for example GFC as you mentioned

I must admit I take this information with a grain of salt, because what am I going to do with it? it's not going to help me, in a way it confuses me, but that's ok I am confused most of the time

MTR

 

I agree regarding time frame MTR and was thinking the same as I read some through the article. Interesting article nonetheless, and good collection of stats.

It's not just time frames, but start and end points. Where there is a lag between for example population growth and house price growth, measuring a defined window doesn't capture the full growth impact. Also long time frame may capture multiple growth cycles with different drivers.

 

The premise of the article is that population growth 'doesn't have the impact that you think'.

Then in the conclusion he explains that actually its supply, demand and sentiment that determine property values and population growth is just one pressure on demand. I would imagine that thats exactly what most people would assume, as shown by all the agreement on here about oversupply of inner city units and warnings about land at the urban fringe.

It was a very long winded way to say population growth has some Impact.

 

The author Simon pressley has pointed out some great facts that population increase is not the driver of property prices. He's not the only person that has done this. This info is continuously pointed out by many authors and researches that predict property busts. It's used to give examples such as....
Monaco 18,005 inhabitants per km2
Hong Kong 6,544 inhabitants per km2
London. 5,354 inhabitants per km2
New York. 10,725 inhabitants per km2
Sydney. 380 Inhabitants per km2

Going by the info, population increase is not what drives prices, otherwise how would we explain high prices in Sydney.

He's a regular of late, on your money your call with Margaret lomas, I usually don't like hearing what he has to say on the show, but the info above does make sense.

 

He has left out the No 1 reason for property price increases which imo is availability of bank finance to purchase property.

 

I think he got it spot on , in particular by including sentiment in the mix . I think that's long over looked and that's what you can pick up by

If there's no demand / positive sentiment , then all the finance availability does nothing .....

Cliff

 

Market sentiment is big and definitely a driver.
We are now reading negative reports in media, pretty sure I know what this means.

Finance - lower interest rates help drive markets.
Now we are seeing interest rates rise, this is why in part we are now seeing cracks form in various markets around Australia.

MTR

 

we've seen one interest rate rise and promise of a further cut .

Sydney , which was getting to the top anyway has slowed , but some markets seem to be going ok .

Just a matter of buying in the right ones .

Cliff

 

From the article:

'Generally speaking, locations with a large population mass already have expensive housing so the potential for growth can be less than locations with smaller populations.'

Presuming he means capital growth and not population growth, Isn't this only true if demand increases in cheaper areas because buyers are priced out of expensive areas? So there is more demand generated by wealthier buyers and/or a greater number of buyers.

And why does he think that areas with with large population 'mass' (whatever that is) already have more expensive housing?

 

Not really. Not unless there is demand to take up the available finance. In Perth right now credit is cheap and available, but prices are plummeting - no demand. There is this myth that available credit drives up prices. That's not true if there are no/few buyers. Therefore, availability of bank finance is not the No 1 reason for property price increases.

Exactly. Prices in Perth are falling because of lack of demand. All the finance availability in the world can't fix that.

Of course demand and credit driving up prices are inextricably linked. All the demand with no credit mean prices won't increase. Available credit with no demand means that prices won’t increase. It takes both: demand and available credit to drive up prices. Which makes demand the No 1 reason for property price increases and available credit the No 2 driver. But without both, prices won’t increase.

 

You mean Brissy?

Perth has tanked, Sydney pockets are falling, if you look at cycles Syd has started to turn, its only a matter of time, before other markets are effected. Melbourne showing signs of slowing down, Adelaide been flat for years? other markets well I don't believe we have seen growth?? not in the last 2 years.

Don't bet on a interest cut? Even if RBA cuts rates, there are no guarantees banks will pass it on. In fact lending is tightening, if we think its tough today, it will be harder next year.

I am looking at the big picture not necessarily Brissy.

Market sentiment will most definitely effect all markets.

You did mention market sentiment impacts on markets, and I totally agree with you on this point. We have no control over this unfortunately.

 

I also agree with this.
Does the time period start for one city at the end of a property boom but at the beginning of another.

But still a good article, some interesting take outs.

 

Yes, sentiment will impact in all markets but not to the same degree. Depends on where the market is in the cycle and relative affordability. For instance, a 25bp hike [ lets just assume its passed on in full by the banks for illustrations] will have a greater impact on Sydney, which is already stretching a lot of peoples budget more than somewhere like Brisbane [ or maybe even Adelaide] where salaries are only marginally lower yet house prices are significantly lower. the person looking to invest in Brisbane/Adelaide is going to be able to withstand a 25bp hike more easily than someone looking to invest in sydney.