What’s the secret assumption that’s driving ABS population projections up? And why is it a positive for house prices?
Australia’s population is growing. Well, no kidding. C’mon Giaan, what are we paying you for?
Well, the point is not so much that it is growing, but how quickly it’s growing. And at the end of last year the ABS let us in on a little secret.
— It’s growing a lot quicker than we expected! —
The ABS tidied up their projections to take account of the latest Census data. And at the last count, there were a lot more of us than we’d thought there’d be.
And a few hundred thousand here or there adds up to 10 million or so in 50 years.
The ABS is looking for an extra 18.4 million by 2060, a bit short of double what we’ve got now.
But the key question for us, as property investors, is where those extra people are going to end up.
The truth of it is that the population is going to remain concentrated in the big cities. Of those 18 million extras, 14 million of them (a bit over two thirds) will find a home in Sydney, Melbourne, Brisbane or Perth.
By 2060, Melbourne will become the biggest Aussie city, over—taking Sydney somewhere in the 2050s. Its population will be up around 8.5 million, double what it is now.
Sydney is only an inch or two behind though, growing to 8.4 million by 2060 (an increase of around 80 percent).
Perth is probably the big growth story. It’s population will more than double to 5.5 million. It will overtake Brisbane around 2028, and Brisbane will only end the 50 year run with 4.8 million.
That said, both cities, Perth and Brisbane, will be bigger than Sydney is now. It’s big. And it has big implications for property prices.
But then outside of the big four, it’s a bit like who cares?
Mike Matusik put these charts together, which breaks down growth over the next 50 years into annual growth rates. State by state, we can see that almost three quarters of the action is in NSW, Vic, Qld and WA. SA is trailing a very, very distant 5th.
As Matusik notes, 70 percent of Australia’s population growth takes place in just five locations. 80 percent is in just 12 urban locales.
This chart here looks at those 12 locales.
Melbourne and Perth are the clear winners. Followed closely by Sydney and by Brisbane a bit further back. As I said, beyond that, it’s a bit like, who cares?
So what do we make of all this?
Well, to start, we can expect that these dynamics will drive some “relative” outperformance in the Melbourne and Perth real estate markets.
That is, they’ll enjoy a bit of a demographic dividend. The market will do it’s thing, but whatever the market’s doing, Perth and Melbourne can expect a little bit on top.
That said, all of the capitals are growing quickly, and what matters for house prices is not so much the absolute level of housing demand, but demand relative to supply.
As I pointed out a few times last year, by most measures, supply is already lagging well behind demand.
Through 2000 – 2010, Australia’s population growth outpaced new housing development – for the first time since WW2.
But what this data show, and what the latest round of revisions tells us, is that the population is growing much quicker than we thought. It’s accelerating.
So to avoid a rise in house prices we’d need to see new housing supply accelerating too. We need new supply to keep up.
But it’s not. Not yet. It’s still falling. To me, that means prices rises are unavoidable – unless we see a sudden reversal in construction rates, but I don’t see where that would come from.
The other thing to think about is why the ABS got so wrong-footed by the latest census.
Because the truth of it is we’ve been experiencing a mini-population boom over the last 10 years or so. And there’s one key reason…
Migration rates picked up around the turn of the millennium, and have held above long-run levels. Migration rates tend to move with the business cycle, with noticeable drops during recessions. Demand for skilled migration dries up, and I guess we become a less attractive place to be.
But we haven’t had a recession in twenty years, and with a mining boom driving demand for particular skills, we’ve seen migration pick up to over 200,000 a year – well above the long run average.
And the ABS assumes it will stay there – at a net gain of 240,000 a year.
Now, that’s an interesting assumption to make, isn’t it? Normally economists like to see things ‘return to long run trends’. If you don’t know where something’s going to go, that’s the safest (and most justifiable) place to be.
So what do the ABS know that we don’t?
Well, what they’ve seen is the emergence of a new consensus on immigration. It was a hot topic for a long time. Not any more. At the last election, Tony Abbott declared that the Coalition were “unashamedly pro-child and pro-growth.”
Gillard was wary of ‘Big Australia’, but post-election Bill Shorten said that Labor had to restate support for immigration, including from skilled migrants and refugees.
“We are an immigrant country and we shouldn’t ever hide from our destiny.”
Suddenly immigration has bi-partisan support. And the business community is backing them to the hilt. Last week, the head of the Australian Industry Group Innes Wilcox, called on the Government to increase the skilled-migration intake to battle skill shortages and an ageing population.
High levels of population growth can mean a lot of things, including stress on the environment, roads and infrastructure. But it also means more economic activity. More people = more people buying stuff. So the industry lobby always tends to be pro-growth.
So right now, it’s a unique period in time. There seems to be a consensus that high levels of population growth and immigration are good.
Well, that remains to be seen, but it’s definitely a plus for house prices.