What’s really driving Australian property prices?
I’m sure I’m not telling you anything new when I say that there’s a diversity of outcomes in the Australian property market right now.
This chart here sums it up. It looks at growth in Australia’s capitals since 2011.
As you can see, Sydney is thumping ahead. Melbourne is going great guns too.
Brisbane and Adelaide are growing, steady as she goes.
And in Perth, prices peaked around the end of 2014, and have been drifting lower since.
Now you’re going to hear a lot of theories about why the capitals are on different tracks. It could be the vibrancy of each state economy. It could be planning regimes. It could be the resources boom and bust.
But at the end of the day, it really comes down to one thing:
There was an interesting report out from the Macrobusiness guys comparing population flows with dwelling approvals in all the capital cities.
What they found was that the connection between property prices and population stuck out like a sore thumb.
Take a look at the national chart to start with. Population growth is the green line, while dwelling approvals, commencements and completions are the others. For now, let’s just look at how the green line tracks against the others – how population is moving against new supply.
At the national level, you can see that population growth peaked just after the GFC. It has come off a little since then, but still remains around historical highs.
That’s a strong plus for property prices.
At the same time though, construction activity is picking up, and is also way into ‘records high’ territory.
So that might take some of the heat out of prices going forward.
But as we keep saying, the national picture is only so useful, and you need to dig a little deeper to figure out what’s happening on the ground.
So we can rerun this chart for each of the different states. This is what the results look like:
New South Wales
You can see here the massive surge in population growth, which coincided with a collapse in construction, although that has picked up again recently.
For all the surge in construction activity in Sydney, it still looks like it’s going to take a long time to unwind the housing shortage there, and prices look unlikely to settle soon.
Victoria has been the construction leader, mainly through high-rises. However, population growth continues to be strong, suggesting that market remains balanced.
In Queensland, the chart is a little more troubling. Queensland has been adding a lot of supply recently, but population growth has been slowing considerably.
This, I think, is why you hear people fretting about an apartment oversupply in Brisbane. Supply has been strong, but it’s not clear that there is the population growth to meet it.
Over in Perth, the story is even worse. There the construction boom is unwinding quickly, however a lot of the supply is already on the market. That’s happening at the same time that population growth falls to some of the lowest levels this century.
This helps explain why prices are falling in Perth, and while there’s another year or so of hurt already in the main line.
In South Australia, population growth is also coming off, but we never saw the construction boom there that we saw in other states.
Population and construction are moving together, suggesting sustained and stable price growth is the most likely scenario.
The Northern Territory
Like Perth, we’ve seen a marked slowing of population growth in recent years. Construction has also come off, but it remains relatively elevated.
This suggests that until we see population growth return or construction start to ease, dwelling oversupply should continue to keep a lid on prices in the NT.
And just for completeness’ sake, here’s the ACT.
Not all that much to say here. Population growth and construction remain elevated, but nothing crazy. They seem to be moving broadly in line, suggesting that property prices should be growing in line with incomes.
We might hear talk of the different factors driving each state market, but really, when it comes to property, it comes down to supply and demand. Demand is mostly about people numbers, and if you look at where population growth is strongest, it’s no surprise that that is also where price growth has been the most vigorous.
And when we’re talking about different state economies, we’re kind of using the economy as a proxy for population growth.
When the economy is doing well, a state starts pilfering population from other states, and the property market tightens in response.
So look out for it. Nothing matters like population.
Food for thought.
Are these markets looking ‘glutty’ to you?