While nothing in life is guaranteed, there are many rational, logical, and understandable reasons to believe the value of well-located real estate will continue to appreciate over time.
Many factors like interest rates, employment levels, supply and demand and market confidence, affect a country’s property prices in the short term; in the long term, prices are driven by two main factors:
1. Household formation– which is a function of population growth, and
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2. The wealth of the nation
So let’s examine these two factors in more detail.
Look at what’s happening to Australia’s population
Last year, our population increased by close to 400,000 people, which means we’re growing faster than most developed nations.
This is in part due to natural growth (we’re making babies faster than people are dying) but mainly due to overseas migration.
Just to put things into perspective, it’s a bit like adding an extra Canberra to Australia each year. We’re growing at around 1.8% per annum USA (0.8%); UK 0.6%; Canada 1%; China 0.6%.
At the projected rate of growth, our population is likely to grow by 10% over the next five years, which means around 2.3 million more people will need somewhere to live.
That’s an awful lot of houses and apartments.
But here’s the game changer…
The latest Australian Bureau of Statistics (ABS) national population growth projections suggest our population is likely to double in the next 62 years.
This anticipated population increase, which has tripled in the last decade, will have profound effects on our property markets.
Remember it took us over two centuries to reach 23 million people and now this is projected to double in numbers in around 60 years.
Of course these numbers are not set in stone as no one really knows what will happen to government policy on immigration numbers. However, it does seem inevitable that our population will expand substantially, which will have a significant impact on our property markets.
It means we’ll need to build around 8 million additional homes, plus all the shopping centers, schools, hospital and infrastructure to support 23 million more people while at the same time as somehow managing to support 17 million more cars on our roads.
Looking at a state level, the proportion of population residing in New South Wales, South Australia, Tasmania and Northern Territory is projected to fall.
At the same time the proportion is projected to remain static in Victoria and rise across Queensland, Western Australia and the Australian Capital Territory.
Where will all these people live?
Of course, the big question is where will all these people live?
Well, it seems that a significant majority are likely to want to live in our capital cities.
Currently, the proportion of Australians living in a capital city (66.1%) is already high compared to world standards; however, this is projected to increase to 73.4% by 2061.
These long-term projections bring up some interesting points.
Firstly in the next 50 years or so, almost three out of every four Australians will live in a capital city.
Currently, 57.3% of Australians live in our four big capital cities – Sydney, Melbourne, Brisbane or Perth – but if the ABS population projections pan out, by 2061, 65.8% of the total national population will live in our four big capital cities – Sydney, Melbourne, Brisbane and Perth.
Perhaps you can now see why I have been recommending investing in these locations in my blogs.
Which is going to be our biggest city?
The other interesting forecast is that by 2061 Melbourne will have a larger population (8,580,556) than Sydney (8,493,740) and Perth will be home to more people (5,451,406) than Brisbane (4,787,996).
Of course a lot can happen between now and then, but it may not even take as long as that because the ABS forecasts that Perth will overtake Brisbane as the third most populous city in 2028, and Melbourne’s population will overtake Sydney’s number one spot in 2053.
It will be interesting to see what our big cities will look like in the future, but no doubt this huge increase in population will lead to significant challenges, including where all these people will live, how we will house them, what infrastructure changes will be needed, and what all this could mean for property values and affordability in our big cities.
While the edges of our metropolises will sprawl out further, there is little doubt the centres of our cities will become denser with more of us living in apartments and townhouses.
What does this mean for property?
With more and more of us wanting to live in the four big cities, our old friend, the supply and demand ratio, will keep pushing up the value of well-located inner and middle ring suburban properties.
Sure these properties will be unaffordable for some who’ll remain tenants, but others will be able to afford these higher priced properties, as I don’t think that anyone would argue that as a nation Australia will become wealthier over the next few decades.
Australia is well positioned to benefit from the growth of Asia, which represents 50% of the world’s population. If our politicians play their cards right we stand poised to capitalise on an economic transformation unparalleled in our nation’s history.
So if, like me, you are confident that Australia has a prosperous future and agree that our population is going to increase significantly, and that most of us are going to want to live in much the same parts of our lucky country, you can understand why I see a strong long-term future for our capital city property markets.
Michael Yardney is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia’s leading experts in wealth creation through property. Subscribe to his daily Property Update blog.