Last week the Australian Bureau of Statistics warned our population growth is slowing.
Will this slowdown pose a risk to our economy and pull the rug out from under our property markets?
There is already a lot of talk about our property market peaking, our economy falling into recession and a property bubble bursting so let’s look at this with a Q&A session see what’s going on:
What do the latest population figures show?
The ABS estimates our population grew to 23.7 million by the end of March, up by around 316,000 people, or 1.4 per cent, on the same period a year earlier.
Australia's four most populous states accounted for a whopping 93.4% of Australia's population growth over the year being:
- New South Wales increasing its total population to 7,597,000
- Victoria (5,915,000),
- Queensland (4,767,000) and
- Western Australia (2,587,000)
Now I know that sounds like a lot of people coming to our shores, but this was the slowest population growth in almost a decade, with a steep fall in net overseas migration.
Why is our population growth slowing?
It’s mainly due to lower migration.
The ABS estimates that 173,100 more people migrated to Australia than left it over the year to March, down 16 per cent on the prior year.
However, migration was still the biggest contributor to population growth, with natural increase adding 142,900 people as the number of births eased and number of deaths rose slightly.
Has this got anything to do with the end of the mining boom?
Sure, the mining boom brought lots of new migrants to Australia and the figures show the impact that the mining investment slowdown is having on resources-focused Western Australia and the Northern Territory.
Net overseas migration to Western Australia has dropped 71% over the past two years, while more people are leaving WA for other states than moving to it from other states for the first time in more than 10 years.
The Northern Territory is faring even worse, with population growth of only 0.2% its lowest in 11 years.
Those leaving WA and the NT were generally moving to Victoria and Queensland, which the ABS said are the only states experiencing a net gain from interstate migration.
The New South Wales population grew at the national average of 1.4 per cent, thanks to migrants coming from overseas.
Is slowing population growth a problem?
Before we get too worried it should still be noted that:
- Australia’s population increased by 315,952 persons over the past year.
- We still have one of the fastest growing populations among the advanced economies.
- Population growth is well above the long term average of 256,801 per annum (but below the 15 year average of 1.5%)
What are the economic implications?
The slowdown in population growth will certainly have significant economic ramifications.
Just about every economist, politician and business person is a great believer in a high rate of immigration and a Big Australia, but without an equivalent rate of job creation strong population growth is not good since it results in rising unemployment rates with all of the associated problems.
So on the positive side, the Reserve Bank recently observed that it is one reason why the unemployment rate has remained in the low 6%, despite weak economic growth of just 2% over the year.
It is also likely our dollar will remain low which could have 3 significant positive implications:
- We’ll have more overseas visitors coming to Australia as it will be cheaper for them. And that’s good for our economy.
- Australians will find overseas travel considerably more expensive and will holiday more domestically – this is also good for our economy. And…
- Chinese investment capital will continue to pour onto our shores, underpinning our property markets. At these exchange rates our properties are cheap for them.
On the downside, slower population growth equals slower growth in consumption, meaning that we are unlikely to experience GDP at the 3% Australian businesses and households are more accustomed to.
This means interest rates will need to remain low to help stimulate our economy. Only last week the ANZ Bank predicted a further two cuts in interest rates early next year bringing the cash rate to 1.5%.
So what does all this mean for property?
Possibly the biggest impact from population growth undershooting expectations is that Australia's recent housing boom may be building homes for people that never show up.
The latest building approvals figures suggest that we are planning to build over 200,000 dwellings per annum over the next year or two, or one for every 1.6 extra people at the current population growth rate.
Given that the average household size was 2.6 people in 2011, and is projected by the ABS to stay around those levels, unless things change Australia will be building more new homes and apartments than it needs to house our growing population.
Depending on the supply and demand ratios in the individual property markets and segments around Australia, some locations may see a surplus supply of dwellings hit the market, putting downward pressure on prices.
With this in mind I would steer clear of the inner CBD, off the plan and new house and land package segments of the market.
And I’d only invest in those big capital cities where population growth is holding up.
The bottom line
We are told that our new Federal Government is keen to to get the federal budget back into surplus but slower population growth and slower growth in real gross domestic product will make this harder.
At the same time some sectors of the property market will find themselves with a surplus of properties being built - yet this happens every property cycle, doesn’t it?
Times are changing, and while some will get caught our strategic property investors will adapt and take advantage of our changing population and demographic trends.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.