Australia is currently experiencing a population boom, the likes of which haven’t been seen since the 1970s.
That’s after the Australian Bureau of Statistics (ABS) reported that the country’s population surged by a record 624,000 people during the 2022-23 financial year. This figure is akin to adding the populations of Canberra and Darwin together.
Notably, the majority of this boom – 83% – stems from overseas migration.
This rapid growth isn’t set to continue indefinitely. Projections by the Centre for Population suggest a gradual slowdown over the next decade, with the annual growth rate expected to decrease from 2.4% in 2022-23 to 1.2% in 2033-34.
Despite this slowdown, the population will still increase significantly, adding an estimated 4.3 million people by 2033-34.
One critical area likely to be impacted by this demographic change is the property market. To understand this, it’s essential to explore the relationship between population growth and property prices.
Impact on property prices and rents
A growing population leads to an increased demand for housing. This demand comes from several fronts – not only are new arrivals looking for homes, but the natural expansion of the population also creates a need for more housing.
This, in turn, influences property prices, with Domain research showing that a 1% increase in population has historically correlated to an 8.18% rise in property values nationwide.
However, as the graph below shows, the impact is not uniform across the country – with the effects of population growth varying by region.
The rental market is similarly affected by population growth.
An influx of residents leads to heightened competition for rental properties. Landlords, facing more potential tenants than available properties, can then afford to increase rents. This situation is exacerbated by the fact that many of the new arrivals, especially international migrants, initially opt for rental accommodation before considering property purchases.
If the supply of rental properties struggles to meet this increasing demand, rental prices are likely to rise. This is particularly pronounced in cities like Sydney and Melbourne, which attract many more migrants than smaller cities or rural areas.
Housing supply lagging behind population growth
A crucial factor exacerbating the situation is that Australia’s population has been growing faster than the country’s housing supply with only 174,400 dwellings constructed in the 2022-23 financial year (compared to the total population increase of 624,000), according to an analysis by MacroBusiness chief economist Leith van Onselen.
This imbalance between demand and supply has been a key driver of escalating property prices and rents throughout the 2023 calendar year with:
This situation is unlikely to improve anytime soon with recent ABS data revealing that only 166,127 new dwellings were approved for construction in the year to November, marking the lowest level in over a decade.
What does all this mean for you?
The increased demand for housing, amid lagging supply, will likely continue to put upward pressure on property prices and rents in the near future.
But while existing homeowners and investors could benefit from increased equity (if their property values appreciate), this situation can pose challenges for first home buyers, as rising prices and rents can make it more challenging to save for a home deposit.
Fortunately, there are several schemes and grants available at the federal and state level that can help first home buyers get on the property ladder. More information can be found here.
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