Reasons property values increase in the long term



Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns, and population growth.

These factors are significant drivers of what types of properties are in demand and how property is priced.

That’s because the demographics of a population determine not just how many people there are, but how and where they want to live.

And I’m not really talking about population growth – it’s actually household formation that is the key here.

And immigration flows into this also.

Australia’s immigration policy of selecting skilled workers at the family formation stage of their lives is a significant driving factor for our housing markets.

And Covid has caused a structural-demographic change that will affect our housing markets moving forward.

Not only that but the pandemic-induced work-from-home movement has changed the demographics significantly - now, many workers are able to work from the comfort of their own homes and save on commuting, which means they need the extra space.

We’ve seen this trend, in fact, with the sea- and tree-change shift which has occurred over the past 2 years.

The pandemic made people re-evaluate what they want in a home.

Many were upsized to a larger property, some moved further away from the city and others relocated entirely to regional areas.

And the importance of the neighborhood was reinforced.

For many it’s all about ‘living locally’ – having the ability to meet most of your everyday needs within a 20-minute walk, cycle, or local public transport trip of your home.

Future population growth

Australia’s population grew just 0.3% year on year in Q3 2021, with growth well below the pre-pandemic average of 1.6% given the closed international border from March 2020, with a staged reopening beginning 1 November 2021.

In terms of heads, this equates to the population increasing by just 68,900 people compared to 380,000 a year prior to the pandemic.

While our population growth stalled through the pandemic, immigration levels are expected to get back to pre-Covid levels by 2023.

This suggests we’ll see a population growth of about 1.5% or 400,000 per year.

That’s the equivalent of adding a city the size of Canberra every year!

But the numbers have already started rising.

Since the phased re-opening of the international border in November 2021 net international arrivals into Australia have already picked up the pace.

The government noted over one million people have entered Australia, including more than 130,000 international students, 70,000 skilled migrants, and 10,000 working holidaymakers.

The government is projecting population growth to lift to 0.7% in 2021-22 and get to 1.2% in 2022-23.

Underpinning the pick-up is net positive migration of 41,000 in 2021-22, 180,000 in 2022-23 and 213,000 in 2023-24.

If we believe Australia’s population is going to keep growing, and it will with a business plan to have close to 40,000,000 people in Australia by the middle of the century, and that our wealthy nation is going to remain wealthy, this will then underpin long-term property values.

The wealth of the nation

There is a positive relationship between household income ("real income” after inflation) and housing demand.

Australia’s property prices increased at a record pace in 2021 with recent data showing that the national median house price surged 25.7% and units by 7.7% year on year.

And it was this price surge, combined with solid share market gains, which pushed total Aussie household wealth up another 4.5% in the December quarter of last year to a new all-time high of $14.7 trillion.

That’s a 20.2% increase from just the year prior.

And the same can be seen in per capita household wealth which rose 3.9% over the quarter to a new record of $556,541 per person - up 19.9% over the year.

The truth is household wealth and property price increases go hand-in-hand.

You see, Australia’s housing market is worth $10 trillion, whereas we only have $2.5 trillion of debt.

So it’s clear that the massive wealth held in property underpins the housing market and this won’t ever fall far before people start buying again.

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Jason Gwerder
Thursday, 28 July 2022

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