Population freeze would put pressure on house prices, Urban Taskforce warns

A new report released by Urban Taskforce Australia claims prices in the major capital cities can drop by up to 18% if the Government immediately freezes populations levels, with Melbourne, Sydney and south-east Queensland mentioned as over populated areas.

The report comes as new data released by the Housing Industry Association shows new home sales increased by just 0.6% in February, driven down by lower building approval figures.

The Urban Taskforce’s People Power report was compiled by MacroPlan, and shows that if the Government’s sustainable population strategy were to go ahead then capital cities would record major price falls.

The report comes as the Government prepares to release sustainable growth targets, which may require slimmer migration figures.

But the report warns that capping populations would see Melbourne prices fall by 15.3%, Sydney by 18.3% and Brisbane by 14.7% over the next decade. Adelaide prices would fall by 6.6%, and Perth prices would also drop by 12.6%.

Urban Taskforce chief executive Aaron Gadiel says that any plan which results in this type of property price decline “isn’t a good one”.

“No one ever wants to achieve affordable housing through sustained outright falls. Achieving affordable housing is more about moderating those future increases, not by diving real estate prices across the board.”

“That type of strategy will really undermine confidence.”

Gadiel says the effect on capping populations would not only hurt property prices, but the overall economic status of the cities. As immigration drops and the population ages, the fewer active workers those cities will have.

“If a strategy such as the sustainable cities continues, what you’re effectively saying is that there should be no further growth. That affects the behaviour of planning authorities, new home construction, and so on.”

In fact, the report points out that if the static population policy were introduced, Sydney would lose 28,000 workers a year, Melbourne would lose 31,000 and Brisbane would see 20,000 fewer workers. Adelaide and Perth would also see falls of 6,000 and 15,000 respectively.

This would have a sustained impact on incomes as well. The annual fall in incomes would rise to 2.6% in Sydney, 2.3% in Melbourne, 2.1% in Brisbane, 1.2% in Adelaide and by 1.9% in Perth

“The older retirees we have in our aging population are less mobile, and are less likely to move than workers. So you’re losing workers, driving down household incomes, which means you’re driving down property prices.”

“You’re also removing the incentive for business to be in the city.”

Gadiel says the Government needs to adopt a sustainable population strategy “in a supportive way”.

“You need to support the infrastructure needs of the cities, because that’s where you’re going to get the most gains. If they have concern about whether cities are getting too big, then they need to improve the infrastructure.”

Gadiel says the Government could improve road networks between cities and smaller hubs, such as Wollongong or Newcastle, so workers are able to make their way between both.

“This means you can provide smaller, neighbouring cities with the capabilities to grow.”

The release of new home sales figures by the HIA bolsters Gadiel’s call for improved planning and zoning laws. The HIA said detached sales increased by 1.5% in February, but sale of multi-units fell by 7.6%.

HIA economist Harley Dale said in a statement the result is disappointing, and partly a result of Government stimulus in 2009 that brought forward thousands of home sales.

“At the very time when new home conditions need to be continually improving we are faced with compelling evidence of a considerably weaker 2011 compared to last year.”

Gadiel says lower home sales show a clear need for a restructuring of development and zoning laws.

“This is extremely important, because what the international evidence shows is that zoning and town planning laws have made the housing supply unresponsive to consumer demand.”

Dale said in his statement the results once again show why there is a need for the Federal and State Governments to introduce new policies for suppliers, especially as interest rates are temporarily stable.

“The onus is on Federal and state governments to reinvigorate the policy reform process to reduce the excessive costs of new housing,” he said.