Will population growth keep driving up property prices?

There’s been lots written about Australia’s strong population growth and how there’s likely to be twice as many of us in the next 40 to 50 years.

Apparently one baby is born every minute and 45 seconds and sadly, someone dies every three and a half minutes. And the net gain from overseas is one migrant every two minutes.

This results in an overall population increase of one person every minute and 18 seconds.

So, by the time you’ve finished reading this blog, Australia’s population will have increased by another two people. You can keep track here at the ABS Population clock

But there is an even more important statistic that those interested in property should be aware of and that’s household formation, because it’s really the number of new households, rather than absolute population growth, which creates the underlying demand for housing that drives our property markets.

Earlier this year the Australian Bureau of Statistics released it’s “Family and Household Projections” providing an estimate of household growth in Australia over the period to 2036.

So let’s look into what’s ahead for Australia with a little Q&A:

What’s happening to Australia’s population?

Currently Australia’s population is just under 23.9 million people and we live in around 9.2 million households with an average size of 2.58 persons per household.

Our population is projected to increase to 32.4 million people by 2036.

And, as a result of our ageing population, a greater proportion of people are projected to be in older age groups.

Australia’s median population age is projected to be 40.1 years in 2036 compared with 37.2 years in 2011, while the proportion of the population aged 65 years and over is projected to be 20% in 2036 compared with 14% in 2011.

Understandably as the population ages, the total number of people living alone is projected to increase.

Source: ABS

How many dwellings will we need?

Demand for housing has averaged about 164,000 dwellings per year over the last five years and according to the ABS in the five years to 2021, continued strong population growth (underpinned by net migration of 240,000 per annum), plus some shifts in household composition (more one and two person households), means we’re likely to grow by 172,000 households a year – a 5% increase in demand.

What are our households going to look like?

Over the decade to 2021 the number of people living in a traditional nuclear family (mum, dad and the kids) is expected to increase from 5.5 million to 6.3 million — an increase of 15%.

However over the same time frame, single-person households are expected to increase by 24% (from 2.1 million to 2.5 million.)

So does this mean we need to build more apartments?

Sure. More of us are going to want to live in apartments, but we’ll also need lots more houses.

The number of people living in a traditional nuclear family will increase by 772,000 over the decade to 2021, which converts to net demand for 257,000 family dwellings.

The number of people added to single-person households over this period will rise by 492,000, which equates to demand for 492,000 dwellings.

However, not all single-person households want an apartment. When one partner dies, many will want to remain in their family home rather than move out into an apartment.

Then of course there are the two people households – currently there are about 10 million people living as a couple in five million dwellings.

They come from both ends of the spectrum – DINKS (double-income-no-kids) some who will have kids in the future and some who may not, and older empty-nesters.

Interestingly the empty-nesters are expected to grow by 14% over the decade to 2021, compared with 10% for the DINKs.

However many empty-nesters aren’t keen on downsizing to an apartment while DINKs who have children are likely to want to need to upsize.

What does this mean for property investors?

For mine, demographics – the way we live and where we want to live – will determine the shape and strength of our property markets over the coming decades, more so than the ups and downs of our economy or the fluctuations in interest rates.

Our growing affluent population (whose housing requirements will slowly change) will underpin our property markets.

Those investors who own the type of property that will remain in strong demand by these affluent owner occupiers in the future are likely to be rewarded with strong capital growth.

So let’s clarify, while the bulk of the housing market will remain dominated by the needs of the traditional nuclear family, there will be an increasing requirement for apartments, particularly in the inner suburbs of our capital cities.

Currently 40% of new dwellings being built are apartments or units, and with building approvals for apartments outnumbering those for houses, it’s likely the trend to medium density living will only intensify.

However considering the likely needs of the affluent DINKS and empty-nesters many of the highrise towers currently being built will not deliver the type of accommodation these households will need and, as a result, many of the inner city high rise towers of small substandard apartments will become the slums of the future.

On the other hand well-located medium density apartments and townhouses in our capital cities will be the preferred style of accommodation for an increasing demographic in the future. These will be type of properties that will also make great long term investments.

 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. Subscribe to his Property Update blog.