Population Trends a Key Driver to Housing Affordability


Population Trends a Key Driver to Housing Affordability

by Leigh Martinuzzi

As of March 2021, Australia’s population was recorded at 25.7 million. In the 12 months prior we saw a population increase of 35,700 people or 0.1%. This is the lowest growth rate recorded since 1916. This has me wondering why the demand for housing is skyrocketing when there is slowing population growth. Perhaps population trends aren’t the fundamental factor driving Australia’s current property boom.


In the lead, up to March 2020, Australia’s population grew by a reported 1.5% or 375,690 persons. In the past couple of decades, it’s been more or less the same. Outside natural increases our population growth was mainly contributed to international migration. However, since the beginning of the pandemic, this has been put to a halt and new overseas migration has seen a decline of 95,340 persons. While over 100,000 people came to Australia over 200,000 people departed.


Since the start of the pandemic, Australia has seen major movements interstate. For example, Melbourne saw a population decline of 0.6% to the year ending March 2021. Before this Melbourne was the fastest-growing state growing at a rate of 2%. The tables have turned and now at the same time, Queensland has become the fastest-growing state with a net increase of 0.9% or 43,900 persons. Queensland grew by almost the same amount of people that Victoria lost (43,000).


NSW grew by 0.1% which is very low however generally NSW’s growth is attributed to international migration which of course has been negative this past year (-13,490). Interstate migration in NSW was also negative by -17,800 persons.


Naturally, lower interest rates will drive buyer demand as property affordability becomes more attractive. However, as prices rise, which in 2021 has been near or above 20% for most areas, housing affordability becomes out of reach for many and the once attractive low-interest rates become less of a drawcard. Affordability is becoming very much out of reach for many, particularly the younger groups and those who have yet entered the property market. This will create an increasing wealth gap and inequality divide in the future.


“According to the 2021 Demographia Housing Affordability Survey, the median multiple of house prices to income for major cities is 7.7 times in Australia compared to 4.8 times in the UK and 4.2 times in the US. In Sydney, it’s 11.8 times and in Melbourne, it’s 9.7 times. It now takes 8 years to save for a deposit in Sydney and nearly 7 years in Melbourne.”


According to an article by Michael Yardney, in the last 20 years, the average capital city house prices rose 200%. In the last 10 years wages grew by 26% while dwelling prices went up by 58%. Those that don’t have property equity to help fund future purchases are at a notable disadvantage. And as house prices increase financial instability risk increases and debt to income ratios widen. A sudden change in our ability to service our loans, i.e., changes to our employment or economic situation, may put many at risk.


With more people being able to work from home and with new hybrid work environments, demand is being driven away from our capital cities which is one of the reasons why we’ve seen huge growth and buyer demand in regional areas. And although population growth is significantly less, Australia has for the past 20 years had an underlying dwelling supply issue that has now become fully noticed. In the past, new building approvals have been barely able to satisfy demand. So, when interest rates lowered and interest in regional property demand spiked, we’ve found ourselves in a severe shortage.


This transitional period won’t last. Although there is no guarantee, with the current building approvals underway and the declining population growth, we expect to see dwelling supply catch up. Affordability will reach a peak and this will also decrease the number of buyers in the market and surging demand. The forecast growth rate for 2022 is predicted to be around 7%, which is still strong however a sign of things settling down.


As Queensland and the Sunshine Coast population continues to grow, demand for property here will remain strong. And with fewer people choosing to move away, supply levels will likely remain low. Due to this, we will no doubt see positive conditions here for several months to come before the market stabilises.


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