Population growth is pushing up house prices – Your Investment Property

Australia’s estimated residential population has soared by 389,100, or 1.61%, to 24.512 million people in the year to March, the fastest increase since 2014, according to data released on Wednesday by the Australian Bureau of Statistics (ABS).

The ABS’ March 2017 demographic statistics makes it clear that natural population growth is being dwarfed by net overseas migration.

“All these new households will need somewhere to live, so they [will] be competing with existing residents for property, both in the rental sector, and for purchase. This is likely to put a floor under property demand and so home prices,” said Martin North, principal of Digital Finance Analytics (DFA).

Considering the strong link between home prices and population growth, one lever the federal government should consider pulling to soften the property market would be to reduce net migration, according to North.

“[However] politically speaking, this appears unlikely as a ‘big Australia’ strategy [is] behind much of current public discourse,” he said. 

Over the year, most of the population growth came through net overseas migration (NOM), increasing by 231,900, or 2.4%. Natural increase, a figure derived by subtracting deaths from births, accounted for the rest, according to the ABS.

The preliminary estimated resident population (ERP) of Australia, as of March 31, 2017, was 24,511,800 people. This is an increase of 389,100 people since March 31, 2016, and 126,100 people since December 31, 2016.  

As natural increase slows, NOM is picking up speed and is returning to levels seen immediately before and after the global financial crisis.  

Population growth is strongest in Victoria

According to Michael Workman, senior economist at Commonwealth Bank of Australia (CBA), a large chunk of the country’s total population increase is taking place in Victoria.

“Victoria’s population growth was the highest of the states,” he said. “It rose by 2.43%, or 149,000, over the year to March 2017. A lift in net overseas migration and net interstate migration are behind the strong Victorian outcomes.”

Not surprisingly, Victoria now has the strongest auction clearance rates, demand, and home price growth among the states and territories, according to North.

With around 75% of Victoria’s population residing in Melbourne, Workman estimates the city is growing by about 120,000 people annually. If this rate of growth keeps up, Melbourne will eventually surpass Sydney to become Australia’s largest city in the coming decades.

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