As Australia’s population continues to grow exponentially, property experts suggest demand for residential real estate in our major city centres won’t be weakening anytime soon.
According to data from the Australian Bureau of Statistics, our population has rocketed by 389,100 new citizens in the year to March, representing the fastest increase in three years. Most of this growth has been driven by overseas migration.
How and where the expansion is happening
An additional 1.61 per cent of people now inhabit our wide brown land, with many of these new residents electing to settle in Victoria predominantly.
According to Commonwealth Bank senior economist Michael Workman, Victoria’s population grew by 2.43 per cent or 149,000 people over the year to March 2017. Again, this was largely driven by net overseas and interstate migration, with 75 per cent of these extra residents settling in and around Melbourne.
Workman forecasts that with continued growth of an estimated 120,000 new residents annually, Melbourne will surpass its northern neighbour Sydney as Australia’s largest city in coming decades.
Of course more people means more demand for dwellings, and in turn increased pressure on already over stimulated property markets in Melbourne’s popular inner city suburbs.
“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,” explains Martin North, principal of Digital Finance Analytics (DFA).
Not surprisingly, auction clearance rates, housing demand and price growth for Victorian real estate is currently outpacing all other states and territories, according to North.
Overseas migration makes up the majority
Most population growth over the year was the result of Net Overseas Migration (NOM), increasing by 231,900, or 2.4 per cent, which is reminiscent of the levels we were seeing pre-GFC. This has augmented a slower rise in natural increase due to births and deaths over the same period.
ABS demography director, Beidar Cho, says for the year ending 30 September 2016, NOM increased by nearly 9 per cent, which equates to 193,200 extra Australian citizens.
“This is in contrast to the declines of NOM of over 10 per cent experienced during 2014 and early 2015,” she says. “But the current growth of NOM is well short of the record during 2009, when over 300,000 people were added to the population.”
ABS data indicates that Queensland experienced the most significant rise in NOM, at 19 per cent, followed by Victoria and new South Wales at 13 per cent and 11 per cent respectively. Overall, our population grew by 348,700 people last year, to reach 24.2 million by the end of September 2016. Of this figure, 50 per cent or 193,200 people were overseas migrants.
Overseas migration makes property pricier
North says overseas migration is fuelling demand for residential property, with new families seeking out well-located homes near essential infrastructure and amenity, like schools and universities, along with employment opportunities.
Hence the more established suburbs, where supply is already incredibly tight relative to demand, are likely to become increasingly popular and pricey over time.
According to the latest figures from CoreLogic, house prices in key cities across Australia increased by 11.7 per cent in the 12 months to February 2017. And since the end of 2008, combined capital city home values have increased by 66.2 per cent.
Of course this exponential price growth hasn’t been congruent across the board, with cities like Perth and Darwin seeing values decline in the wake of a cooler resources sector. Likewise, increases have been less extravagant in Brisbane, Adelaide, and Hobart.
Head of research at CoreLogic, Cameron Kusher says, “It’s really important to note that the housing affordability challenges are largely a Sydney and Melbourne phenomena.
“The popularity of Sydney and Melbourne mean that prices in these cities are going to be substantially higher due to growing populations, strong demand for investment property, and a shortage of supply.”