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Andrew Bell’s Market Update: $30Billion Worth of Infrastructure In The Pipeline

By Chelsea Gates

MARKET WRAP
Issue 8  |   April 12th, 2018  |  $30Billion Worth of Infrastructure In The Pipeline 

It is great to see how quickly the Gold Coast has returned to business as usual post the Commonwealth Games. Apart from a little controversy about the two hour Closing Ceremony, the great legacy is over $20 billion worth of infrastructure spend in the lead up to the Games, 15 days of spectacular sport with a record medal tally, the first country in the world to have had equal number of medals for males and females, and the first country in the world to have had a para-Games married into a full abled body Games. Our city is immensely proud, and what is more exciting is that we have a further $30 billion worth of infrastructure in the pipeline as we move forward. There wouldn’t be a city in the world that wouldn’t love to have that sort of investment. By the way, if you want to read our first investment report you can see that on the home page of our eNewsletter.

WHY POPULATION GROWTH IS THE KEY TO OUR ECONOMIC GROWTH

Now for my focus today. As we know, there has been a persistent imbalance between our strong population growth and the slow rate at which new housing stock is being delivered to the market, which is the primary cause for the strong growth in our property prices over many decades. I have covered the fact that we now have more than enough evidence that this population growth is such a strong contributor to our economic growth as a country and so we would hate to see that cutback.

On average, our population is growing by about 350,000 people per year. Much of this has come about because of international migration. We have had a bit of a surge in population growth and that certainly has contributed to price growth as there is more competition for the limited amount of housing filtered through.

In more recent years, State Governments have responded by facilitating growth in new housing supply through making some progress in increasing the availability of land for housing and also facilitating the construction of higher density dwellings in metropolitan areas.

These measures, combined with favourable interest rate settings, culminated in a record build of 233,544 new dwelling commencements in 2016. This level exceeded the previous one set in 1994 by 25% and is also 37% higher than the average build of this century.

Critically, for the first time since 2003, the number of homes built in Australia has come close to fulfilling the needs of Australia’s growing population. However, if the population continues to grow at the current rate, and economic growth hovers around the current modest rates, Australia will need to increase the number of homes it builds each year by 20% from 2018 all the way through until 2050 to avoid compounding the existing affordability challenges.

We should also note that if Australia’s household income growth returns to a rate above its long-term average this would generate further housing demand. If this does happen, then Australia will need to build in excess of 250,000 homes each year on average simply to ensure that the current affordability challenge is not amplified.

Bear in mind that Australia has only built 175,000 dwellings per year on average over the past 17 years so that is quite some challenge.

Clearly, all three levels of Government, being Local, State and Federal, need to come together for some combined policy to improve the delivery of residential land and speed up the approval process for new homes.

I guess all the above certainly does give confidence to those investing in real estate that real estate prices are unlikely to see any significant downward pressure because the fundamentals just don’t support it. We will get the occasional seasonal effects but the underlining trend is very supportive of real estate prices for decades to come.

I trust all is well in your world and until I am back with you in a fortnight’s time, stay safe.

Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group

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