Issue 10 | Thursday 19 May 2022 | The Impact of Slower Population Growth
Hi, Andrew Bell here with you today once again, and my goodness aren’t we living in such disruptive times. So much turmoil everywhere that it’s very difficult for people to live a relaxed and balanced life. Won’t it be great to get that Federal Election out of the road? I don’t recall any election being so negative and focusing so much on the past with next to no inspiring vision for the future.
One of the core drivers of our real estate market has always been population growth. Population growth is important not just for real estate but for the economy in general as it keeps building demand through greater numbers of people year on year. Certainly in the real estate market, an annual population growth of over 300,000 such as we have experienced in the years leading up to the pandemic were vital for driving new construction to meet that growing population, as well as providing demand for re-sale properties.
Of course, the borders were closed back in 2020 when the pandemic first started, and this had an immediate effect on population growth. We have maintained natural population growth, which is more births than deaths, although we haven’t got the official figures on that, this generates somewhere close to a 100,000 increase in population per annum. The balance of our population growth then came from overseas immigration, which was always necessary, not only to provide growth in our economy but also to bring in important gaps in skilled labour that is required. We know for example there is a desperate need for more doctors, nurses, and engineers and as we have all heard, all sorts of people to assist in restaurants, on farms and so on. With the lack of immigration, we have seen over the past two years it has impacted driving up labour costs, which has added to our current outbreak of inflation, but it’s also restricted businesses. Many restaurants on the Gold Coast are only running at 75% capacity, as they can’t find additional staff to open their restaurants fully. Throughout the country different produce has not been generated because there is no labour available.
So, as a result of the borders being closed Australia just recorded its lowest annual population growth in more than 100 years.
Now the borders have opened there is an expectation from the Treasury that Australians will resume their age-old trend of heading overseas for work opportunities after being stuck here at home over the past 2 years. This will only add to the skills shortage that we are already experiencing.
So, it is important to get overseas migration up and running again. We will have returning students which will help with some of the part-time work requirements, but we also need to bring in that skilled labour, and this of course will then create a problem in the short-term but will help in the long-term. The short-term problem is this much needed skilled labour coming to Australia will add to the housing demand, particularly in the rental market, therefore adding to price pressures on real estate both in rental and in purchasing. But it will help in the longer term by boosting our economy, so it’s definitely a double-edged sword.
Net overseas migration has been revised for 2021-2022 from about minus 42,000 to plus 41,000 but the big jump occurs in 2022-2023 with an expectation of 180,000 new arrivals and by the year after, around 213,000.
But there was always going to be that void period. We will never have a catch up of the near 400,000 people that didn’t migrate to Australia during the pandemic period. It’s interesting to see that around 1 million people have entered Australia since the borders opened up on November 1, and figures show that about 130,000 of those were international students, 190,000 were tourists and pleasingly 70,000 were skilled migrants, whilst a smaller group of just 10,000 were working holidaymakers.
Isn’t it fascinating to think that we were down some 400,000 international migrations, yet we have had such housing stress both in the rental and the purchasing of properties? Some of this can be explained by the fact that new developments were lagging for quite some years, and so the supply of new properties wasn’t forthcoming, but it’s also partly explained by the massive shifts in internal migration around Australia so that there are areas where there is an abundant amount of properties available, but sadly not in the areas people are seeking. There’s a huge migratory shift within Australia which has seen large numbers of our existing population moving to specific regions putting enormous pressure on pricing in those areas. I will have a closer look at that in the next report. But for now, expect that resumption of normal population growth will continue to put pressure on our housing stock supplies, both rental and purchase. If we don’t get a boost in construction in the areas where the demand is greatest, there will be no easing of that housing crisis that is much talked about and is real in so many areas.
Great to have had Ray White’s Chief Economist Nerida Conisbee attend a market briefing for our office last week and provide us with some fabulous insights. I will also provide much of that material in the weeks moving forward but if you’d like more specific information then please don’t hesitate to reach out, and we can provide that to you.
There have been a lot of questions about interest rates, but of course, we have got to remember that rising interest rates are happening right throughout the world and our interest rate settings are actually more attractive than most other countries. For anyone who has been around for real estate funding for the past 20 or more years you would be aware that the rates we have been on for the past couple of years are mind-boggling low, and that even with the proposed interest rate rises of two or so plus per cent, they are still historically incredibly low-interest rates. Any rise in interest rates will affect perhaps high borrowers and particularly those who bought recently, but for the great majority of Australia, they shouldn’t have a hugely detrimental effect.
Interesting times ahead, look forward to being with you in a fortnights time.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group