There are a number of demographic trends emerging which property investors need to understand.
With most recent data having been decidedly mixed, it was pleasing to see a few positives emerging from the Overseas Arrivals and Departures figures in July.
Here were three of them…
1 – Trend unemployment rate peaks?
On a rolling annual basis net permanent and long term migration into Australia has slowed by more 29 per cent from its peak to +291,420 from more than +411,000 in January 2013.
While folk in the property space in particular tend to be aligned with a “growth is good” mantra when it comes to population data, to be blunt without an equivalent rate of job creation strong population growth is not good since it results in rising unemployment rates with all of the associated problems.
Take the calendar year 2013 as a prime example: the population of Australia increased by an estimated +374,600 persons in that year alone, yet the seasonally adjusted Labour Force figures showed the economy creating a paltry net increase in employment of just +43,500.
With such a dynamic prevailing it could be no surprise therefore that the unemployment rate blew out from 5.4 per cent to 5.9 per cent through that calendar year.
Thankfully with appropriate policy these matters can tend to be self-correcting over reasonable periods of time, particularly with a floating exchange rate.
The good news is that while the population growth rate now appears to have slowed to around +1.3 per cent or +310,000 per annum, the rate of growth in the number of employed persons has zipped all the way up to +2.1 per cent representing a blistering net increase of +243,500 jobs over the past year.
For these reasons the Reserve Bank now forecasts that the trend unemployment rate has likely peaked for this cycle – some way earlier than had been anticipated – although there do remain some challenges ahead (including the closure of the car manufacturing industry, which will continue to impact locations such as Elizabeth in Adelaide adversely).
While popular consensus is finally just arriving at the conclusion that the rate of population growth is slowing, it’s a good time to look forward towards some of the likely drivers of the rebound.
Closer analysis of the monthly data shows that we may already closing in on the nadir for this cycle, with net permanent and long term migration of +39,910 in the month of July now only marginally below the prior year equivalent figure year of +40,820.
There has been a noticeable shift in migration patterns over the past few years with the number of New Zealander permanent settlers declining sharply and British settlers diving towards their lowest level since around the time when Scott and Charlene of Neighbours first hit the airwaves.
On the other hand Chinese and Indian settlers are steadily breaking new annualised highs by the month.
This is reflective of a wider trend towards Asian immigration into Australia, while inflows from Europe and Oceania are tailing away for the time being.
Projecting these trends forward this suggests that Australia will largely be an Asian nation by the middle of this century, resulting in profound implications for the property types and suburbs which will be the outperformers over the decades ahead.
2 – Record visitor numbers
Amazingly enough the Aussie dollar battler which once bought up to 110 US cents has now declined to just 69.1 cents against the greenback.
While the associated effects on Australian demographics will be slow at first, over time the impacts of the depreciation of our currency will be significant and threefold in nature.
Firstly, we are already seeing record visitor numbers with an all time high of 7.15 million short term arrivals making the journey to Australia over the past 12 months, a fine boost to the local tourism economy.
Secondly, the number of Australians opting to holiday domestically will gradually increase – imperceptibly at first, perhaps, since overseas vacations are often booked well in advance – but inevitably nonetheless.
In fact if we look more closely at the ratio of short term departures to short term arrivals by month, we can see that this is already beginning to play out.
A third impact of the movement in the currency will be an Chinese investment capital inflow of a hitherto unseen volume.
The proud Aussie dollar which previously bought more than 7 Chinese yuan through 2011, now buys less than 4.4 yuan.
Lest there was any doubt about the potential scale of Chinese interest in Australia, check out the near exponential growth in short term visitors from China over the past decade in the graphic below – the 1.275 million visitors from China and its provinces Taiwan and Hong Kong over the past year is threatening to soon take down New Zealand from the top spot.
Americans too are enjoying the dramatic favourable shift in the exchange rate with a record 581,700 US visitors over the 12 months to July.
Look at the turnaround in the fortunes of Hobart for an example of how record Chinese tourism spend can help to act as a catalyst to improving the fortunes of an economy at the micro level.
3 – Foreign students boom
Finally for today, another currency-driven trend which I have analysed previously on this blog will be an unprecedented boom in foreign students.
The seasonally strong month of July was the greatest on record for education arrivals at 86,600 sending the rolling annual total of education arrivals spiralling up to 446,600.
The underlying data shows that the foreign students boom is overwhelmingly a Sydney and Melbourne phenomenon.
Slowly but surely the lower dollar should help Australia to regain some level of competitiveness and will begin to favour commodity exports, education exports, manufacturing, and tourism in particular.
The lower dollar should also encourage international investment in Australian assets.
As we can see in the above charts, there are a number of demographic trends emerging which property investors need to understand in more detail and at the suburb level.