The federal governments Intergenerational Report released earlier this year offered a glimpse of life for Australian property investors in the year 2055.
A lot of ground was covered in the 2015 Intergenerational Report (IGR): Australia in 2055 – not surprising, seeing as it was a rather eye-watering 145 pages long.
If you don’t fancy sitting down with a copy and a cuppa, I can tell you now that, population-wise, we’re growing.
While this will come as no surprise, it’s interesting to note just how much our populace is predicted to increase over the next 40 years – and just what effects that could have on our economy, way of life and also our property markets.
In his foreword to the report, Treasurer Joe Hockey describes it as “fantastic” that Australians are living longer and healthier lives, but says, “we need to address these demographic changes”, which is perhaps the understatement of the year.
The Nitty Gritty
When it comes to the numbers, they’re a little daunting. Australia currently ranks equal first in the world (alongside Iceland) in terms of male life expectancy, while women have the fifth longest, after Japan, Spain, France and Italy (suggesting there’s something g to be said about those Mediterranean diets).
With males born in 2055, expected to reach the age of 95 and females another year on top of that, it’s fair to say that community demands and expectations are going to rise considerably.
With a projected population of 39.7 million in 2055 (it currently stands at about 23.7 million), Australia’s going to need an awful lot more housing.
Master Builders Australia CEO William Harnisch sees the housing requirements as significant.
“The nation will need to more than double its current housing stock over the next 40 years to accommodate the expected 1.3 per cent in annual population growth.
“The key challenge will be to tackle intergenerational housing affordability in order to preserve home ownership as a fundamental pillar of Australian economic and family life.”
The Business Council of Australia president Catherine Livingstone sees planning as crucial.
“We must step up efforts to meet the challenge of a growing population. A population of 39.7 million…will require purposeful planning, especially around the delivery of new infrastructure.”
Housing Industry Association chief executive of industry policy Graham Wolfe says housing’s “the bedrock on which all other facets of society are built”.
“Without shelter, families and individuals can’t participate in the economy to their full potential”.
“To achieve a significant increase in the delivery of housing that’s affordable and meets the nation’s future demographic needs, governments must focus on investments in economic and social infrastructure, increasing the supply of residential land, and removing impediments in the planning system”.
Source: Australian Property Investor Magazine
One of the indisputable necessities highlighted by the report seems to be the dire need for planning rules to change and more land to be opened up for development, in order to cope with all the new housing requirements.
President of the Urban Development Institute of Australia (UDIA) Cameron Shephard says that while a growing population has been and will continue to be a major positive for Australia,
“State and Federal governments [need] to work together to reduce barriers to new housing supply in order to accommodate future population growth”.
Harnisch notes that:
“More brownfield sites will be essential to meet increased demand for multi-density housing, particularly as baby boomers seek to increasingly ‘right-size’ in response to their changing lifestyles”.
Livingstone makes a valid point on living standards:
“The challenge set out in the IGR is whether we have the determination that will preserve the living standards we have now and for future generations,” she says.
Onthehouse.com.au market analyst Eliza Owen concurs:
“[It’s] largely a question of planning and organization of Australia’s habitable spaces.
“Without dispersion of infrastructure and resources further inland, housing in inner-city areas will become increasingly dense.
Transport NSW already projects that multiple Sydney rail lines will exceed their absolute capacity during peak hour by 2021.”
“This is because housing development has largely taken the form of haphazardly planned dormitory suburbs (suburbs that predominantly contain residential dwellings and not much else).
Residents of dormitory suburbs rely on transport for commutation to employment hubs.
Many people prefer to live as close to cities as possible to minimise the commute to work.”
That’s reaffirmed by Charting Transport analysis, Owen says, which showed population density in Sydney increased 15 per cent over the past 10 years.
“For investors, this suggests that metro areas could see higher growth rates to 2055. For those in suburbs of the fringes of metro regions, there could be future value in the subdivision of larger blocks of land, as the average lot size gets smaller in response to deteriorating affordability and land availability in metro areas.
“Working with town planners, architects and local councils to avoid high levels of density would maintain the Australian quality of life.
Otherwise, high density around existing cities could lead to the concentration of pollution and rapid spread of disease.
“Even with drastic improvements in health technology, long work commute times as a result of congestion can increase levels of stress.
Small living spaces, a result of increased population density, can also increase stress and mental health issues.”
Urban Taskforce CEO Chris Johnson is predicting massive change in the style of housing needed.
“The suburban family home will be less relevant to still-active retirees and the growing need for younger people to be close to jobs,” he says, predicting “a new cosmopolitan urban approach to cities with apartments dominating”.
“With house prices in cities like Sydney spiraling upwards, the extra 16 million people will struggle to find affordable housing unless there’s a dramatic increase in housing supply, but [it] needs to be close to work opportunities so productivity’s not lost through excessive travel times.
“The obvious answer is more density around rail stations with work also located near major rail stations.
“We’ll need to build many more dwellings in ways that understand future lifestyles and financial constraints.”
Metropole’s Michael Yardney is aware of what the changes could mean for those wishing to continue profiting from property investing.
“The changing size and structure of our population will influence the type of properties…..required to house us.
“For property investors it will be important to own the right type of property that will be in continuous strong demand in the future,” he says.
“While there’ll always be a requirement for detached houses, there’ll be an increased requirement for medium-density and high-density apartments as retiring baby boomers trade their backyards for balconies.”
Whether high-density or not, it’s clear that opening up more land is going to become more and more significant.
Luckily, the government seems to have made a start on that process
The 2015 UDIA State of the Land Report reveals that Southeast Queensland, Melbourne and Sydney all experienced very large increases in lots released relative to 2013, with increases of 55 per cent, 61 percent and 29 per cent respectively.
The report does note, however, that Sydney remains “chronically undersupplied”.
“Unfortunately, our three-tiered government system means that the federal government controls immigration, the state governments are responsible for infrastructure and local governments control zoning, so no one can set rules that will work to control population and housing,” he says.
“Our cities are getting too large and the cost of further infrastructure is becoming unsustainable.”
He cites an alternative European example in which certain countries have limited the size of established cities (e.g. Amsterdam and Copenhagen) and new residents are forced to live in the outlying dormitory cities, meaning transport and facilities in older cities are sufficient to meet the demand because they simply can’t grow anymore.
In Australia, however, Lindeman foresees something different.
“I do see that the pressure of population growth in our major cities will be enough to force more first homebuyers and even upgraders into high-rise accommodation in sought-after inner urban locations, so that major cities will grow up rather than out.”
The effect on property investors, he explains, will be that median unit prices will continue to rise faster than houses.
Increased life expectancy, too, can affect the way housing Is bought and sold.
“More retirees will have to rely on the sale of their family home to obtain a nest egg as it becomes more difficult for governments to financially assist them,” Lindeman explains.
“This means that housing demand in retiree destinations will push prices up, while more people selling the family home will have a dampening effect on high social economic areas.”
Owen predicts the same, pointing out a possible benefit:
“From 2035, a means-tested pension will be awarded to those over the age of 70. Under current policy, age pension assistance for individuals reduces payments by $1.50 for every $1000 worth of assets over a particular threshold.”
This asset test, however, doesn’t include the family home, which encourages retention of value in the family home rather than downsizing, limiting the supply of larger, established properties on the market.
“Were the government to include the family home in a means-tested pension,” she says, “retirees would be more likely to sell their family home to fund costs of living. This would reduce pension payments for government and release family-sized homes into the market.”
For Yardney, earlier predictions on possible outcomes have turned out to be inaccurate.
“In the past it was suggested that baby boomers would change their lifestyles and go for sea change or tree change, but this really hasn’t occurred. Most want to live in the same areas they’ve lived for most of their adult life.”
“Depending on when you were born,” he adds, “the report suggests you might live to 100, which means it’s important for all Australians to build themselves a substantial asset base of quality investments to fund the 30 to 40 years they’ll have in retirement.”
Perhaps the last (rather cynical) word should go to leading industry commentator Bernard Salt, to give us all something to think about.
According to him, we should be taking the IGR’s predictions with a pinch of, er, salt.
“I regard the IGR report as a public relations document designed to soften up the electorate for harsher tax and entitlement policies to be announced at the May budget,” he says.
“I think we’ll see tighter age pension and possibly superannuation eligibility arrangements from May.”
Make of that what you will.
This article first appeared in Australian Property Investor Magazine – Australia’s #1 Magazine for property investors and is republished with their permission.