Australia’s strong population growth has been one of the major fundamentals underpinning our property markets.
But some are suggesting we’re growing to fast – our cities are becoming less liveable and our infrastructure can’t cope.
So what’s ahead for Australia’s population growth?
Recently QBE released its Australian Property Market Outlook – 2018-2021 and looked at this question as well as the future supply and demand equation.
And they drew some intersting conclusions.
Here’s what the forecast:
Net overseas migration has been the predominant driver of national population growth, accounting for 60% of total population growth over the past three years.
The drivers of this growth have been strong employment growth (attracting people for employment) and increased numbers of overseas students.
Net overseas migration inflows have moved in line with economic conditions, peaking at 300,000 in 2008/09 and bottoming out at 184,000 in 2014/15.
Net overseas migration subsequently recovered to 262,500 in 2016/17, with growth in overseas students being the main contributor.
Data for the six months to December 2017 suggests net overseas migration has weakened in 2017/18 in response to changed Federal Government conditions on working visas.
As a result, net overseas migration is expected to end at around 230,000 persons in 2017/18.
Despite being a 12% fall on a year earlier, this remains well above the long-term average.
Net overseas migration has predominantly been to the largest states of New South Wales and Victoria, which have captured 63% of all net overseas migration over the past decade.
The resource states of Queensland, Western Australia and the Northern Territory have seen their share of net overseas migration fall from over 43% in 2011/12 to averaging just 24% over the past five years.
The share of overseas migrants settling in South Australia, Tasmania and Australian Capital Territory has remained relatively steady at around 8% over the past decade.
Over the three years to 2020/21 a combination of factors are expected to lead to a reduction in net overseas migration.
There has been a change in visa policies which include replacing the subclass 457 visa with new visa categories, effectively adding barriers for potential migrants.
A stronger New Zealand economy has also started to taper off inward migration.
On the positive side, overseas student numbers should continue to grow over the forecast period, and net overseas migration inflows are projected to ease slightly to 215,000 by 2020/21.
On average, this is around the same level as the past decade, at around 220,000 persons per annum.
New South Wales There has been a marked increase in net interstate outflows from New South Wales, which rose from a low of 6,800 in 2014/15, to an estimated 23,000 in 2017/18.
The most recent rises in house prices in Sydney appear to have driven increased outflows, particularly to Queensland, where affordability is more attractive and economic conditions are beginning to improve.
With strong economic growth and more affordable housing relative to Sydney, Melbourne has been the destination of choice for interstate migrants.
Victoria’s net interstate migration inflow averaged 8,800 persons over the past decade and was as high as 16,700 per annum over the past three years.
This has started to trend downward, falling to an estimated 14,300 persons in 2017/18.
In the years following the mining downturn net inflows into Queensland weakened to 11,700 persons per annum over the past decade (from 25,800 per annum over the prior decade to 2008).
Interstate inflows from other east coast capital cities, attracted by a more affordable housing market, are now picking up and in 2017/18, the net inflow rose to an estimated 25,800 persons, the highest of all states.
Net interstate migration outflows from South Australia have fallen from 7,200 in 2015/16 to an estimated 5,500 in 2017/18.
Employment growth has remained sluggish and is likely to keep net interstate outflows above the long term average.
In Western Australia, the net interstate migration outflow of 1,900 per annum in the past decade masks the impact of the boom and bust mining cycle where net inflows peaked at 8,600 in 2011/12.
Net outflows have peaked at 13,900 in 2016/17 and are expected to be slightly lower at 11,000 in 2017/18.
In Tasmania, interstate migration outflows became a net inflow in 2015/16, rising to an estimated 2,000 persons in 2017/18.
Improved affordability relative to Sydney and Melbourne appears to be resulting in increased “tree change” migration to Tasmania.
Having predominantly been mainly retirees there has been a significant increase in the number of younger families moving to Tasmania.
Australian Capital Territory
Strong job growth in the Australian Capital Territory saw net interstate migration pick up to an average 700 persons in the past three years.
This came after net outflows in the three preceding years.
Economic conditions in the Northern Territory have worsened as resource investment falls back.
Subsequently fewer job opportunities have increased the net outflow to an estimated peak of 3,200 persons in 2017/18.
Net interstate outflows from New South Wales are projected to increase further over the next three years, averaging a forecast 28,700 persons per annum.
Inflows into Victoria are set to slow, as high Melbourne house prices and improving state economic conditions elsewhere reduce the relative attractiveness of Melbourne.
Queensland is expected to see the strong net interstate migration inflows of 2017/18 be sustained through to 2020/21.
In Western Australia and the Northern Territory, the recent high net outflows are forecast to slow markedly as the transient residents from the mining boom have mostly returned home.
The relative affordability of housing in South Australia is likely to see the net outflow slow as its economic outlook picks up.
Sustained job growth should keep net inflows into the Australian Capital Territory at around 500 persons per annum over the forecast period.
Lifestyle considerations and stronger employment growth will likely see a positive net interstate migration to Tasmania maintained at around 1,000 persons per annum over the three years to 2021.
Supply – commencements
New dwelling starts in Australia have exceeded 200,000 dwellings in each of the past four years to 2017/18, surpassing previous records.
Commencements are forecast to remain elevated at 223,000 dwellings in 2017/18.
This sustained level of new supply will see some states experience a rising oversupply, while in other states the existing deficiency will be reduced.
New South Wales
With new dwelling construction in New South Wales at 50-year lows through the late 2000s, a significant dwelling deficiency built up, peaking at more than 58,000 dwellings in June 2015.
Together with reductions in interest rates, this dwelling deficiency drove a strong upturn in new dwelling construction, and dwelling commencements in the state rose to a record 74,400 in 2016/17.
Population growth and annual dwelling completions have been outpacing demand since 2015/16, and the dwelling deficiency is estimated to have eased to 43,100 dwellings at June 2018.
New dwelling activity is starting to now ease, with commencements falling by 9% to an estimated 67,900 dwellings in 2017/18.
As a result, the New South Wales market is expected to remain in undersupply by 2021.
Victoria In Victoria, dwelling commencements have surged over the past four years to June 2018, averaging 68,100 dwellings per annum, compared to 47,000 per annum over the preceding decade.
Dwelling undersupply is estimated to be 11,400 dwellings at June 2018 and will progressively move closer to balance as the dwelling construction pipeline is completed.
The disparity between house and unit construction suggests that an oversupply of units will emerge, while the house market will remain in undersupply.
In Queensland, surging unit construction in Brisbane has seen an oversupply concentrated in the unit market.
Medium and high-density dwellings have accounted for over 46% of total new dwelling activity in the five years to 2018, from a historical base of 32% in the preceding 10 years.
The oversupply is set to begin to be absorbed albeit slowly with commencements, and therefore completions, projected to be down 30% on their 2015/16 peak by 2020/21.
The surplus of dwelling stock in South Australia is estimated to be at around 1,600 dwellings at June 2018.
The excess of dwelling stock is projected to continue to increase until 2019/20 as completions remain elevated with a significant pipeline still to come online.
In Western Australia, new dwelling commencements in 2017/18 are down 41% on their peak in 2014/15, but completions have been high in recent years as the peak in commencements has worked through.
Completions are now easing, although there exists a sizeable surplus of stock to be absorbed.
At June 2018 this was an estimated 21,700 dwellings, which in a period of low underlying demand will take some years to be fully absorbed.
Historically, large deficiencies in dwelling stock have not built up in Tasmania with limited population growth keeping demand in check.
Recent strong economic growth in the state and a pick up in population growth has seen demand lift, and at June 2018 there existed an undersupply of 2,000 dwellings, which is the largest in Tasmania in over 25 years.
Australian Capital Territory
A record number of completions in 2018 saw a dwelling deficiency move to balance in 2018.
Over the forecast period, strengthening demand driven by public sector employment will likely be met by elevated completions leaving the Australian Capital Territory in relative balance.
An exodus of transient workers in the resource sector has seen a slump in population growth and underlying demand in the Northern Territory.
Despite a significant reduction in the number of dwelling commencements, an oversupply of 1,700 dwellings remained at June 2018.
New dwelling commencements in 2017/18 will be 59% below their peak of 2012/13, with the corresponding fall in completions expected to see the market eventually return to balance by 2020/21.
Unit construction in most of the major cities started to surge in 2012/13 and was underpinned by a combination of factors.
There has been an increasing preference to live in smaller dwellings, particularly across the younger age groups, while rising downsizer activity has also contributed.
Deteriorating house affordability, particularly in Sydney and Melbourne, has seen demand funnel into the more affordable unit market.
Nationally units comprised 32% of new dwelling building approvals in the decade to 2012/13.
In the five years to 2018 this was 43%.
The largest rise was in Victoria (where unit approvals comprised a 28% share in the decade to 2012/13, and a 45% share over the past five years), Australian Capital Territory (51% share rising to 70%) and Queensland (33% share rising to 43% share).
The share of unit approvals in New South Wales and Northern Territory increased, although units already comprise a large share of new dwelling activity in those states.
While unit completions look to have peaked in most cities, the level of unit activity relative to the whole market suggests there remains a marked oversupply in the unit sector, which in turn will dampen unit demand and delay the next round of apartment projects as pre-sales decline.
Furthermore, regulatory pressures, rising vacancy rates, and slowing capital growth will curb investor demand over the medium term.
With the most recent supply being purchased mainly by investors for the rental market, future supply may also need to transition towards being tailored to changes in demographic demand which is more appropriate for owner occupiers.
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