Our cities will double in size – but at what price?

Population growth has been one of the factors driving up property values over the last few years, so with the slowdown in the number of new people calling Australia home some investors have become concerned.

Remember as the rate of population growth slows, so too does competition for housing stock, and it has dropped from 467,000 new people in the year to June 2009 to 400,000 in the year to June 2010 and may even fall to 300,000 in the year ending June 2011. Hence the concern.

But recently released research from the National Institute of Labour Studies puts a different spin on things….

The research suggests that Australia’s capital cities will more than double in size within 50 years under current immigration rates, and even with zero migration, the capitals will grow in size by roughly 50 per cent.

What does all this mean for you and me as property investors? I’ll explain in a moment but let’s first look at some more details of the report…

Lead researcher Dr Jonathan Sobels, from Flinders University Reported was reported in The Australian, as saying;  “Sydney and Melbourne will rise to something of the order of seven million people. We’ve got something in the order of half of that now …Where are they all going to go? They’re not going to all go into 50-storey apartment blocks. Physically, the demand on land is going to be immense.”

The good news is that affluence is forecast to rise faster under higher immigration scenarios, driving up the use of space and resources. Per capita wealth would rise by about 2.3 times by mid-century with migration at the level of 260,000 a year. Without migration, per capita wealth would double over the same timeframe.

But this growth will come at a price….
Consumption is forecast to rise with affluence, contributing to growing levels of waste, congestion and use of environmental resources. “The magnitude of the impacts at all net overall migration levels suggests that unless substantial and timely actions are taken to address these impacts, some impacts have the potential to disrupt Australia’s economy and society,” the paper warns.

Dr Sobels said farms and public land would be consumed as bulging cities expanded, and the release of this document, which was prepared for the Department of Immigration and Citizenship, has rehashed the old argument about immigration levels.

Creating a “sustainable Australia” became a Labor mantra at the last election after Julia Gillard veered sharply from Kevin Rudd’s “Big Australia” plan. But even the Prime Minister’s vision for a sustainable Australia is under threat from immigration-linked urban sprawl according to this paper.

But to me the conclusion is inescapable… we are going to have to substantially increase our population.

Look at the facts…today 43% of our workforce is made up of Baby Boomers (people born between 1945 and 1964.) Over the next 15 years, Australia’s 5.3 million Boomers are going to reach retirement age and as they leave the workforce they will stop paying tax, many will go on the pension and most use our public health care system.

You see…most Baby Boomers don’t have enough savings or superannuation to see them through retirement.  This means many will have to keep working longer than they had anticipated but eventually, when they do retire, they place a massive burden on our financial system.

The Government will have to find the money for their pensions and health costs while at the same time making up for their lost taxation revenue by either:
• Increasing taxes for those in the workforce which would be political suicide.
• Increasing the size of the tax paying workforce by importing younger workers.

Despite the rhetoric from both sides of parliament we have to significantly increase our population to replace the workforce, to capture skills and to grow the economy.

If you want to see the alternative just have a look at what has happened to countries with an ageing population – like Japan, Germany and to some extent America.

So where are we going to put all these people?

If you break the numbers down, they suggest that over 150,000 new households will be formed each year.  Most of these people will move to our capital cities, not regional Australia. Remember…all these people need to rent or buy a home. And most of these newcomers will want to live in our inner and middle ring suburbs – near schools, hospitals, work and infrastructure.

Clearly we’ll need more medium density dwellings.

There is no doubt that this substantial increase in population will bring with it many social, political, infrastructure and environmental concerns, but the end result is inevitable.

In the words of a famous past Prime Minister – we must populate or perish.

As our population grows this will have a massive impact on our property markets. One of the interesting statistics our research at Metropole has turned up is that that 30% of the dwellings needed in Australia by 2030 have not been built yet.

The fact is the value of properties around Australia will increase significantly, as will rents. But as always some properties will outperform others – those close to the centre of our capital cities, or infrastructure and amenities are likely to outperform.

So what type of property will be in strong demand in the future?

One trend to watch is what will happen to all those Baby Boomers who have driven the property markets for years. With around 150,000 Boomers retiring each year (which equates to somewhere between 75,000 and 100,000 households, most with only one or two people), what will be their preferred style of accommodation?

I will leave that for a future blog, but understanding the type of property that will be in continuous strong demand in the future will help you become a successful investor.

The lesson form all of this is that the long term future is bright for property investors!


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

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