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Poor population policies could cause capital city house prices to plummet

If I told you a report I read suggesting that our capital city property values could plummet and Sydney might become the slum of the future, you’d probably think I was quoting one of the property doomsayers.

Well you’re wrong – it was a report commissioned by the property development industry outlining what could happen to our property markets if our population growth was capped.

It all started with some controversial comments from federal politicians in regard to Australia’s rapid population growth, which sparked serious concerns among those in the property industry.

Prime Minister Julia Gillard and the Minister for Sustainable Population, Tony Burke, have both suggested that some of Australia’s most densely populated cities have reached their ‘carrying capacity’.

Remarks made by PM Gillard last year have left property developers questioning the future prosperity of our major cities, with the Prime Minister saying, “I think if you talk to the people of western Sydney or western Melbourne or the Gold Coast growth corridor in Queensland, people would look at you and say, ‘where will all these [extra] people go?’”

Adding fuel to the fire were reports that Melbourne’s population is set to overtake Sydney’s by the year 2028, even though residents and town planners fear the city’s already overburdened infrastructure, particularly the heavily congested road networks, cannot cope with the continuing influx of new residents.

Capping population growth won’t work

The Urban Taskforce Australia (UTA) recently made a submission to the government’s sustainable population strategy on behalf of developers, which illustrated that capping population at current levels would have a detrimental impact on property prices and employment levels in our major cities.

Specifically, the UTA advised that Sydney real estate prices would plummet by more than 18 per cent over the next decade and those employed in the construction sector – about five per cent of the city’s workforce – would be forced to sell up and relocate to seek employment in other regions.

Property economists MacroPlan Australia were responsible for modelling the impact of a population cap over two five-year periods, with their findings revealing that a decline in the urban building sector would have “substantial second-round effects on the economy”.

Not only would a slowdown in housing construction have an immediate effect on the building industry, but also on the retail sector, with a marked reduction in the sale of homewares and white goods and on specialist services like architecture and the legal profession. The report estimates Sydney would lose 28,000 residents per annum with workers forced to seek employment elsewhere.

MacroPlan’s forecast suggested that a population cap and the resulting exodus of businesses would cause an annual drop in property prices for Melbourne and Sydney of 1.3 per cent and one per cent respectively in the first five years, with a total decline in values of 18.3 per cent in Sydney and 15.3 per cent in Melbourne at the end of ten years. According to their predictions, Brisbane house prices would fall by 14.7 per cent over the same period.

What about a Big Australia?

With Kevin Rudd copping considerable public backlash for his support of a ‘big Australia’, Gillard has attempted to win back votes, promising a sustainable population policy. The government’s plan entails, among other things, decentralising population growth away from our major urban centres into regional or remote parts of Australia.

However UTA chief executive Aaron Gadiel says this type of thinking could put a halt to new home construction, infrastructure investment and immigration.

With the majority of employment, goods and services concentrated in Australia’s major cities, the report says these areas are our most productive and therefore essential, parts of the economy.

”We’re saying it’s not enough to have population growth. What’s important is where people are allowed to live and businesses are allowed to locate. If you prevent them from being there you are cutting off your nose to spite your face,” Gadiel said.

Sydney could become the slum of the future

Some have gone so far as to suggest Sydney would become a slum if Gillard’s plans came to fruition, with the average wage falling by $5000 and the workforce falling rapidly at a time when the retiree population will begin to boom, causing a major economic slump.

There are already concerns surrounding the affordability of housing in our major capital cities, particularly in Sydney and Melbourne and with a drop in wages this issue would be compounded to the point of a potentially devastating fall in property values.

The MacroPlan Australia report said the “abundant, cheap housing” that would be seen due to lack of demand from a rapidly declining population would “end up acting as a magnet for households in social distress”, implying that our major capitals could end up in the same type of state as some of America’s harder hit ghost towns.

It cites cities like Detroit and Pittsburgh, the closing of major industry saw houses and shops abandoned in droves and a marked rise in unemployment and crime.

So what’s the answer?

Obviously there’s a very real issue at present with the infrastructure in our cities – you just have to attempt to travel across Sydney or Melbourne’s major road networks to know that congestion is an enormous problem.

And it’s no secret that we’re not building enough new dwellings to accommodate the expanding population. But halting immigration or attempting to corral new residents into allocated areas will surely cause more harm than good.

At the end of the day, the issue of sustainable population growth really needs to be addressed by state government planning policy, as does serious investment in infrastructure.

With an increase in our ageing population, slowing down our country’s growth is not the answer, but we do need one…and soon.



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About

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 his opinions are regularly featured in the media. Visit Metropole.com.au


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