According to the ABS, Australia’s population growth has hit the record books (again) with a net increase of 439,000 new residents over the year to March 2009.
To provide some perspective, in raw numbers Australia’s population growth has never been this high. In percentage terms, population growth hasn’t been this high since the baby boom.
Population growth is fundamental to the property market as it constitutes demand for housing. The higher the population growth, the more homes need to be built. Unfortunately, there is a major divergence between housing demand and housing supply; there is simply far too few new dwellings being constructed to provide homes for our growing population. The divergence becomes quite clear in the graph below:
Now don’t get me wrong… population is a great thing for our economy. More people means more consumers which means more demand for Australian good and services. Higher demand for our goods and services means a stronger and healthier economy – great!
The problem this creates for the housing market is that due to such a chronic under supply of housing there is considerable upwards pressure on housing prices and the rental market. This means ongoing affordability pressures for first home buyers, lower vacancy rates (which are already sub3% across every capital city) and higher rental costs.
The solution to this problem largely rests with the government and our banks. Government needs to free up more strategic land for development and remove the obstacles to development which include high fees and charges and a bureaucratic approvals system. Banks need to start lending more freely to ensure developers have the access to funds that are required to undertake large scale building projects.
The under supply of housing in Australia is a national problem that requires a long term solution – not just grants and incentives.