How does population affect house prices?


Population Growth

Population increases can affect the demand for property and an increase in demand can consequently drive up prices. There are a number of factors needing to be considered when analysing the population of a city or town before investing there.

 

The Total Population Figure

Population figures can be gathered from the Australian Bureau of Statistics but should not be looked at in isolation. Population is one indicator from about thirty that we analyse for any particular city or town at Performance Data. A strong, high base population, as opposed to a small town is considered less of an investment risk.

A town with a small population base may be reliant on one industry. This creates a higher risk for investors if that industry was to experience a downturn. A downturn can flow onto higher unemployment levels leading to people leaving the town because there are no jobs. Demand for housing (both for sale and lease) decreases, vacancy rates rise, rents fall and prices can fall. Consumer confidence in the market place is ultimately affected.

 

The Headline Growth Rate

This is expressed as a percentage and is calculated by;         

(The Current Year’s Population Figure – Previous Year’s Population Figure) / Previous Year’s Population Figure

For example, the national headline rate for Australia in 2016 is:

(24,385,635 - 24,012,800) / 24,012,800 = 1.55%

The national growth rate can be used as a benchmark for all cities and towns. Whether the growth rate is on an upward or downward trend also needs to be considered. A growth rate higher than the national rate and on an upward trend would be considered positive. Ballarat, VIC is an example of this. A growth rate lower than the national rate and on a downward trend would be considered negative and Townsville, QLD is an example of this. A positive growth rate can still be considered be determined a negative based on the past trend and the reasons behind the growth (or lack of). Two examples or regions in Australia that experienced negative growth in 2016 are Launceston and Rockhampton.

 

The Driver Behind Population Growth

The underlying reasons behind why the population has increased must also be understood.  If the main contributor for an increase in population is births, then this is not as positive for the short term, then if the increase is due to migration. Net overseas and net interstate migration is an important component for population growth as a majority of these migrants need accommodation immediately. Sydney and Melbourne have both experienced phenomenal rates of net interstate and net overseas migration and consequently, demand has increased and pushed up the median price in both of these cities.  

 

Looking deeper into understanding why a city or town is experiencing an increase or decrease in population is an important indicator for potential growth. For example, the satellite cities Geelong and Ballarat have been experiencing higher than average population growth rates. Commute times to Melbourne are being shortened and median prices in these cities are a fraction of Melbourne prices. Both of these cities also have a falling unemployment rate and confidence in the market is increasing. Perth on the other hand is experiencing a lower than average population growth rate. In 2015-2016 Perth lost just over 10,000 people to interstate migration and net overseas migration has fallen from a high of 56,000 in 2012 to just 12,000 as Perth recovers from the mining boom.

 

Sharon Taylor
Senior Research Analyst - Performance Property Advisory

Sharon heads up the research division at Performance Property Advisory. As part of our ongoing service to clients, Sharon provides contemporary advice in a range of areas, including growth suburbs and regions, demographics and employment rates, proposed infrastructure developments and other aspects that will contribute to a positive return on their investment.