How Does Population Growth Impact Property Values

Australia’s population growth has reached 25 Million

With 25 million people now living in Australia let’s explore how population growth impacts property values. The current population is twice the number of people who resided here in 1970. Sydney and Melbourne claim the lion’s share of the total population. Both cities, which account for approximately 40% of the total, have seen their populations rise. Sydney is today home to over five million while Melbourne is expected to reach that milestone this year.

The size of the population in a location does not directly affect property prices. In an area where a large population is already distributed, home prices will have already increased. So, the scope for property price growth is limited and lesser than in an area with a smaller population.

Here is an example of how population growth impacts property values:

Between 2004 and 2014, Hobart’s population growth was the smallest out of the eight capital cities. Yet, its property price growth swelled by 9.2% over a 15-year period between 2000 and 2014, the third-highest among all the capital cities.

Conversely, Sydney – which experienced a bigger population growth than Hobart – witnessed the smallest growth in home prices over the same period.

Surveys also reveal a similar trend for local government authorities (LGAs). In regional towns without the instant name recognition of capital cities, capital growth rates and rental yields surpassed those of their famous cousins.

With this idea about how population growth impacts property values, what then, encourages or holds back capital growth? These three factors have a broad impact:

Demand: Common wisdom dictates that if the demand for homes grows faster than supply, home prices go up. But demand is also a sum of various developments, including employment rates, infrastructure, housing affordability, private investment, birth/death rate, immigration and lifestyle.

Supply: On the supply side, property prices are impacted by government incentives, availability of credit, building approvals, zoning changes, land release and bureaucracy.

Sentiment: In a climate of high interest rates, people may put off home investment or ownership. Other factors that influence potential buyers’ sentiments include job security, political stability, government policies and media commentary.

Australia’s population growth has created a mature property market and Australia now has markets within markets.  This means that different locations, property sizes and property types may all perform differently at different times.  When looking to invest, understanding the factors that differentiate these markets and the properties within these markets is what makes the difference between choosing a high growth property and an inferior one.