How Massive Population Growth Will Make Property Prices and Infrastructure Explode
Last Friday, Infrastructure Australia released its first ever Australian Infrastructure Audit report.
It’s the first audit of its kind in Australia. Covering areas from the drivers of growth to transport and communication, it’s full of insight for both the public and private sectors. The Audit report made 81 findings. These findings will be turned into a long term infrastructure plan, after a public consultation period.
The Audit drew data from a wide range of sources. Everyone from the World Economic Forum to the IMF and of course the ABS got a look in.
And they didn’t all have nice things to say.
What did the report say?
One of the strongest points was that infrastructure is not meeting Australians’ expectations. And it’s going to get worse, thanks to population growth. The first two points of the Audit findings said:
‘Australians expect their infrastructure networks to support a high quality, first world standard of living. They expect infrastructure to improve their quality of life in the future, notwithstanding significant population growth and major economic, social and environmental change […]
‘There are grounds for concern that Australia’s infrastructure networks and the systems under which they are managed are not meeting these expectations’
So basically, things are already quite bad, and they’re going to get worse as our population grows.
And ‘grounds for concern’ is putting it very lightly. Just look at how much attention and activity Aussies give to all kinds of infrastructure, from roads and public transport to the internet. For example, here in Melbourne, there’s been more than ‘grounds for concern’ over how awful Myki is, and how people feel about the East West Link, or Doncaster trains. The government saying that infrastructure might not be meeting your expectations could feel a bit exasperating.
Points five to twelve covered future demand for infrastructure. They said:
‘Population growth will drive a significant rise in the demand for infrastructure services … Australia’s population is projected to grow from 22.3 million in 2011 to 30.5 million in 2031. Almost three-quarters of this growth … is projected to be in … Sydney, Melbourne, Brisbane and Perth.’
[Click to enlarge]
That’s a lot of people flooding into capital cities. Cities that are already feeling the pinch in many areas. Not least of which is property prices.
How is this going to affect property prices?
Generally, infrastructure spending is based on population stats. So often, the population of an area has to change dramatically before the government will build what the locals need. Infrastructure spending and new projects don’t grow at the same time as the population. And infrastructure certainly isn’t built in anticipation of demand.
This can mean that demand for housing is concentrated in the areas where there are already lots of roads, public transport, and utilities.
For example, the report says that greater Sydney is going to get roughly 80,000 extra people a year. That’s taking into account people who leave, too. So that’s 80,000 extra people that will need somewhere to stay.
According to the last census, there are 2.7 people per household in the greater Sydney area. Let’s assume that people coming in to Sydney will have roughly the same household or family composition as they do now. That means Sydney will need an extra 29,630 new dwellings per year. At the moment, there are only 22,750 a year. That’s a shortfall of nearly 25%.
And that’s not even counting the trend towards apartment living. A trend that’s been boosted, unsurprisingly, by lack of infrastructure meaning people want to be close to the city centre. Apartments made up 65.5% of new dwellings completed in Sydney last year. Most of those were 1–2 bedroom apartments. So Sydney would need even more apartments to keep up with demand.
With demand growing so much faster than supply, prices will grow dramatically. Even more than they are now.
Some analysts predict that, as Sydney gets denser, the market will be split more distinctly than ever between apartments and houses. The premium that Sydneysiders pay for standalone houses will explode.
It’s possible that the Sydney apartment construction boom will continue for a long time to come. A number of firms are poised benefit from this. Including certain listed developers who hold the rights to critical areas of the harbourside city. And producers of building materials, fixtures and amenities.
The report also said that the government should try to look at ways to boost growth in other cities. It said that ‘Adelaide, Canberra, Hobart and Darwin − are projected to grow in total by slightly more than 0.5 million people or 26.7 per cent. Given this, it is worth considering what steps could be taken to foster greater long-term growth in those cities, which may moderate the consequential infrastructure challenges in the larger cities.’ So those cities, which are already very liveable, might get a bigger slice of the infrastructure funding pie. This could mean that developments — and property prices — in those cities, ramp up.
What about infrastructure companies?
Point 10 of the audit findings said that ‘The infrastructure sectors projected to grow faster than GDP are transport, ports, telecommunications, gas pipelines and airports. The sectors projected to grow slower than GDP are water, petroleum, electricity, non-urban roads and non-urban rail.’
So after the property boom, companies that build or own those first five sectors could benefit.
There are several listed companies that do so. For example, a few of the major telcos own their own infrastructure, and lease it to other providers. Some airport corporations have the rights to expand, or to build new airports, in their respective cities.
How to get involved
At the moment, Infrastructure Australia is taking suggestions and official submissions on the findings of the report. They say that these will be used to inform the development of a 15 year plan. That plan is due out later in the year. If you’d like to have your say, send an email to AIA@infrastructure.gov.au.
If you’re just looking for investment clues, you’ll have to wait until the plan comes out.
Contributor, Money Morning
PS: Not all population growth related investment opportunities depend on the upcoming infrastructure plan. There are lots of stocks that are already set to profit thanks to existing strong housing demand.
In his report, ‘The Five Best ASX Stocks for 2015’, Kris Sayce covers a stock he believes is set to benefit from the construction boom. Read this report, and you’ll also find out how rising consumer confidence could see one Aussie retailer bounce back. And how a low oil price could do wonders for an Aussie household name stock.