Population Growth Fuels the Housing Boom

The Australian Bureau of Statistics (ABS) estimates Australia’s resident population, at 30 September 2016, was 24,220,200 people.

This is an increase of 348,700 residents, or 1.5%, from a year earlier.

The graph below shows you the increase in the growth rate of our population since about 2005:

population growth

Source: ABS

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Migrants accounted for 55% of the population growth in the latest figures. This will no doubt alarm populist politicians who stand on soapboxes and argue that migrants take the jobs ‘reserved’ for Australians.

This is simply not the case.

The populist view reminds me of a satirical episode of the animated TV series South Park.

They took our jobs,’ was the war cry. And then the town was devastated when migrants were forced to leave.

In his book Street Smarts, Wall Street legend Jim Rogers writes of draconian immigration measures adopted by the US state of Alabama.

In June 2011, Alabama passed a bill called HB 56. It was designed to attack every aspect of an illegal alien’s life, and force them to leave.

Chief sponsor Micky Hammon gave a warning to immigrants who did not have proper documentation. He would ‘make it difficult for them to live here, so they will deport themselves.’

Among its key provisions, landlords were banned from renting homes to immigrants without paperwork. Giving a job to an ‘illegal’ became a crime.

Police could demand proof of citizenship from anyone who looked as if he or she might not have it.

Six weeks after HB 56 went into effect, it became a farce. A driver was pulled over for not having a proper tag on his rental car. He did not have a license on him, only a German ID card.

The law required police to arrest the man, take him to court and detain him until the authorities could decide his fate. And this could take a while.

It turns out he was an executive of Mercedes Benz. The European car giant was one of several foreign companies whose factories provided thousands of much-needed jobs in the state.

The business community blamed the tough measures for scaring away capital. Especially when other states invited foreign companies to set up shop in their towns.

Utility companies were unsure whether they needed to cut off water, gas and electricity services to residents who couldn’t prove citizenship. Long queues formed for people to prove their legal status.

The farmers were badly hit. Those who had previously employed more than 60 Hispanic workers suddenly had nobody to pick their crops.

Tomatoes were left to rot on the vine. Many farmers chose to retire early.

The new laws were soon wound back. Many of the provisions failed in federal courts, and local legislators admitted the law went too far.

Population growth and economic activity

Population growth has a strong effect on a country’s economy. The impact of an increase in birth rates is gradual.

The greatest impact from birth rates is when people reach an age of about 20 to 25. This is when most people get jobs, cars, houses and household equipment.

The impact of population growth from migration is almost immediate. Migrants need a job soon after they land. And they need a car, a house and furniture.

This increases economic activity. It continues to have an important impact for about 10 years.

An article in May from Business Day said:

Poorly constructed and strict immigration policy is one of the biggest threats to share market returns, say some of the country’s top money managers.

An expert panel at the Stock Brokers and Financial Advisers Conference in Sydney on Thursday agreed Australian investors could face deteriorating returns thanks to short-sighted policy that curbed population growth…

‘Since 2000, Australia’s population has risen by more than 19%, or about 4.6 million people. This growth has translated into a demand for services, infrastructure, housing, education and healthcare.’

Managing editor Bernd Struben wrote about this from a different perspective:

‘….undoubtedly, adding 4.6 million people to the mix will see a rise in demand for Australian housing, education and healthcare…among others. That’s the much-touted economic growth you hear about. The yearly rise in GDP.

And along with this overall growth, some people will certainly see their incomes rise. Among them, I suspect, the top money managers at Sydney’s Financial Advisers Conference.

But how about the rest of us? With a 19% bump in population, has the average Aussie enjoyed a 19% real pay rise?

Certainly not according to the Australian Bureau of Statistics’ (ABS) most recent numbers.

In the March quarter, sluggish wage growth of 0.5% pulled the annual growth rate down to 1.9%. That’s below consumer price inflation of 2.1%. Meaning Australians’ real wages are shrinking…despite strong population growth.

You can read the entire article here.

For a commodity such as food, an increase in the population by 1% needs a corresponding increase of 1% in food production. It’s the same for power, fuel and other consumables.

The same thing cannot be said about long life assets such as housing.

Houses last for a very long time. In a stable population, let’s say houses last for 100 years. Many don’t last nearly that long, but it makes the maths easier to understand.

If houses last for 100 years, we need to replace 1% each year just to keep the housing supply stable.

A population increase of just 1% each year has a dramatic effect on the demand for housing. This small increase can add 50% to natural demand.

The same applies to commercial building and the cost of setting up a business. Many migrants quickly go into business for themselves.

And it doesn’t matter whether the home or business is owned or rented. Either way, the increase in demand results in an increase in capital formation.

This leads to higher economic growth.

At Cycles, Trends and Forecasts, we understand that property prices generally rise. And sometimes they collapse.

Importantly, we understand why and when these trends will happen. There is no other service that provides such information.

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Terence Duffy,
Lead Researcher, Cycles, Trends & Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia