The Impact of Rapid Population Growth on Property Prices and Rental Rates in Australia

Australia is currently in the midst of an unprecedented surge in population, reminiscent of the growth observed in the 1970s.

This surge follows a report from the Australian Bureau of Statistics (ABS), revealing a staggering increase of 624,000 people during the 2022-23 financial year, a figure equivalent to combining the populations of Canberra and Darwin.

While this rapid growth is not expected to persist indefinitely, the 2023 Population Statement indicate a gradual deceleration over the next decade. The annual growth rate is anticipated to decrease from 2.4% in 2022-23 to 1.2% in 2033-34.

Despite this deceleration, the population is poised for significant growth, with an estimated addition of 4.3 million people by 2033-34.

One crucial domain likely to bear the brunt of this demographic shift is the property market. To comprehend this impact, it is imperative to delve into the intricate relationship between population growth and property prices.

Impact on Property Prices and Rental Rates

The burgeoning population triggers a heightened demand for housing, emanating from various sources. The surge in newcomers seeking homes, coupled with the organic growth of the population, amplifies the necessity for additional housing.

Consequently, this surge in demand exerts a notable influence on property prices. Research from Domain illustrates a historical correlation, revealing that a 1% increase in population has been linked to an 8.18% upswing in property values nationwide.

Nevertheless, as depicted in the graph below, the impact is not uniform across the country, showcasing regional variations in the repercussions of population growth.

Source: Matusik estimates based on Australian Government, 2022 Population Statement using High Series Population Age Projections.

Population growth also exerts a comparable impact on the rental market.

The influx of residents intensifies competition for available rental properties. Landlords, confronted with a surplus of potential tenants in relation to the available housing, gain the flexibility to raise rental rates. This dynamic is further heightened by the tendency of new arrivals, particularly international migrants, to initially opt for rental accommodation before exploring property purchases.

In instances where the supply of rental properties falls short of meeting the escalating demand, it is probable that rental prices will experience an increase. This effect is notably prominent in major cities like Sydney and Melbourne, which attract a considerably larger influx of migrants compared to smaller cities or rural areas.

Housing supply lagging behind population growth

What does all this mean for you?

The persistent surge in demand for housing coupled with a lagging supply is expected to exert continued upward pressure on both property prices and rents in the foreseeable future.

While existing homeowners and investors may reap the benefits of heightened equity through appreciating property values, this scenario presents challenges for first home buyers. Escalating prices and rents can pose obstacles, making it more arduous for them to accumulate savings for a home deposit.

Fortunately, there are various schemes and grants accessible at both the federal and state levels, designed to assist first home buyers in stepping onto the property ladder. Additional information can be found here.

If you are a first home buyer in North Sydney looking for a mortgage broker, Speed Lending is here to help. Our experienced brokers can guide you through the process and help you find the best home loan for your needs.

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