3 reasons why are property markets will keep on keeping on

We’ve all heard and prosecuted the bear case on Aussie property (and how!) over the past 15 years or so.

But what’s the other side of that trade?

Here’s the tripartite thesis…

1. The Big Australia

The Big Australia, while not formally adopted as a policy, or indeed ever directly voted upon, appears to have the implicit support of both major political parties.

The Intergenerational Report stated that:

‘Lower levels of net overseas migration would lead to lower population growth rates over time and, therefore, lower economic growth.’

Summarily, immigrants are young (so they reduce the dependency ratio, at least in the short term, and slow the ageing of the population), they mostly work, and therefore they add to demand, and pay plenty of tax over their working lifetimes.

Being a safe, stable, resources rich, and attractive destination, there’s no shortage of people wanting to migrate Down Under, and forecasters expect net overseas migration into Australia to remain very strong over the coming decades.

2. Zipf’s law

Typically immigrants follow the opportunities to the largest and most familiar cities, which creates demand for housing and amenities – transport hubs, shopping malls, schools, service stations, and other infrastructure – and then the construction itself adds further to demand and output.

Population proximity can create the potential for productivity gains, while thanks to synergies an approximate doubling in population might only require a 75 per cent increase in certain amenities, sometimes known as the 3/4 power law.

Today close to 90 per cent of immigrants initially head to the capital cities, and mostly they stay in the big cities once they’ve arrived.

So although some regional hubs such as Gold Coast and Sunshine Coast are growing solidly in percentage terms, the great bulk of headcount growth is in the major capital cities.

By 2016 this had already led to some eye-popping long range projections by Australian demographers.

Source: Bernard Salt

Far from leading to a more measured approach to the capital city intake, population growth into the major conurbations has re-intensified.

The New South Wales Department of Planning recently revised up its population projections, with Sydney attracting a greater headcount at the expense of the state’s regions.

The population of the harbour city is now expected to rise to beyond 7.1 million by 2041, which is notably and considerably higher than was previously expected, as the ongoing high rates of immigration lead in turn to greater natural growth (births minus deaths), and as life expectancy increases.

This thunderous growth would represent an extra 2 million heads in Sydney over just a 22-year stretch.

3. Too big to fail

It’s often been said that housing and mining is the Aussie economy these days, and it seems that this contention may be even closer to the truth than we thought.

Although not widely reported upon, the Reserve Bank recently almost acknowledged as much in relation to its own modelling.

Source: Reserve Bank of Australia

The wealth effect has become asymmetrical: it doesn’t lead to as much spending on the way up, but can cause more tightening of belts, and reduced consumption and economic activity on the way down.

Sliding housing market confidence also reduces construction activity – alongside healthcare, construction has become one of Australia’s largest employers, with about three-quarters of the construction industry directly employed in the residential sector.

When it comes to the big city housing markets, the show must go on.

from Property UpdateProperty Update https://propertyupdate.com.au/3-reasons-why-are-property-markets-will-keep-on-keeping-on/