Population growth, immigration and house prices
Commentators and economists have been running the numbers on population growth this week. Combining ABS and Census data for the past 40 years has shed some light on this topical issue. Turns out we've been building more homes at a faster rate over the last 40 years than our population has been growing. In the past 10 years, population growth was 16% and the number of dwellings rose by 19%. The 20 years from 2001 to 2021, the numbers were 34% and 39%, respectively.
These numbers are interesting and stopped me in my tracks when I first saw them. How can this be when we’re in the midst of ‘housing affordability crisis’? Supply and Demand, and all that?
Proponents of this data point to a natural social experiment to test the relationship between population growth and prices in the name of the covid border closures. A Senator recently highlighted the results and came to some quite rash conclusions from overlaying the data sets. Population growth was at unprecedented lows, and negative for two quarters, during that 18-month period in 2020-2021. The orange highlighted segment within the graph below left by the Australia Institute, shows that despite the record flat to negative population growth, house prices still rose sharply. How do we explain this? I’ll have a crack.
This was a weird time. People were paid without working, and for some well above their normal levels. FOMO was probably a factor where we’d been conditioned to expect price rises. Once the Government $$billions were released, we took our chances, bought in and bid the prices upwards. Also, the flat to negative population/immigration growth during covid was really a blip on the 40-year radar. There are lags to these things, just as increasing RBA interest rates today doesn’t automatically curtail spending and impact prices; it takes a while. Arguably, the price dip immediately following the covid frenzy on the graph, could be part of the of this lag. Recall also that during this period, the property sprukiers were out in full force and banks were giving us $4000 cash to win our business. It was kinda madness and not normal, but it probably saved us from recession.
Though that graph is very interesting, it should be explored more by psychologists and social theorists about what was going on! The graph below right shows that dwelling growth has consistently been ahead of population growth in the past 10 years, with the graph further below highlighting the gap has been well maintained for the past 40 years.
Touché Builders & Developers! Kudos to First Home Buyers and Owner-Occupiers trading up (and down). Applause to Investors! Federal and State Government policy and incentives need to be factored in too.
The numbers, broadly, over the past 40 years:
- Total Population: 15.7m → 27.2m, 1.7x
- Total Housing Stock: 5.5m* → 11.3m, 2.0x
- Total Housing Value: $0.4T → $11.4T, 28x
* However, I do think that the older total dwellings numbers (1985) could be a bit rubbery. Other sources put the 1985 dwelling number ~500k higher which impacts the growth rate but not the overall story. The conclusions overall are intact.
In every decade since 1985 we've built more homes (supply) than our population grew (demand). Yet total housing stock value (prices) rose 28x! That’s 2,700% from the original price in 1985 - I will address this in part in my next post.
According to this data, it appears that population growth on its own is a weak indicator for housing price growth
But look, we’re not all crazy. Higher immigration does lead to higher house prices because it does increase overall demand. It’s part of house prices rising 28x vs. inflation at 3.5x. It’s just not the only thing. House prices, like all things in a modern economy, are multi-faceted. The Grattan Institute has said that reducing immigration would make housing cheaper. But perhaps by not as much as we would think. They estimate that every 100,000 additional migrants to Australia probably adds to rents and prices by about 1%. On their numbers taken nominally, this implies a ~5% impact on prices and rents if we’ve had net migration of 500,000 people. Not to be scoffed at!
We’ve had immigration ‘covid catch up’ after the pandemic (2022-2023), and immigration rates are returning to pre-covid levels in 2025 (see the green bar graph below). Careful what we wish for as it’s a double-edged sword. Reducing immigration in the current economy would almost certainly negatively impact economic growth and reduce the incomes of the existing residents. We might have to make up the shortfall in higher taxes and/or reduced services.
The graph above shows the four years to Dec24. It highlights our natural population increase is flat (dark blue line) and needs immigration to prop up our growth. This quarterly line graph shows the post-covid immigration catch-up and tailing off into this year.
There's a lot more to Australian house prices than one sole, and often political, point. See my previous post on 20th July that compared housing market features across 6 other countries. (We scored perfect 10s on every feature and no one else came close, and interestingly, population growth wasn't a tested variable). I’ll go into more detail in my next post specifically looking at why so many renters are having a hard time at the moment in our capital cities.
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