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Demographic Forecasts are Good News for Investors

The question of how demographics will affect the future of our property market has long been debated

The question of how demographics will affect the future of our property market has long been debated.

 

It’s the Baby Boomers (born between 1941 and 1964) in particular that are causing most of this concern, with the belief that as they all move into retirement they will down size en masse, creating a flood of homes on the market and subsequently force house prices down.

Contrary to this belief, many economists and demographers believe quite the opposite will occur thanks to Australia’s rising population due to increased birth rates and immigration. This is expected to drive a rise in demand for new housing regardless of what the Baby Boomers do with their homes.

To understand how population and demographic changes affect the price of houses, one needs to begin by calculating how many new Australians there will be as a result of births, deaths and migration. Let’s use the next 15 years as a rough timeframe.

Then we need to work out how many ‘new households’ there are, keeping in mind that an average of two to three people live in each property. Once this has been calculated, we can estimate the net number of new homes to be built, known as underlying ‘housing demand’.

We can then compare this demand to the supply of homes that will become available over the same timeframe to determine if it can be realistically met.

Being able to accurately estimate Australia’s future population is paramount to calculating housing supply and demand and past forecasts have been grossly underestimated.

In 2003 the Australian Bureau of Statistics estimated there would be 26.4 million people living in Australia by the end of 2050 and in 2008, revised this figure to 34.2 million people (there are currently 22.7 million people in Australia).

So how many new homes will we have over the next 15 years and what does it mean for the number of new dwellings that will have to be built to accommodate our rising population?

According to economists BIS Shrapnel, Australia’s population is set to rise 25 percent to around 28.3 million people over the next 15 years. That means there will be 5.7 million new Australians, 45 per cent of which will arrive naturally (by birth), while the remaining 55 per cent will be immigrants.

BIS Shrapnel estimates this translates to about 2.3 million new households with an average of 2.5 persons per household by 2026.

It is also believed that our country actually has three demographic groups emerging over the next 15 years: the current baby boom, the children of the Boomers and the Baby Boomers themselves.

In addition, there will be 2.6 million new people entering the workforce over the next 15 years. These new workers will be aged between 20 and 64 and will need to buy or rent homes. In contrast, the number of retirees will only increase by two million while the non-retiree population of Australia will top 3.7 million people – all of whom will require homes.

Regardless of whether they rent or buy, we will have to build dwellings to house these people. BIS Shrapnel concludes around three million new homes will have to be added to current housing stock over the next 15 years.

Whether retirees choose to sell up and downsize or not, our nation will still be short a few million homes, leaving the overall demand-supply equation unchanged. Despite the pressure this may put on our construction industry, it is great news for property investors!

(Source article: Why demographics matter, Australian Property Investor)

 

DISCLAIMER:This information is of a general nature only and does not constitute professional advice. We strongly recommend that you seek your own professional advice in relation to your particular circumstances.