The media, industry groups and property analysts have been reporting for years about the predicted housing shortage in the investment property market as a result of the nationwide population boom and demand for accommodation far exceeding supply. This outcome is good news for investors with a property portfolio but many people have been uncertain as to whether the predictions about the property market in Australia are correct. Finally we are now starting to receive data to substantiate the claims.
And the data paints an interesting picture of the property market in Australia. The Australian Bureau of Statistics has recently released demographic data at a capital city level to June 2013. RP Data has further analysed these results by pairing them with dwelling approvals over the same period, which delivered some relevant findings, both on a national and state level.
According to the stats, over the twelve months to June 2013 the population of the combined capital cities increased by a total of 313,383 people. During the same timeframe, there were 114,825 capital city dwelling approvals. Without factoring in any other considerations, this means there was one dwelling approved for every 2.73 residents added to the capital cities in the investment property market.
However, on a state level the situation in the investment property market is much more extreme, particularly in Western Australia. As shown in the graph below, the gap between population growth and dwelling approvals in WA is much wider and new supply remains very insufficient. Only one new home was approved for every 3.45 new residents in Perth which is one of the biggest gaps of any of the major cities.
The 2011 Census reported that on average Perth has 2.6 people per household and the data shows there was only one dwelling approved for every 3.45 new residents. The maths does not add up, does it?
It is also important to take into consideration that the data shows the population growth in WA compared to new dwellings approvals. It doesn’t take into consideration the number of dwellings actually built in the investment property market. A number of factors can affect the final ratio including:
- A number of the new dwelling approvals are simply to replace existing homes that have been demolished. It is estimated that between 2001 and 2006 around 15% of new approvals replaced houses that had been demolished. This figure may now be considerably higher but 15% should be used as a conservative estimate
- A proportion of new dwelling approvals are for holiday homes or second homes
- Not all approvals will ultimately go on to commencements and ultimately, completions
- A high proportion of new dwelling approvals in the investment property market are for units (or apartments) and as units typically have fewer bedrooms and cater for a smaller average household, a greater number of units must be constructed in order to meet the demands of population growth.
So as long as you are not struggling to find a place to live, this is actually good news, particularly if you are an investor with a property portfolio. The basic principles of supply and demand indicate that if population is exceeding housing supply and you are holding onto an investment property, it is highly likely you will be able to attract a tenant for your investment and possibly achieve stronger returns if there is sustained demand for your property in the investment property market.
Also, when demand exceeds supply in the investment property market it traditionally drives housing prices upwards which is positive if it achieves an increase in value for your investment property or property portfolio. The only negative comes if you delay your decision to invest and property prices continue to increase in the investment property market while you are weighing up your options.
This doesn’t mean you should rush the decision and make a poor investment choice. But if you have identified an investment property in a location with strong potential for future growth, the increasing demand for housing (particularly in WA) provides a pretty good argument in favour of adding it to your property portfolio. Furthermore, there does not seem to be any immediate initiatives in place to increase supply in the investment property market so it is not likely this trend will reverse overnight.
Population growth and housing supply is definitely a hot topic in the investment property market that we will be keeping an eye on in the months ahead. If you would like to discuss the topic in further detail and its potential implications on your property portfolio, one of our Property Investment Specialists will be more than happy to speak with you. Contact Investor Assist on (08) 9200 7200 or email email@example.com at a time that’s convenient for you.
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