5 Million More Australians: What It Means for Housing

Imagine the entire country of New Zealand moving to Australia by 2036. That's close to the projected population increase Australia is forecast to have over the next 10 years. So what does this actually mean for Australia's property prices? Is it going to be even harder to buy property? And where are the majority of these people forecast to live?

I'm Junge Ma, Senior Research Analyst at InvestorKit. Let's get into it. Based on a forecast by the ABS, in 2022, Australia's population will be increasing to more than 32 million people by the year of 2036. If the current population growth rate continues. But at the same time, we're not building enough housing to catch up with this level of population growth.

That is why Australia is facing this chronic supply crunch. According to this report by the National Housing Supply and Affordability Council, by the year of 2029, there will be a gap of 262,000 homes between our new housing demand and the new housing supply. But there is some nuance in it. This housing supply is actually not going to happen to the same extent to everywhere in Australia. In this episode, we'll try to find out which regions, which areas are facing the most severe housing supply issue.

So at first glance, we may think that cities with the highest rate of overseas migration or net overseas migration would be where the supply crunch would be the most severe. Is that the case? We will have a look. The largest overseas migration destinations in Australia are the major cities, including Greater Sydney, receiving 28% of Australia's annual net overseas migration. Second place, Greater Melbourne, similar to Sydney, 28% of annual net overseas migration.

Third place, Brisbane, Gold Coast and Sunshine Coast. So essentially Southeast Queensland, receiving 14% of annual net overseas migration. Then Perth, 12%. And then Greater Adelaide, 4. 7% or 5%.

But this is already significantly smaller compared to the top four cities. So will they become the most supply constrained cities? Not necessarily. Because immigration doesn't mean population growth. For many cities, while overseas migrants keep coming in, at the same time, they're also keeping losing its population to other cities.

One good example is Sydney. The latest data shows that Sydney's net overseas migration was 120,643 people in the financial year of 23 to 24. But in the same year, it also lost 42,778 people to other cities. So overall, Sydney's population growth at that time was 2%, just in line with Australia's average of 2. 05%.

Note that this population growth rate is by the end of a financial year of 2023 to 2024. I'm using this number to be comparable with the greater cities population at that time. But actually, if you check ABS's website for the national population growth or state level population growth, there's already updated numbers. So in the top net overseas migration destinations, other cities' population growth are Melbourne 2. 7% at the time, Southeast Queensland 2.

6%, Greater Perth 3. 1%, that's the highest at the time, and Greater Adelaide 1. 5%, even lower than Australia's national average. So as we can see, high net overseas migration is not always equal to high population growth. But then, is population itself deciding everything?

The answer is again, no. We have to compare population growth or new housing demand with new housing supply level. And for that, we need to look at both population growth and new housing construction activity, or if we want to quantify it, we can look at building approval rates. I've done an exercise at the SA3 level and compared the latest population growth data with every SA3's last four-year average building approval level. In the top 20 cities or regions where new housing supply is the lowest compared to population growth, Greater Perth has five of them.

So one quarter of these regions are in Greater Perth. Regional Queensland has four, Greater Brisbane also has four, Greater Sydney has two, Regional Northern Territory has two, Darwin has one, Melbourne has one, and Regional Western Australia has one. In all these regional areas, the major reason for this housing supply crunch is because in the previous years, especially before the pandemic, mining wasn't active, so these towns were not really actively building houses. But since the pandemic, mining industry was reactivated, more people have moved into these towns, but at the same time, housing supply is not catching up because of labor supply constraints, high building material costs, and many other reasons. So that's the major reason why these regional mining towns are facing this really severe housing supply.

And then Greater Perth and Greater Brisbane also have the highest number of regions where supply is not catching up with new demand. As in these cities, both overseas migration and internal migration rates are high. And at the same time, for similar reasons, high labor costs, high material costs, housing supply is not increasing as fast as population is growing. While in Sydney and Melbourne, while their net overseas migration can be high, the actual housing supply is not really severe because either that supply is abundant relative to population growth, and we see that in many Melbourne areas, or outgoing internal migration or internal migration loss is offsetting the impact of high net overseas migration, for example, in Sydney. So for this episode, the two major takeaways would be one, housing pressure, housing supply crunch is not a national thing.

While we are facing a large amount of population growth, supply crunch is not equally happening everywhere. It's all localized based on the actual housing demand increase and housing supply increase. And two, we can never assess anything based on one single isolated indicator. We can't assess housing supply crunch purely based on net overseas migration number or purely based on population growth number. We have to look at at least two metrics, population growth versus housing supply numbers.

If you have any questions, leave your comments below. Otherwise, I'm Junge Ma, the Senior Research Analyst at InvestorKit. I'll see you next time.