Population Growth Could Boost Residential Construction

Source: Your Investment Property 

Australia’s stable population growth could breathe new life to flailing residential construction activity, according to an analysis by the Housing Industry Association.

Latest figures from the Australian Bureau of Statistics show a 1.6% population growth during the three months to March, a steady improvement from the previous quarters. The population growth has remained strong and stable for the past three years. Currently, Australia’s population sits at 25.4 million people.

“Stable population growth is a welcome development for the residential building industry as it will support the industry as it recalibrates to a new equilibrium level,” HIA economist Angela Lillicrap said.

This growth will likely help boost residential building activity, which has been subdued for the past two years.

“Population growth is important for Australia to sustain ongoing economic performance, productivity and workforce capacity. Given Australia’s ageing population, attracting skilled workers from overseas, has become increasingly important,” Lillicrap said.

Furthermore, population growth allows for house prices to grow as it influences housing demand.

“The relationships between housing markets and the broader demographic shifts are complex, although conventional wisdom does suggest house prices are primarily influenced by the factors headlined by interest rates, building activity and population growth,” industry watcher Jonathan Chancellor said in a recent think piece in Property Observer.

Looking at the supply of housing in Australia, the figures appear underwhelming. In fact, the new housing pipeline is currently at a five-year low. The rolling yearly total of housing supply is around 199,000, down from the peak in 2015 at 232,000.

Reserve Bank of Australia Governor Philip Lowe already raised concerns about the country’s apparent anaemic housing supply, saying it could play a massive role in the movement of house prices.

“New development is slowing down, and one of the issues we’re going to keep a very close eye on over the next little while is what the supply of housing is doing. If developers cannot get financed, the supply of housing will slow a lot, and we will be sowing the seeds for the next upswing,” he said.

Market watchers are hoping that a boost in population would trigger new housing commencements to meet Australian’s growing need for spaces.

HIA chief economist Tim Reardon said the government needs to be careful in tweaking migration policies that could slow the country’s population growth. He said this might adversely impact Australia’s potential economic growth.

“Australia is continuing to attract skilled migrants and students from overseas, despite strong competition from other markets. This must include a strong level of skilled migration as part of the intake. Stable growth in population is a welcome development given the risk that further declines would pose for the residential building industry at this particular point in the cycle,” he said.