What a population slow down means for property

While debate rages in regard to our growing population and the issues that could arise from a continuing influx of new residents to our shores, many seem to be overlooking the fact that our population growth is slowing markedly.

Let’s look at the impact of our slowing population growth on the property markets…

If you’ve been following the trends you will know that the number of overseas arrivals to Australia has decreased substantially, with the latest figures from the Australian Bureau of Statistics showing that our population increased by 345,500 to the year ending September 2010.  This represents a growth rate of 1.6%; a sharp decline from the peak growth rate recorded for the year ending December 2008 of 2.2%.

Migration numbers falling

The primary reason for this drop is the marked slow down in net overseas migration.

Total new immigrant numbers fell for the year to September 2010 by a massive 41.2% from the previous 12 months, when overseas migration accounted for 65% of our overall population growth, with the remaining 35% due to natural increase.

Last year, of the 150,000 new households created in Australia, 90,000 were new migrant families settling in our country.

While this indicates that our growth is still being driven more by migration than natural population growth, it also reveals that we are seeing less new arrivals due to changing government policies.

What issues will arise from our immigration slow down?

Firstly, there’s the economic impact of an increasing aging population that will have to be sustained by a shrinking, younger workforce.

As Baby Boomers retire and leave the workforce we need to encourage skilled migrants to come to Australia in order to keep our economy stable by maintaining government coffers (by paying tax) and ensuring we have a population that can afford to spend money on local goods and services.

Look at the facts… today 43% of our workforce is made up of Baby Boomers (people born between 1945 and 1964). Over the next 15 years, Australia’s 5.3 million Boomers are going to reach retirement age and as they leave the workforce they will stop paying tax, many will go on the pension and most use our public health care system.

You see, most Baby Boomers don’t have enough savings or superannuation to see them through retirement. This means some will have to keep working longer than they had anticipated but eventually, when they do retire, they place a massive burden on our financial system.

The Government will have to find the money for their pensions and health costs while at the same time making up for their lost taxation revenue by either:

• Increasing taxes for those in the workforce, which would be political suicide.

Or…

• Increasing the size of the tax paying workforce by importing younger workers.

Despite the rhetoric from both sides of government, we have to significantly increase our population.  If you want to see the alternative just have a look at what has happened to countries with an ageing population – like Japan, Germany and to some extent America.

Of course, the strong population growth we experienced would bring with it social and infrastructure issues, so I’m not advocating growth at any cost. We must find a way of encouraging sustainable growth, not only for our economy, but also for the health of our property markets.

If immigration keeps slowing this will negatively impact our property markets, which have in part been buoyed by our strong population growth and the need to accommodate it.

One positive by-product of our rapid population growth for property investors has been on rental growth and yields to investors. The immediate demand for rental accommodation created by new migrants has contributed to record low vacancy rates across our capital cities over the past few years and in many cases, the opportunity for investors to increase rents and enjoy growing returns.

Many of our new migrants buy a home after living in Australia for a year or two and there is a huge flow on effect to the general economy when they do so. They often buy appliances and furniture and a range of goods and services for their new home that buoys the local economy.

The bottom line is, we need to encourage new residents to our shores and continue to welcome overseas migration as a way to not only sustain our working population and economy in the long-term, but to ensure the security of our real estate markets as well.

A growing population means a continuation of our prosperity and the retention of our reputation on the world stage as “the lucky country”… for all Australians – not just for property investors!

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.