Factors of Property Value Rises
Property values tend to rise over the long term for three main reasons:
1. Demographics
Demographics refer to the characteristics of a population, including growth, structure, migration trends, and income increases.
These elements play a crucial role in determining the types of properties that are in demand and their pricing. The demographic profile not only indicates the population size but also influences how and where people prefer to live. Therefore, the focus should be more on household formation rather than just population growth.
Immigration also plays a role; Australia’s policy of selecting skilled workers during pivotal family formation stages significantly impacts our housing market, as does the influx of hundreds of thousands of international students each year. Additionally, the COVID-19 pandemic has led to structural demographic shifts that will continue to influence housing markets.
The rise of remote work has notably altered demographics, as many individuals now seek extra space at home and place greater importance on their neighbourhoods. For many, the concept of ‘living locally’ has gained traction, emphasising the convenience of accessing most daily needs within a 20-minute walk, bike ride, or local transit trip.
2. Future Population Growth
Australia’s population has surpassed 27 million, reflecting a 2.3 percent increase from the previous year. Although the growth rate has slowed from the peak of 2.6 percent recorded in the September 2023 quarter, the population is still projected to exceed 30.7 million by 2030, even with declining net overseas migration.
The majority of this additional 3.5 million people are expected to reside in major cities, particularly Melbourne, Sydney, and Brisbane.
3. The Wealth of the Nation
If we anticipate continued population growth in Australia, aiming for nearly 40 million by mid-century, along with sustained national wealth, these factors will support long-term property values.
There is a positive correlation between household income (adjusted for inflation) and housing demand. However, it’s important to note that population growth will not be uniformly spread across Australia. While overall wealth may increase, the affluent are likely to become wealthier, and the primary drivers of house price growth may not be evenly distributed.
Thus, to maximise investment returns, it is essential to invest in properties located in major capital cities, where most population growth is expected, particularly in areas where income and wealth are projected to rise faster than the average.
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