Population growth vs. property market growth

25 March, 2024: Last week, Australia’s population growth numbers were eye popping. The ABS reported a whopping 2.5% growth in the year to September 2023, the highest rate since 1952!

The main driver was overseas arrivals, clocking 206k for the Sep quarter, up 13.7% from last year. Before COVID, overseas arrivals were tracking at 165k per quarter, and then plummeted to ~40k per quarter for almost two years. These recent increases in migration quotas are needed to make up this shortfall.

Yet overseas migration doesn’t appear to register its intended effect: to increase the unemployment rate from current historic lows.

Again last week, the ABS announced the unemployment rate dropped, surprisingly, from 4.1% in January to 3.7% in February. This could just be a blip, but it’s a pretty large swing and could be highlighting the need for continued inflated migration levels in the medium term.

Given this recent news, I wanted to demonstrate the relationship between long term population growth and property market growth.

Source: data.oecd.org, 2002 to 2022.

Over the last twenty years, the correlation is very strong among OECD countries. Interestingly, Australia’s property market has grown slower than it’s ‘population growth peers’ for the most part.

Yet this relationship wasn’t always so linear. If you go back twenty years prior, from 1982 to 2002, there was almost no correlation between these two economic metrics.

Source: data.oecd.org, 1982 to 2002.

The reason was likely due varying levels of regulation and financial market sophistication in these countries converging into a standardised framework. Once they were more or less similar, as OECD nations nowadays are, then what remains driving relative long term property market growth is effectively differences in population and economic growth.

Given Australia’s population growth averaged out at 1.4% between 2002 and 2022, you can now see why the current level of 2.5% is so significant. Should this inflated level continue in the medium term, it certainly adds a material tailwind to the growth of our property market.

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