The Truth About Population Growth

Population growth is often cited as a major driver of property price growth. While it is an important factor, you need to have a full understanding of its effects before you can use it as a guide to decision making.

Population growth is measured at a number of different levels. The first is the city level (i.e. Greater Brisbane, The Gold Coast etc.). Below this we have the local government areas within the city (for Brisbane this includes Brisbane, Logan, Ipswich, Redland and Moreton Bay, while the Gold Coast and Sunshine Coast are considered separate entities and have a single council). Finally we have the suburb level. The results at city level mean very different things to the results at the lower levels.

For example, the Gold Coast has a projected population growth rate per annum of 2.1% until 2041. If this plays out, this is very positive for the Gold Coast’s property market, as it will mean, strong demand and occupancy for existing property, and the ongoing need for new supply to accommodate the growth. Because this growth is anticipated and new supply has been planned, it’s very unlikely that there simply won’t be enough property on the Gold Coast to house the new population. But the growth will place greater demand on the most attractive areas and property types on the Gold Coast, and ensure new supply is occupied. If population growth is stronger than anticipated, then it will create even more demand pressure on property, and force the construction of new supply to accelerate. If it is weaker than expected, demand will reduce. New supply will likely reduce as developers see less profit in development, and some of the new supply and established properties will lie vacant until growth eventually fills them.

So at the city level, high projected population growth is a positive, particularly for the most popular areas and property types.

CITY-WIDE POPULATION GROWTH

Strong, consistent population growth across the city will lead to demand increasing across the city and force the construction of new supply to accommodate the growth. While population growth will lead to occupancy across the entire city, net demand and price growth will be strongest in established areas with the greatest amenity and with limited new supply.

It’s a different story at the lower level. Strong projected population growth in a locality or suburb within a city means one thing - lots of new supply. The only way a suburb can accomodate major population growth is by the construction of new properties within it. Think about it - people don’t arrive in a new suburb and camp out until a property becomes available, the growth can only occur if new properties are added to the suburb. On the flip side, if no new properties are planned to be built in a suburb over the next 25 years, then unless more people move into the same properties, population growth will be zero.

Therefore, the areas within a city that have high projected population growth are the areas that the government is planning for supply to increase the fastest. As a property investor looking at where to invest, these areas will have the greatest competition against you in terms of new properties. All things being equal, these are the worst locations to invest.

SUBURB POPULATION GROWTH

It’s important to understand this when you’re being presented information about a suburb or local government area. Locations that are touted as ‘high-growth’ areas are usually done so on the basis of future population growth - but in most cases this means the opposite in terms of future capital growth.

So beware the spruik. It’s no surprise that the areas that have the highest future population growth are those most loudly marketed by property investment companies selling new properties. It’s because this is where all of the stock they have to sell is located!

Population growth won’t occur in a suburb until new supply is constructed. In many suburbs with large amounts of new construction, population growth will not be sufficient to fill all properties, meaning net demand is actually negative.