Australia is growing at it’s fastest rate since the late 60′s, something more akin to a developing nation rather than a developed nation. The growth rate of 2.1% year on year is attributable to both an increased birth rate and a significant increase in immigration levels. In fact Australia’s growth rate on a global scale is only exceeded by SIngapore and Taiwan in the last 5 years. This is extraordinary considering that as a nation our population has been growing faster than countries like China, Brazil, Russia and even India.
Now, all of these people need somewhere to live and the problem is that we have not been building houses fast enough to keep up. Based on average people per household data, each new person requires 0.6 houses to be built but the current rate of construction in Australia is less than half of that.
So what does this all mean?
With the current constraints of a two speed economy, rising interest rates, labour shortages in the construction industry and constraints on new land supply I honestly can’t see this problem being resolved any time soon. Consequently, whilst some economists say that Australian housing is over valued in relative terms the ongoing and ever increasing shortages of available housing will mean increased competition for existing housing stock, particularly in areas that are deemed desirable to live.
The governments appetite to assist potential first home buyers purchase a home has diminished dramatically at both State and Federal levels making it increasingly difficult for young people to get into their own home. This will inevitably cause more pressure on an already overstretched rental market.
Public housing is under more pressure than ever before and only those at the highest levels of need can expect to be offered public housing, again causing more pressure on rental markets.
I still believe that property is still one of the better investment classes and will remain so into the future. Whilst property price growth may slow over the next period of time in all but the most desirable areas, I firmly believe that the old law of supply and demand will cause another period of house price growth well ahead of CPI. And along with this, rental yields should improve dramatically over the next period, making this investment class even more attractive.
Filed under: Australian Economy, General Stuff, construction, first home buyers, housing, population growth, property investment
