Does population impact property prices?

There is a strong debate whether population impacts property prices. Some indicate that there is a correlation between property prices and population growth, since people need houses to live in and as population grows demand for housing increases which in turn drives property prices up.

Another school of thought highlights the fact that property values are independent from population number, as long as population is not in a decline. The argument here is that as population grows, the market responds by building more properties which absorb the demand for housing creating an equilibrium. This means the effect of population on property prices is not as pronounced.

Resident population eastern capitals

As part of our analysis let us look at the population growth charts for New South Wales, Victoria and Queensland. In this instance we can see that all three states recorded a sustained positive population growth. Victoria is leading by adding almost over 2% to its population every quarter, while the lowest is The separation between Queensland and other states is stark. This seems to show that eventually Brisbane could see a significant run up in prices. There are handbrakes on property at this stage, the royal commission and APRA dampened the animal spirits in investor market. However, we believe that once the dust settles, Brisbane will be a very interesting city to watch.New South Wales which adds 1.5% in the latest quarter. Important to remember that NSW is adding of a larger base than VIC. Queensland is the second with 1.70% added every quarter to its population. So why do house prices in Queensland perform differently to Melbourne and Sydney? For the purpose of this analysis we would assume that majority of the population has been added in capital cities. Which is more or less true for Sydney and Melbourne, but not as true for Brisbane. This is due to Queensland having a large, growing and healthy rural population.

Let us unpack these numbers a bit.

Population proportion of each of eastern capitals

As you can see the proportion of people choosing to leave in Queensland is increasing among the three states compare. Queensland population represented 18.3% of total Eastern population in 1966, while it grew to 26% in 2016. That is a significant shift. So why Melbourne house prices are not the same as Sydney house prices. And why Brisbane house prices are half that of Sydney? According to  CoreLogic November hedonic home value index the prices are as follows (as at 30 November 2018)

Sydney              $821,438

Melbourne       $656,163

Brisbane          $493,041

So why the values of properties among the capital cities so different? To further analyse this we attempt to look at supply of properties. Basic economics tells us that prices of properties are a function of supply (building approvals) and demand (population). So building approvals should tell us a story about the supply side of equitation.

Building approvals by state

This is a pretty interesting story. As we can see from building approvals above QLD has been tracking below the long term average in building approvals. Long term average is 84% of Sydney approvals. However with recent oversupply and surge of building approvals in New South Wales, the variation between two states is increasing. Latterly QLD approvals were at 60% of NSW approvals.

Now let us zoom in a bit to see the difference between building approvals in QLD, VIC and NSW from 2000. This way we will be able to see the drastic change between the states, as VIC and NSW skyrocketed in their approvals QLD didn’t really jump up significantly. This gives us comfort on the supply side of properties in QLD, mainly due to the fact that a large chunk of these approvals in QLD are units in Brisbane CBD. In long run, house prices in QLD and Brisbane in particular could outperform the other two states.

Building approvals 2000-2018

The separation between Queensland and other states is stark. This seems to show that eventually Brisbane could see a significant run up in prices. There are handbrakes on property at this stage, the royal commission and APRA dampened the animal spirits in investor market. However, we believe that once the dust settles, Brisbane will be a very interesting city to watch.

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