Australia is expected to have a population of 29 million by the end of 2030, which is three million more than now, and keeping up with the growing demand for housing is going to be a major hurdle.
The country’s population went backwards during the early stages of Covid, with a net loss of 85,000 people in the 2021 financial year.
But with borders reopened, Treasury expects net overseas migration will return to pre-pandemic levels this year, and remain at the long-run average of 235,000 people over the medium term.
Unsurprisingly, the most populous states of New South Wales, Victoria and Queensland are predicted to have the highest number of residents by June 2026.
NSW and Victoria are tipped to growing by 300,000 and Queensland by 400,000 to have resident bases of 8.5 million, 7 million, and 5.6 million respectively.
“Ensuring the supply of new homes keeps up with Australia’s growing population is going to be a key challenge over the coming years,” PropTrack economist Anne Flaherty said.
Australia’s population is about to boom in a big way. Picture: Getty
Pete Wargent, co-founder of national buyer’s agency BuyersBuyers, said that while population growth had temporarily halted due to Covid, it’s been slowly creeping back up, adding pressure to the housing market.
“After a lengthy period of closed international borders, population growth hasn’t been much in the news of late,” Mr Wargent said.
“Now, for the first time in a decade, we have full employment and a genuine skills shortage, and after a hiatus, we should expect a strong rebound in net overseas migration.”
As population grows experts question where everyone will live. Picture: Getty
Renters will be the first to feel the squeeze
With Australia’s border now open and universities welcoming back students from overseas, the competition for inner-city rentals is at an all-time high, driving prices up accordingly.
PropTrack’s latest Rental Report for the September quarter shows rent prices have increased at the fastest quarterly rate on record, surging by 4.3% in the past three months to reach a national median of $480 per week.
As the population increases rapidly in coming years, Ms Flahertly said many renters will be struggle to stay housed.
“There is already an undersupply of rental accommodation. A slowdown in development activity as population growth resumes will exacerbate supply issues over the coming years.
“This will reveal itself in the rental market – new Australians are more likely to rent than buy in their first few years, so this is where the pressure of a larger population will be first felt.
“If demand to rent outpaces the supply of new rental properties, this will drive rents further upwards.”
Renters are tipped to feel the impacts of growing population the most. Picture: Getty
Supply needs to keep up with demand
With more people in need of a roof over their head, encouraging investors to enter the market is a key consideration for governments.
Currently, soaring interest rates are leaving investors feeling unmotivated. New lending to landlords in August was $8.9 billion, which is the lowest it’s been since June 2021.
While the recent federal budget identified the issue and mapped out ways to tackle it, Ms Flahertly said authorities aren’t acting fast enough.
“It was pleasing to see the Commonwealth acknowledge the importance of bringing together different tiers of government as well as private and institutional investors to tackle the supply issue as part of their Housing Accord. But their target of one million new homes is from 2024 onwards.”
Mr Wargent said to ensure more stock is being added to the market, borrowing needs to become more accessible to investors.
“At some point, it must become easier for landlords to borrow to supply the new rental stock that’s needed,” he said.
Investors need to be encouraged to enter the market to add more stock for renters. Picture: Getty
Since October 2021, the Australian Prudential Regulation Authority – the banking regulator – has required lenders to apply a 300 basis point serviceability buffer to home loan applications, to ensure borrowers would still be able to meet their repayments if interest rates rose by 3%.
Previously, the buffer was 250 basis points.
“Lending assessment buffers are too stringent at the moment at 300 basis points, so it’s no surprise that rental vacancy rates are at all-time lows and tightening,” Mr Wargent said.
Building more is key for affordability
As of 2020, Australia had an estimated 10,558,000 residential dwellings, according to the Australian Bureau of Statistics.
While the number of dwellings developed each year fluctuates with market trends, the overall number produced has increased over the past 20 years from 146,500 dwellings per year to more than 201,000.
But construction sector woes like supply chain disruptions, rising costs and a labour shortage, will put downward pressure on this figure.
Build-to-rent projects such as Home Apartments are creating more stock within the rental market, but aren’t being built fast enough to keep up with the increase in population.
Government has stepped in to create more social and affordable housing through the Housing Australia Future Fund, which will see 30,000 homes built in the first five years, but many say it’s a drop in the ocean compared to what’s actually needed.
It may sound like a substantial number of homes are being constructed, but Ms Flahertly said the pace of building had slowed due to several factors.
“While nearly one million new homes were constructed over the past five years, this is well out of the ordinary and was driven by extremely low borrowing costs and government supports such as HomeBuilder,” she explained.
“The situation has now changed. Not only has the cost to borrow increased, but construction costs and timelines have also grown significantly, while at the same time property prices for existing stock are declining.
“This is reducing the appeal of buying new and is likely to contribute to a slowdown in development activity.”
