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Lower Population Growth and Inflation

Lower Population Growth and Inflation

Population slowdown would unleash high inflation. UNDERPINNED by strong overseas migration, the population grew at its fastest rate for 20 years last year. At the same time, the number of dwelling construction, at just over 145,000, was about 20,000 lower than five year earlier.

This combination ensured the undersupply of dwellings reached about 200,000 — the largest on record, and still growing. As well, rental vacancies hovered around historically low levels. These underlying factors provide the long-term support for housing demand in Australia.

In the short term, however, this demand is tempered by rising interest rates and house prices. Earlier this year, the mining boom meant, due to capacity constraints, other parts of the economy would need to grow at a slower rate.

This is because interest rates would need to rise to ensure the economy did not breach its productive potential, and housing is probably the most interest-rate-sensitive part of the economy…

….Less housing supply will keep the pressure on property prices. Not only that, the mining boom will ensure the demand for employees will strengthen, especially in the resource states, where labour shortages already exist.

So, unless there is a sizeable migration from the non-resource states, avoiding severe bottlenecks will necessitate continuing rapid population growth. The alternative is simple: interest rates will need to rise, making housing more expensive. In the short term at least, irrespective of the rhetoric, rapid population growth may simply be unavoidable.

Rob Ellis is the principal of independent consultancy Property Insights

Spruiking? Inflation is possible, but not due to property, why? Population growth driven by international students and migrants has probably started subsiding after spikes in applications and record historical population growth in recent years. Melbourne property market should be affected by significant drop in students especially India (50% possible) i.e. both ongoing enrolments and new commencements into 2011…. means less renters and potential buyers, beware investors….

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