The Supply and Demand Conundrum (And Why Rising Migration Makes Now the Time to Invest)
You’ve probably heard that population has a lot to do with property prices. In this article, we explain the concepts of supply and demand and how they lead to changes in property prices.
Population flow has always had a big impact on property prices. It’s actually a logical thing when you think about it.
When more people move into an area, we see the creation of demand. After all, a lot of the people coming in don’t have homes, which means they need to go out and buy or rent one. That increase in demand allows sellers to pit buyers or renters against one another.
This competition generally leads to higher property and rent prices.
Of course, the inverse holds true when people start to leave an area. In these situations, we see an overabundance of supply and dwindling demand. Sellers have to lower their prices or risk having their properties on the market for months at a time.
Those are the basics of the supply and demand economics involving property.
But does the data actually back up the theory?
In this article, we’ll take a look at the effects that rising populations have on property prices. Also, we’ll explain why the current levels of migration are important to you as a potential investor.
Does a Rising Population Really Lead to Price Increases?
The simple answer is yes!
And we can look at what occurred between 2015 to 2017 to prove it. 2015 and beyond saw population increases in several major cities. The following chart from Macro Business demonstrates this:
Here, we can see the NSW’s population increased by between 90,000 and 100,000 per year between 2015 and 2017.
Victoria wasn’t far behind, recording annual increases of between 75,000 and 85,000. And we can also see that SA had similar, though smaller, increases.
These rises came from both internal and overseas migration into the states. And they created a great demand for property. In NSW alone, we saw almost 200,000 people move into the state in the span of two years.
That’s a lot of people who needed somewhere to live.
So, did property prices increase in line with these high levels of migration?
Just take a look at this chart:
This shows price movement in several of Australia’s major cities during the same period.
In Sydney, we see substantial increases that occured between 2015 and 2017. Though they tapered off towards the end, it’s also important to note that the city underwent an extended period of property development.
We also see a similar increase in Melbourne.
And on the national level, we also see price increases that almost mirror what happened in Sydney.
Of course, it’s likely that several factors played a role in these increases. But what we can’t deny is that this clearly matches the influxes of migration seen in the previous chart.
Simply put, when more people move into a city, property prices tend to go up.
And with the proof established, let’s take a look at what’s happening today.
What Does Migration Look Like Right Now?
CoreLogic’s Property Market Chart Park – November 2019 offers plenty of interesting insights. However, this is the one that stood out most for us:
These charts show that changes in population tend to go through cycles. To be precise, we’ll see increases followed by slight troughs. But we also see that Australia doesn’t tend to hit a net negative. Year-on-year, the population keeps rising, though at different rates.
However, the key part of each of these graphs is the 2019 section. What we see in most cases are fairly consistent increases between 2018 and 2019.
The Overseas Migration chart is especially illuminating. According to CoreLogic, we saw an increase of 1.6% in overseas migration between March 2018 and 2019.
We’re not going to claim that population rises as high as they’ve been in previous years. However, we’re seeing clear data that more people have moved to the country.
This means a rise in demand happened. However, that only benefits you as an investor if the supply data matches up.
What About Supply?
We can look to the same document to show us what supply levels look like in Australia. Of particular interest is the chart showing us the number of dwelling construction approvals.
From a mini-peak in 2017, we’ve seen a marked decline since then.
As you may recall, that 2017 peak occurred as a response to increasing demand in the market. Since then, fewer properties get approved and built month-on-month.
The end result is a dwindling stock of housing supply.
Furthermore, it doesn’t look like we’re going to see higher rates of approval any time soon. The decline has reached lows that we haven’t seen since 2012.
But that may be a good thing for you.
What Does This Mean for an Investor?
It’s simply a case of putting two and two together.
On one hand, we can see that Australia’s population continues to increase. While the exact rate varies over time, we don’t see any negative periods. Quarter-to-quarter, the population keeps rising.
On the other hand, we see a marked decline in the number of building approvals. This suggests that the current level of supply may be just about right for the current population levels.
But what about the future?
With approvals falling and the population rising, we’re approaching a tipping point. Eventually, the available supply will get exhausted and the demand won’t decline along with it.
In other words, we’ll see a transition to a seller’s market. With more buyers available, investors will be able to profit through higher rent and property prices.
All it takes is a little patience to allow supply and demand economics to do their work.
You Have to Move Fast
We’re approaching a tipping point when it comes to supply and demand. Eventually, the people in charge will realise that we need more properties. This will lead to an influx of housing stock to account for the rising population.
But that time hasn’t come yet.
If you invest today, you have the opportunity to take advantage of continuously increasing demand.
However, you have to act fast. If you wait too long, the pendulum will swing the other way and supply will eventually match and then exceed demand.
Now is the time to invest. And with the help of Freedom Property Investors, you’ll find the perfect property. Get in touch today to learn how we can help you.