Australia needs to get smarter about catering to its growing population

Mark Kolbe/Getty Images
  • Australia’s population grew by 395,600 in the 12 months to September 2017.
  • Sydney and Melbourne property prices rose by 72% and 53% respectively in the five years to mid-2017.
  • The number of sales of land plots in both cities has fallen heavily recently, coinciding with rapid growth in prices over the same period.
  • It exposes a planning failure by policy makers — infrastructure is always playing catch-up to population movements.

Australia’s population is growing quickly.

According to data released by the Australian Bureau of Statistics (ABS), Australia’s population grew by 395,600 in the 12 months to September last year, representing an increase of 1.63%.

Within that total net overseas migration jumped by 250,100, accounting for 63.2% of Australia’s total population growth over that period. The remainder of the growth, some 36.8%, came from natural increase at 145,500.

As seen in the chart below from the Commonwealth Bank, the increase in immigration, in particular, has seen population growth lift back towards the highs seen either side of the global financial crisis.

Source: Commonwealth Bank

Based on current projections, Australia’s population will pass 25 million in the not too distant future.

Beyond the headline increase, it’s clear that most of that population growth is occurring in just two states — Victoria and New South Wales, already the most populous in Australia.

In the year to September, Victoria’s population swelled by a mammoth 147,400, an increase of 2.4%. New South Wales, too, recorded a large gain of 123,100, up 1.6% from 12 months earlier.

Combined, those two states accounted for over two-thirds of Australia’s total population growth over that period.

It easy to understand why so many are flocking to these states, especially the capitals, Melbourne and Sydney.

The jobs market is strong, there’s plenty of attractions and both rank highly on global livability rankings.

However, being popular does has consequences.

With so any people flocking to Melbourne and Sydney, it’s placing extra demand on existing infrastructure such as transport, hospitals, schooling and, of course, housing.

Unsurprisingly, Melbourne and Sydney are the most expensive housing markets in the country with prices rising rapidly over the past few years.

According to data from CoreLogic, the median residential dwelling price in Sydney jumped by 72% in the five years to mid-2017, the top of the most recent price cycle.

Price growth in Melbourne wasn’t far behind, rising by 53% over the same period.

While lower interest rates were undoubtedly one factor helping to propel prices sky-high, it’s clear that population growth was another.

Demand for housing has obviously increased.

While new housing supply has responded in both cities, led primarily by attached dwellings such as units and townhouses, curiously, new residential land sales in both cities have not.

They’ve actually fallen over the past couple of years, coinciding with skyrocketing price growth for vacant lots.

Just look at the chart below from the latest HIA–CoreLogic Residential Land Report for the December quarter 2017.

Source: HIA

Even excluding a noticeable dip in the median value in the three months to December, Sydney prices have risen strongly over the past five years, jumping from $299,000 to $450,000.

And while prices have soared, the number of lot sales has continued to fall, undoubtedly contributing to higher costs for both land and existing housing.

The news is just as dire in Melbourne where the median lot price has risen from $210,000 five years ago to a record-high $330,000 today.

Source: HIA

Like Sydney, total lot sales have also fallen in Melbourne over the past few years.

At a time of strong population growth, it’s little wonder why home prices in both cities have soared over the same period.

The land value on which they sit, based off new sales prices, have ballooned in value.

Along with overcrowding and congestion residents in Sydney and Melbourne witness each and every day, it points to inadequate and insufficient planning to deal with significantly higher populations in both cities.

The attitude to date has been to wait until the population has already arrived before taking action, creating a scenario where policymakers are constantly playing catch-up, building things that will already hit capacity once they are completed, all at a time when population continues to increase.

The cycle will go on and on without an alternative way of planning for the future.

Some may disagree, but right now the status quo ain’t working.

FOR SOLUTIONS: See the Smart Infrastructure Report from BI / Research >>