Slow down!

Many in the development community cite population growth as a necessary ingredient for market health. To some extent, that’s true – except when it isn’t. Recent ABS data for population growth in Australia might have some cheering, while others will be worried.

In South East Queensland for example, Logan grew in one year by just a smidge under 4%. Ipswich grew by 3.5% in the same year. Brisbane, the Gold Coast, Moreton Bay and Sunshine Coast all grew by around 2.5%. There are similar numbers being reported in high growth corridors of all our major cities.  

 

Developers may celebrate these numbers. Many real estate salespeople actively promote them as reasons to have confidence in further real estate price rises. But in a world which is allegedly worried about housing affordability, is that a good thing?

More than that, market boosters are typically not the ones left with responsibility for the social and other infrastructure that is needed to support that growth. Growing hospital wait lists and bed shortages, growing classroom and school sizes, crowded roads, repairs to roads, footpaths, parks, strained public transport – none of these are responsibilities of the boosters, but instead fall to State and Local Governments which are under increasing pressure to keep up with the growth, and which are generally not coping.

For context, the World Bank once declared that countries with population growth rates above 2% were risking third world conditions. We have places in Australia doing double that. Saying that growth is good irrespective of the rate of growth is a bit like saying that driving through a school zone doing 100kph during drop off or pick up hours isn’t a problem. There’s a difference between being responsible, where risks to the community are identified and mitigated, and reckless. We are verging on reckless.

Nearly all of Australia’s population growth is a direct result of Federal immigration policy. We’re having fewer and fewer children – our birth rate is down to 1.5, well below replacement rate of 2.0. Some argue this is because housing has become too expensive that young families are electing to have fewer or no children because affording them and a house in their younger years is no longer an option. So the Federal government can pump up the growth stats through immigration and accepts no responsibility for the impacts at ground zero – which is increasingly in our major capital cities.

“But it’s a good problem to have” some will say. I am starting to question that. The evidence all around us should be telling us we have serious issues. Our increasingly unresponsive, cumbersome and costly regulatory mechanisms are simply incapable of keeping up. The planning process seems to be slowing down at the same time as demand is accelerating. Costs are piling up at the very time we have an affordability problem – not just for houses, but for pretty much anything that requires building something – anything at all .

How many years of zero growth might we need just to catch up? It’s an interesting but moot point. Hardly likely to happen. More helpful is to think about how countries with falling populations are faring. Surely if growth is essential, these countries must be in a dire position with falling prices and collapsing standards of living.

Japan is one such country. Their population is shrinking, by around 0.5% per annum. They reached ‘peak Japan’ of 128 million back in 2008 – and have been shrinking since. But here’s a chart of the Japanese real estate index since 2015. 

No collapse here. In fact, prices rose by around 3.5% in the last year. Sure, they are down on the crazy peak of the early 1990s, but that was a speculative bubble that puts Bitcoin to shame. It burst as fast as it ballooned.

Japan’s standard of living, educational institutions, national GDP, employment and other indicators are all reasonably healthy. This despite a shrinking population since 2008.

Japan isn’t alone. Here’s a map of countries with declining populations. Yes, that’s China, Russia, and much of Europe including economic powerhouse Germany, in contraction mode.

 

According to Reuters, who predict a 3.5% growth in house prices for Germany this year, “Fuelled by years of low interest rates and strong demand, the property market in Europe's largest economy boomed until a post-pandemic surge in borrowing and construction costs quickly turned it into one of the hardest-hit markets in a global real estate slump.” No mention of shrinking population as the cause of the slump, which is now being shrugged off despite a falling population.

I’m not suggesting we throw ourselves into reverse gear. But it does seem pretty clear that rates of population growth of over 2% or 2.5% are very high by world standards when it comes to advanced economies, and are more typical of third world nations. They are not only detrimental to our ability to maintain our standards of living, but actively eroding them. Plus, if other nations can actually survive with stable or even shrinking populations, without immediate signs of real estate market collapse or dire economic circumstance, maybe it’s time the growth narrative in Australia was given some serious thought.