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.
