What Drives Real Estate Prices - Population Growth
This week economist Ryan Brierty looks at the effect of population growth on dwelling prices.
This article will look at the changes in population growth in the City of Busselton, the City of Bunbury and the Shire of Augusta-Margaret River and draw some conclusions regarding dwelling prices.
Taking population data from the ABS Census data from 2001 to 2016 we can see the population of the City of Busselton increasing at an exponential rate. This means the rate of growth is increasing each 5 years the census is taken as seen in the table and graph below.
City of Busselton
The City of Busselton Local Planning Strategy (2016) forecasts a population of 50,750 by 2026. This is an annual growth rate of approximately 3.5%. Often population growth forecasts are underestimated and the rate of growth in the chart and graphs would indicate this.
When we look at the same data for the City of Bunbury we can see a sustained high growth rate from 2001 to 2011 then a reduction in the rate of growth from 2011 to 2016.
City of Bunbury
If we compare Perth Greater Area over the same time period to the City of Busselton we can see higher levels of population growth in the City of Busselton especially between 2011 and 2016.
However when we compare City of Bunbury growth rates we can see, like Perth, there was a decline from 2011 to 2016. This is reflected in City of Bunbury median house prices declining from $382,000 in 2014 to $347,000 in 2018. This decline in population growth rate makes Bunbury an opportunity to buy in a price reduced market.
As Bunbury’s population growth rate is similar to Perth’s and the forecast is for Perth’s population and median house price to rise, the same factors that affect Perth should create an increase in population growth and median house prices over the next 3 years in Bunbury. These factors include increased net migration, decreasing unemployment (job creation) and low interest rates. Future articles will explain why the RBA will keep the cash rate on hold for quite some time.
Perth’s Median house price decreased from $547,000 in 2014 to $515,000 in 2018 as population growth rate slowed.
When we look at Augusta-Margaret River’s population growth we can see an exponential growth rate significantly exceeding Perth and Bunbury’s growth rate from 2011 to 2016. When we look at median house prices for Margaret River and Augusta we can see during a statewide recession that population growth supported these prices.
If we use Dunsborough median house prices as an example for the City of Busselton we see relatively stable median house price over the same period except for an increase in 2018.
If we use West Busselton as another example we can see steady growth in the median house price over the same time. Very different to what Perth experienced. Both are further examples of population growth supporting median house prices.
Assuming the forecast for population growth is accurate then the City of Busselton will grow by an extra 14,134 in the next 10 years. If we make the assumption on average 3 people live in a dwelling then 4711 dwellings need to be constructed over the next 10 years, averaging nearly 40 dwellings a month. But as we said earlier there is a very real likelihood this growth figure is an underestimate.
If subdivision development does not keep up with the population growth this will place further upward pressure on dwelling prices. Furthermore the increased construction of dwellings and infrastructure needed for population growth will continue to create jobs providing more incentive for people to move to the area. Job opportunities and the South West lifestyle are major factors in the population growth. If population growth outperforms the forecast and subdivision development is slow we could expect significant increases in existing suburb’s median house prices.
*All data is sourced from the Australian Bureau of Statistics and REIWA websites.