Population Growth and Migration: A Major Driver of Housing Demand

In the 12 months to 30 June 2024, net overseas migration added approximately 446,000 people to Australia’s population.

According to projections from the Australian Bureau of Statistics, the national population is expected to approach 30 million by the end of the decade and may reach close to 40 million by the middle of the century.

This level of growth is equivalent to adding the populations of Melbourne, Sydney and Brisbane combined. All of these people will require housing.

To meet this demand, it is estimated that for every three existing dwellings, an additional one will need to be built.

Population growth has long been a fundamental force supporting Australia’s property markets. However, the recent surge in migration has disrupted the balance between housing supply and demand, contributing significantly to rising property prices and the current shortage of rental accommodation, particularly in major capital cities such as Melbourne, Sydney, Brisbane and Perth.

Demographics and Household Formation: Evolving Housing Preferences

It is not only the number of people in Australia that influences the property market, but also the way in which they choose to live.

Understanding household formation trends is just as important as tracking population growth, as these patterns directly impact the types of properties in highest demand.

An increasing number of older Australians are living alone or as couples in larger family homes, which is contributing to reduced housing turnover.

At the same time, many millennials are moving out of apartments and starting families, which is creating growing demand for detached homes in more affordable outer suburbs.

There is also a noticeable rise in alternative living arrangements. These include multi-generational households, friends entering into co-ownership agreements, and young adults remaining in the family home longer in order to save for a property purchase.

Supply Constraints: Addressing Australia’s Structural Housing Shortage

Australia is currently facing a significant and persistent shortage in new housing supply.

The construction sector is under considerable pressure, with numerous building companies ceasing operations. At the same time, the cost of materials remains elevated, labour shortages persist, and access to finance for developers has become increasingly restricted.

According to Shane Oliver, Chief Economist at AMP, there is an estimated shortfall of approximately 300,000 dwellings across the country.

Affordability

Affordability refers to more than just property prices. It also includes employment rates, wage growth, interest rates, access to credit, GDP performance and inflation. Whether an individual can afford a property depends on a range of economic factors beyond the listing price alone.

In recent years, the more affordable segment of the property market has experienced significant growth. However, affordability ceilings have now been reached in many areas, which is expected to result in a two-speed property market going forward.

It is advisable for investors to avoid areas dominated by blue-collar workers or young families, and instead focus on suburbs where wage growth is outperforming state averages. These are typically the gentrifying middle-ring suburbs in our major capital cities, where residents are more likely to afford and be willing to pay a premium for housing.

Interest Rates

Lower interest rates reduce the cost of borrowing, make repayments more manageable, increase buyer confidence and, in turn, contribute to property price growth.

With interest rates expected to decline over the next 12 months, this is a positive outlook for the property market.

Access to Credit

Access to finance plays a more significant role in the property market than interest rates alone.

For instance, the macroprudential measures introduced by APRA in 2017, alongside the findings of the Royal Commission into the banking sector, resulted in tightened lending standards and brought an end to the housing boom of the preceding years.

Simply put, individuals cannot purchase property if they are unable to secure finance.

Looking ahead to 2025, as inflation continues to ease and interest rates decline, APRA is anticipated to gradually adjust lending criteria. This could include reducing the current 3 per cent serviceability buffer used by banks when assessing loan applications.

Government Policy and Taxation

Government policies, including those related to negative gearing, capital gains tax, land tax surcharges and planning regulations, can significantly influence investor behaviour.

At the same time, the government’s First Home Buyer initiatives are set to stimulate demand further from January 2026, when eligible buyers will be able to purchase a property with only a 5 per cent deposit.

Wages, Inflation and Cost of Living

Homebuyers do not rely solely on their gross income to service a mortgage. Their capacity to purchase is affected by everyday expenses such as groceries, fuel and utilities.

Although mortgage repayments are becoming more manageable and wages are increasing gradually, some households will still experience significant affordability challenges.

Consumer Confidence and Media Influence

While the economic fundamentals discussed above are important, market sentiment and public perception play an equally vital role.

Consumer confidence, which is largely shaped by media coverage, strongly influences buying behaviour. If people perceive the market to be declining, they are less likely to make major financial decisions such as purchasing property.

However, with inflation softening, interest rates easing and political conditions stabilising, consumer confidence is expected to improve in the coming months.

That said, sensational media headlines and pessimistic news coverage will remain ever-present. This is one area where informed individuals can take control. By relying on sound professional advice, buyers can capitalise on opportunities while others remain hesitant due to uncertainty. Acting decisively in such moments may allow buyers to secure excellent properties at prices that will seem favourable in hindsight.