Since the end of World War II, Australia has been heavily reliant on immigration as a major driver of economic growth. New arrivals from overseas enter the workforce, pay taxes and create demand for all kinds of goods and services.
As these migrants settle into life in their new home country, their families grow with each new child born and so the trend continues – always upwards and ever-expanding the economy. Australia’s prosperity as a nation over the past half century is very much a result of this combination of net migration and natural population increase.
But 2020 has changed all that. For the first time ever, our borders are closed. Migration has come to a sudden and dramatic halt. (Data from the Australian Bureau of Statistics shows our closed borders led to a 97% drop in permanent and long-term overseas arrivals in April 2020, compared to the previous year).
Population reduction impacts economy
Demographers, those who study populations, now forecast that, in a likely scenario, Australia will have 1.4 million less people by 2040 than would be the case if Covid-19 had not occurred. That is, a 4.0% reduction in expected population.
Such a dramatic reversal of the population trend has ramifications across almost every aspect of our economy and our society – on jobs and job opportunities; on business investment and growth; on government revenues from taxation; and on housing demand and supply.
Immigration and the young
The other thing to remember about both immigration and fertility (natural birth rate) is that it is predominantly a young person phenomenon. New migrants arrive as young people, marry in their new country and have babies. New babies grow up, go to school and enter the workforce. The elderly do not have babies and seldom migrate or re-enter the workforce. So, a significant reduction in a youthful population will have profound consequences.
One particularly critical impact of reduced population growth is, of course, on housing and therefore on house prices. Most macroeconomic analysis of housing demand and house prices points to a downward pressure as less people are arriving and looking for a new home.
Choices people make
However, what such macro, or broad-based analysis overlooks is that the impact of population change does not happen in isolation. People make choices based on many factors – house prices being just one of these factors. Of course, housing affordability has a major influence on where people buy or rent a house, but it only one factor.
If there is one notable new factor to come out of the pandemic, it is that people are re-assessing their priorities. Family size and timing, work and the daily commute are being re-considered in the context of lifestyle and people’s tolerance, or lack of, in a post-COVID world.
Working from home
For many people, working remotely from home has proven to be not just viable, but actually desirable. Less time and money spent commuting to work every day, more time to spend with family and recreational activities, less pressure and stress. And for many people, a newly discovered realisation that, yes, they can live in a place which offers the benefits that this new way of thinking and working provides.
In some cases, this realisation comes in what has been called a ‘tree change’. That is, living and working in a location remote from congested traffic, noise, hustle and hassle and its accompanying high costs and high stress.
Stress and lifestyle choices
Such tree change locations are often large and small regional centres away from the capital cities. But they also include the newer outer urban, lifestyle-centric housing estates that are shaping up as a uniquely 21st century style of living for many people. It’s residential living very different from the traditional inner urban and middle suburban housing that has defined Australia for the past 100 years. And its these new locations that are not just holding their house price values, they are the ones increasing in value, sometimes many percentage points higher than traditional suburban locations.
With more and more people placing increasing emphasis on ‘working to live’ as distinct from ‘living to work’, a preference for housing (both owned and rental) in these increasingly desirable ‘tree change’ districts will drive demand for the next few decades. The old expectation that says, ‘I will live where the bank tells me I can afford to live’ no longer carries the same weight. Choice, and the freedom to make choices, is becoming the new driver.
The new trendsetters
We may have fewer new migrant arrivals for the next few years, but for those who are here, and who are the increasingly valuable core of our workforce and our economy, their opinion and their choices are what will create housing demand into the future. This younger demographic are the trendsetters and they are choosing lifestyle locations that their parents could only dream about.
If you would like to know more about how understanding lifestyle choices can affect property investment outcomes, contact Resimax Group at investors@resimaxgroup.com.au
