If your analysis of your track to financial independence suggests buying an investment property might be an essential part of your long-term solution, what confidence can you have that property will continue to grow in value over the coming 10-30 years?
Well, the answer will almost definitely be determined by the degree of demand that we will see over that period. In a free market system demand usually indicates continually increasing prices – particularly where that demand is not fully met by supply. Simply put, if demand outstrips supply – prices will generally rise.
Will Australia see demand outstripping supply in the housing sector over the next 10 to 30 years?
The Australian Bureau of Statistics (ABS) provides a strong clue. They make regular projections of Australia’s future population. Like all projections, they are not exactly predictions and they are only as good as their assumptions. As recently as 2002, for example, the ABS medium variant projection saw Australia’s population hitting 25 million in 2032. As it turns out, higher than expected migration and fertility levels saw us hit that milestone in 2018 – a cool 14 years in advance.
Nevertheless, these projections remain a useful tool. At their best, they help to concentrate our thinking on the challenges that we will face as our population changes. A city of 10 million people faces a considerably different set of challenges to a city of 3 million, for example.
The latest set of ABS projections provides startling reading. The medium variant projection shows Australia’s population increasing to around 43 million by 2066. That’s an increase of 72% from our current population of 25 million!
By then, Melbourne and Sydney will both be around 10 million people in size (it was only 4.27 million in 2014). What’s more, Melbourne will overtake Sydney as Australia’s most populous city in 2037 and will be growing at a staggering 109,000 people per year. Sydney will be growing only slightly slower at 94,000 people per year and Brisbane not far behind that. The more affordable city of Brisbane will have higher levels of domestic migration from southern states.
The demand that this will create for housing, infrastructure and goods and services is staggering. And that’s not even the high case, which has Melbourne currently growing by 151,000 per year and Sydney growing by 125,000 per year. This suggests that we are going to continue to require substantial investment in housing stock and infrastructure to keep up with demand in the decades ahead.
Will investment in well located residential real estate be a sensible investment over the long-term? It’s hard to argue against the overwhelming answer being a resounding YES.