POST COVID-19 - The Impacts of Population
Population and property are an inseparable duo, both totally intertwined, so much so that what impacts one will always impact the other.
Now in the face of COVID-19 this interdependence will be tested and most certainly have long term reverberations for residential property markets.
Where residential markets are concerned I’ll concentrate on the impact from a possible of a change to immigration policies, how cities and regions could evolve, along with the role of transport and staying local; how already established urban areas might respond to shifting population.
And one final point to think about, will see a baby boom or other changes to the natural birthrate?
Like so many issues related to COVID-19 we’re still to know if recovery will see things back to the way things were. Or are we going to see a complete upheaval with a composite mix of old and new social, economic and political standards the ‘new-normal.’
However, no matter what a post Covid world looks like, populations and demographics are bound to be caught up in a whirlpool of change.
Population outcomes will have an almost immediate impact on the demand for housing, and even if the impact is some less if the supply of new homes also falls the drop in demand because of less migrants will extend way beyond the housing market.
Perhaps a recent sober note suggested that house prices could fall 12% driven by high unemployment and stalled levels of migration into 2021 with NSW and VIC possibly the most impacted. Although the continued impact of very low rates might reduce the impact.
Migration supercharges our population growth, and that’s a key driver of economic activity. Future Government policy will be key and as we’ve seen lots of policy changes of late, we should not take much for granted where migration is concerned.
Population Growth Drives Construction
The national peak construction group, Australian Construction Industry Forum has proposed a $66billion action plan to stimulate the construction sector. Residential construction was already midway through a deep correction pre-COVID.
Without direct support a further two year decline in residential construction is expected. However, like infrastructure support for the sector is seen as a bridge to recovery with many suggesting that Governments should invest directly in housing.
It’s impossible to avoid the fact that a sustained population slowdown will have a direct impact on housing demand. Our current rate of population growth is the lowest since the end of WW1. The rate of natural births has also fallen below the rates of departures, although it’s early days yet and caution in extending the most recent numbers might be wise. One reason being that post-COVID Australia will still look a pretty safe and well-off place to migrate to, and more external gloom might well work to our advantage.
Low population hits all areas of the economy across the demand for housing, all areas of consumption and employment, often impacting skilled labour markets. While there’s still a need for caution, Australia has always enjoyed a strong economy that’s heavily influenced by high migration.
The current decline has been estimated at possibly 85% 2020/2021. Most migration is also linked to employment growth and the impact of COVID-19 may see growth even fall to close to zero dependant on how we recover from the impacts of COVID-19.
Lower population growth also influences the age of the working population and hence the wider areas of housing demand and the type of housing. Younger workers often associated with new arrivals increase the demand for housing.
While a profile towards an older workforce creates far less demand, as older workers are more likely to have already established homes however, if older workers delay retirement this also disrupts the character of demand.
It’s been estimated that a big drop in migration could lead to demand for new homes falling by as much as 80,000. The rental market may also be more quickly impacted, a rental accommodation is most often the first step in finding a home for new arrivals.
When the demand for housing and household formation drops it impacts the entire economy. However, it’s encouraging that the PM has said that Australia needs a permanent migration program of between 160,000 and 200,000 people annually to maintain economic growth and slow the aging process.
Where migration is figured in the housing market perhaps, we have become too comfortable with population growth underpinning our economy. Post COVID-19 any idea of ‘business as usual” will need to be re-considered and that will equally apply to housing, as population demographics shift, and we acknowledge the key role of housing construction in getting the economy back on track.
This is a fact partly underlined by the $66bn ACF action, while the CFMEU and the Master Builders Association have also suggested the establishment of a $10bn fund to boost 30,000 new social housing units.
Migration appears to remain a hot-button issue, and that’s despite the role migration needs to play in re-building our economy. A SMH survey published early in the pandemic asked the question; ‘Should Australia reduce migration numbers once the nation recovers from the COVID-19 pandemic’ – the answer was not overly negative, 45% said yes, while 33% said no and 22% were unsure, perhaps an encouraging result when more closely considered.
Could We See a Baby Boom?
There’s some serious and not so serious speculation that as a result of being forced into isolation for long periods during COVID-19 we might see a baby boom. Those on the yes side simply point to human nature being what it is and couples sex lives might have been more active, and this might produce a baby boom or at least a ‘baby-blip’ in 9-months.
However, evidence for this is pretty thin and perhaps not enough to excite the housing market.
There’s previous research that indicated that the year following big hurricanes, marriage, birth, and divorce rates increased in declared disaster areas. Superficially the results suggested that a life-threatening event motivated people to take significant action in their close relationships that altered their life course.
We also need to keep in mind that 40% plus of births come from couples who are not living together, and so social isolation may have put a dint in the rate of new-births. There’s also the reality that with so much gloomy economic news, having a baby might not look a very wise of affordable move.
However, the potential a baby-boom or baby blip might happen post Covid when the pandemic has past and is fully under-control and as couples make up for lost time, we might then see more babies and a delayed baby boom. However, blue-skies post Covid and hence more babies and more demand bigger homes still like another ‘might’.
Cities Will Change
Post COVID there’s lots of evidence that our cities will change, and population demographics will also change and influence the shape and feel of our cities and neighbourhoods. Two major factors will be key: access to services and mobility impacting both the needs of business and where and how we live.
With demographic changes there’s also good reason to suggest that the liveability of our neighbourhoods will be more critical, and less based around mobility to travel to access services, in particular everyday services, like grocery shopping and open-space and schools.
We may also see greater structural planning that creates more bike and walkways. If the idea of community changes, this does not necessarily mean that densities will change, what could happen is the neighbourhoods and housing types become more related and inter-connected, imaginative town planning will play a key role.
While there’s been an ongoing conversation about rethinking the office however, COVID-19 will also see a shift in what expectations will emerge for the location and type of homes, the circumstances we are living through today both inspire and make that necessary.
While individual homes might change, the bigger impacts across the wider population are perhaps more focused on the pros and cons of different suburbs, regions and cities.
Areas that deliver good quality local services and access to recreation look appealing, so we could see more local shops spring to life and when travel is required locations with an easy commute will be popular and this could help regional town attract new residents.
Major regional centres around Sydney and Melbourne are already attracting buyers who with the aid of technology and the flexibility of working hours now look appealing. Many of these centres already offer great infrastructure, services and an easy commute to Capital City CBDs.
All of which is made even more appealing with the prospect of cheaper housing. This is also a trend that should easily encourage state governments to improve transport links. If there’s a combination of good technology, quality services and an easy commute this COVID-19 inspired trend should be seen as a positive for the market in these centres.
Most of us live in cities, which are complex social structures and COVID-19 will not sweep away old structures however, as the population changes, and even if growth slows this may present a great opportunity for reform of the housing market that extends to all aspects of the market.
The post COVID-19 market will also produce opportunities for developers and investors that extend beyond the aspirations of individuals and already various ‘war-chests’ are being assembled for this purpose and development sites in particular acquired over coming months might be well positioned as supply falls ahead of a hopeful recovery beyond 2021/2022.
However, reforms need to address new ideas beyond the tired old reforms that have long been associated with changes to stamp duty and negative gearing. Perhaps the reality of a potential 50% drop in stamp duty for NSW in the face of COVID-19 might hasten the reform of stamp duty which is now looking remarkably volatile.
Reforms should also be extended to the review of personal income tax as a possible way to boost the market and so boost the demand for housing finance.
COVID-19 also reminds us that stable housing provides a secure and safe environment and should be a social priority and reforms might be hastened by the potential changes in demand brought about by shifts in population. However, major reforms will be required to sustain a fair, diverse and accessible housing market that should not only focus on major centres but take a wider view to regional locations.