Time Marches On
This week the Banking Royal Commission will assuredly take most of the available media oxygen and attention and so while the dust settles, I’m taking a much more longer-term view of the big-picture demographics that are predicted to impact the residential property market.
Both direct and indirectly, a new book has in part been my guide Megachange, The World In 2015 alongside a few local examples.
Although in our experience demographics is a common and often used term, I wanted to remind myself of its pure definition which is; The number and characteristics of people who live in a particular area or form a particular group, especially in relation to their age and how much money they have and what they spend it on.
Further demographics by definition includes key factors like; Socioeconomic characteristics of a population expressed statistically, such as age, sex, education level, income level, marital status, occupation, religion, birth rate, death rate, average size of a family, average age at marriage.
It takes little thinking that all of these statistics are much more than just a table of figures when dealing with property markets.
Demographics are at the markets very heart and foundation. Some of the varied factors are well known while, other can sneak up and surprise us and it’s a selection of these ideas I’ve found of particular interest.
Some Long-Term Trends
Understanding how important this area is to the residential property market I was anxious to see some of the predictions The Economist’s book Megachange, The World In 2050 made about this and related topics.
To help set the stage, one comment in the book is worth repeating here, and it’s very true.
In quick summary it goes something like this; there have and always are economic cycles (and many of these cycles are related to both social and economic factors) and we will have booms and busts (as we always have had) over the next 20-30 years.
The book goes on to suggest that the big danger lies in seeing the events outlined from a perspective of ‘this time is different’ as being a mistake.
In quick summary the Megachange suggests that just some of the key demographic changes that may lay ahead over the next 20-30 years include this scholarly list: the continued rise of Asia, an ageing population, more people living urban areas, economic growth, migration, the environment, civic activism, balance between the sexes, shift levels of work dependency and wage growth.
An impressive, if also a daunting list but still with many topics we are all, too some degree familiar with, as all of the factors will have the potential to impact the health and direction of the residential property market.
Asia Takes on the West
Australia is well used to the impact that changing demographics in Asia are having on the region and that very visibly includes our property markets, none of us needs reminding of that fact.
Over recent decades emerging markets have benefited from the sort of dividend that changed Europe and America generations before. These countries have emulated and will continue to catch up with the West in terms of income, family size, education and the formation of a middle class.
Out of this trend most of these regions and countries say they want to keep their traditions unsullied by Western values and the trends that come with greater wealth, such as divorce, single-parent families and a greater stress on individual freedom. Yet it is hard to see how they can stop these trends.
Already the emergence of these trends has seen millions of young Asians migrate to cities in other countries and that includes Australia.
This population movement has also seen the migration of capital and more direct investment in destination countries like Australia, much of which is directly tied to property and in some cases, there’s been a negative political and social reaction.
However, it’s a demographic and economic trend that looks set to have even greater relevance over the next 2 or 3 decades.
An Older Population
This is a very familiar aspect of demographic change. The biggest impacts from an ageing population will be felt in Europe, Japan and China. By 2050 Japan will have the oldest population in history with a median age of 52.3 and half the population will be aged over 52.
Its far from clear how this trend will impact. However, as working age adults tend to be associated with greater business risk, more innovation, more new household formation and higher savings and equity ownership. Older societies will be more risk-averse in business and asset ownership the flow-on to property markets looks certain. But there is no guarantee this will be the case.
Where and how people live will and is already being impacted by this trend. Older households are now very keen to ‘age in place’ and movement away from the family home to new accommodation in the same general area is creating many opportunities that offer development and economic benefits.
Fertility also has a central role in how ageing impacts demographics, and while a jump in fertility will not alone reverse the trend, larger and more carefully managed migrant flows would not only help provide younger workers and reduce the dependency ratios, but in the long run fertility would increase.
Migrant families would boost populations and birth-rates however, this may result in painful shifts in social attitudes. China however, as just one example may have a larger problem because of the sexual imbalance there and in almost every region migration is a hotly contested issue.
Closer to Home.
Having taken a very brief look at some of the possible ‘Megachange’ trends on the way, there are related trends closer to home that Australia will face.
The first trend concerns the shape and pressure of living standards and population growth for our major cities, our cities like the rest of the world are facing growth pains and an urgent need for more infrastructure.
However, there’s also a trend that described as the rise of lifestyle cities and you could include areas like Orange, Newcastle, Shellharbour, the Sunshine Coast, the Southern Highlands NSW and even Canberra.
As many of us work and live in capital cities we can forget that while Australia’s capital cities are home to 16 million people, more than eight million live in regional Australia.
For those Australians living outside of the capitals, most of them live in regional cities which offer the benefits of the capitals without the congestion, infrastructure bottlenecks and affordability challenges.
Over the next few decades we will see a continued focus on the regions from policy and spending initiatives to better transport connections to open up the opportunities for the regions, should I mention very fast-trains?
Many of these regional centres were the first to get NBN and now see a boost to the local business economy. There’s also a renewed focus on getting migrants into the regions driven by both political opportunity but also a very real attempt to better manage shifting demographic, economic and infrastructure pressures.
Refining the Australian identity
One demographic trend that’s already well established is our relationship with Asia and as we face a federal election and a state election in NSW there’s lots of policy discussions and national conversations about who we are as a nation, and how we wish to grow and progress.
The republic/monarchy debate will continue along as well as our place in the world and our ongoing connection with Europe and North America amidst our increasing connection with Asia.
As a leading culturally diverse nation in the developed world, migration, population growth and the Australian identity offer a very focused debate.
While, on a world-wide scale one Megachange will see more concentrated urban development taking place, and our ability to create social harmony as we live ever closer lives will be a big development challenge. However, sometimes cultivating better public harmony and spirit might just boil down to meeting concerns over the quality of development and associated infrastructure.