Mon 25th November , 2019

The key driver of the Australian property market's persistent growth


The Australian property market is characterised by its extreme short-term volatility, and long-term consistent capital growth.


In the long-term, the prices of properties have been increasing by about 6-7%/year, doubling in value every 7 years, despite fluctuations in the short-term.


Does income is the driver of price growth?


The answer is likely no. The Wage Price Index (WPI) grew at an annual average of 2.2 per cent in the five years to December 2018, which compares with average annual growth of 3.3 per cent in the previous five years to December 2013.


So what is the key driver?


Australia's population growth is among the highest in the developed world. In the long-term, population growth has been around 1.8%, adding 400,000 people in the financial year 2018-2019. In fact, this rate is 3 times higher than in U.S.A and the European countries.


While U.S.A have dozens of large cities that can handle population growth, majority of population growth in Australia is concentrated in Sydney and Melbourne, causing great pressure in these two cities.


The Federal Government's launch of new visa scheme requiring migrants to live in regional areas is the right move, but it will take some time to see the effects.