Many things about how we will recover from the COVID-19 pandemic remain uncertain, but we already know the impact upon population trends – and therefore on real estate development and investment – will be profound.
At Jameson Capital, we’ve been immersed in developing a range of real estate investment opportunities since our establishment in 2015, closely following trends and demographic shifts to find the best investment opportunities for our clients. As Australia has been drawn into successive waves of COVID-19, with associated border closures and lockdowns, key population trends are emerging that will impact real estate investment.
The Demographic Delays report compiled in April 2021 by planning and demographic service, .id (Informed Decisions), revises Australia’s population in 2041 down to about 33.3 million. That’s 1.9 million fewer than had been forecast before COVID-19 reached Australia.
The missing population, according to estimates supplied to .id by the Australian Bureau of Statistics, will include 519,000 fewer school children (318,000 primary, 201,000 secondary), who would eventually have required homes of their own. Pre-2020, tertiary students have been another important migratory cohort, arriving here to study and staying to work and start families. That stimulus in the residential rental and ownership sectors will also be sorely missed in coming years.
The population double whammy
Fewer children and young adults arriving as migrants equates to an expected drop in the birth rate – a double whammy when it comes to sustaining population growth and supporting real estate development and construction.
For example, .id predicts that in 2041 for the Greater Melbourne area, roughly 162,000 less dwellings will be needed than were previously estimated. That’s a serious hit when you play out that trend across urban areas around the country, largely down to the impact of prolonged international border closures.
In fact, we’re already seeing the impact of borders being slammed shut in March-April 2020 as the pandemic arrived, via the absence of international arrivals of travellers and migrants. By September 2020, Australia had recorded the first quarterly population decline on record. That’s expected to continue for as long as overseas migration remains on hold.
Previously, we’ve had a regular annual influx of 218,000 migrants on average, and .id estimates that in the 2020-21 financial year, Australia will experience a net migration loss of 71,600 people. In other words, more Australians will move overseas than migrants will move here. That net loss is expected to continue in 2021-22 (minus 21,600) before stabilising and moving back to positive territory, albeit at well below pre-COVID levels.
An end to the trend
How will this affect real estate? For a start, COVID has completely overturned decades’ worth of reliable population trends that enabled demographers, and ultimately developers, to accurately estimate the type and location of housing stock needed to fulfill demand.
The completion of many developments or projects that were planned and/or begun before borders closed is creating an oversupply of dwellings that should have been housing an influx over the next 12-18 months of about 300,000 migrants. Due to border closures, they aren’t coming anytime soon.
In the short term, the challenges implicit in this scenario will be felt more keenly in inner urban areas, where high-rise developments already started must be finished, whether there’s a market for them or not. On the urban fringe, where greenfield housing estates spread, it’s at least easier for developers to press pause on the next stage and wait for demand to catch up.
In middle-urban areas, it’s more difficult to make blanket predictions due to different demographic considerations such as ethnicity, density, and population age, but .id forecasts a general decline in development and regeneration activity. Regional areas are also likely to suffer to varying degrees, some more than others, having set their sights on a migrant-led economic boom.
Volatility now, opportunity later
It adds up to greater volatility in the residential real estate sector, with a new set of rules still to be written as Australia attempts to vaccinate its way to a ‘COVID-normal’ future that will include the resumption of international travel with vaccination passports and the reinstatement of migration that is so crucial to powering our economy. If the Australian Federal and State Governments are successful in avoiding uncontrolled rates of infection until vaccination levels reach an acceptable level, Australia will be perceived as a safe and attractive migration destination and demand from these purchasers will return once again.
And while the next few years may look a little less predictable, we can see longer-term opportunities for a real estate- and construction-led recovery in the post-COVID timeframe. That’s something we can all look forward to.