News & Tips
Why 6,100,000 Is The Most Important Number For Melbourne Property Buyers
Modern property buyers have access to more data than ever before to help them make more informed purchasing decisions. In fact, the success of our business, Oliver Hume, is built on a range of competitive advantages including compiling and analysing proprietary property data to aid those decisions.
One thing we have learnt about data is that, while the volume of data is increasing, it is essential not to be overwhelmed and fall victim to analysis paralysis. In other words, don’t lose sight of the forest for the trees.
While the cash rate target, inflation, economic growth, unemployment rate and wage growth are all valuable pieces of information for understanding the market, some numbers are more important than others.
For Melbourne property buyers, developers, and investors, the most important number to remember is 6,100,000.
According to the latest forecasts, that is the number of people that will call Greater Melbourne home by 2032. With a current population of 5.02 million, an extra 1.08 million people will be born in or move to Melbourne over the next decade. In fact, Melbourne is now forecast to have a larger population than Sydney (6.06 million) by 2031-32, becoming Australia’s largest capital city.
Victoria’s total population is expected to be 7.88 million by June 30 2032 (the population of New South Wales will be 9.1 million).
The growing population is important for the property sector for one simple reason – people need homes. As the population grows, more people need a place to live. This means that, over the long term, population growth drives increased housing demand and an increasingly dynamic property market.
Population growth also affects the property market by stimulating the economy and prompting more demand in a virtuous cycle that has helped Australians become amongst the wealthiest people in the world.
What will drive Melbourne’s population?
Primarily, Greater Melbourne’s population growth is forecast to be driven by high levels of overseas migration. Net overseas migration to Greater Melbourne is forecast to reach around 73,100 in the current 2022-2023 financial year before increasing to 74,500 next year. Greater Melbourne is forecast to receive around 71,800 migrants a year in 2031-2032.
Net internal migration is forecast to be negative over the forecast horizon, partly due to affordability challenges. However, before COVID-19, Victoria experienced robust net interstate migration due, in part, to strong employment growth and growing employment opportunities.
Therefore, it is possible that we could see a return to this previous trend of positive net interstate migration, especially given the return to long-term average economic growth trends.
Compared to Melbourne, regional Victoria is forecast to see only limited population growth, from 1.6 million currently to 1.8 million by 2032. However, affordability challenges, working from home and other factors could see regional Victoria experience population growth greater than that forecast.
What does it mean for buyers?
The 2021 ABS Census showed the average number of people per household in Greater Melbourne was 2.6. That means that Melbourne, with an additional 1.08 million people, could need around an additional 415,000 dwellings over the next decade.
There are currently around 2.06 million dwellings in Melbourne, so we need to think about how to increase the number of dwellings by around 20% in a decade.
This number of new dwellings required does not factor in the shrinking of households. In 2021, the average number of people who lived in each household across Victoria was 2.5, a decrease from 3.3 people in 1971, reflecting a long-term demographic trend of declining household sizes.
These long-term demographic trends are especially important and can have major impacts.
While various factors, such as COVID-19, can shape household sizes from time to time, we can assume that number of people per household over the next decade is likely to be lower than it is today.
This should increase the demand for dwellings, for a given population, requiring many more dwellings than what might seem the case initially.
In addition to the number of dwellings required, changes in household size, together with other changes, could also shape the types of dwellings we will require.
In 2021 most occupied private dwellings were separate houses (73.4%) rather than semi-detached, row or terrace house, townhouse, flats and apartments.
However in recent decades, we have seen the continued growth in demand for more diverse dwelling options including, especially, townhouses.
This trend has been especially pronounced in Melbourne’s greenfields and outer suburbs where affordability constraints and growing numbers of both new migrants and first home buyers has seen demand for townhouses and other similar products increase strongly.
This suggests that, assuming we require around 415,000+ new dwellings in the next decade, we will also need a diverse range of dwellings, in various locations, including detached houses and townhouses in the growth areas of Melbourne.
Supply is a bit more complex to understand given the abnormalities created over the last three years by COVID, the HomeBuilder program, materials and labour shortages in the building industry, inflation and interest rate increases.
However enduring challenges (such as land supply constraints) and more recent challenges (such as the well-publicised issues in the building and construction industry and growing housing shortages despite an extended pause in Australia’s migration intake) suggests we are likely to continue to face major issues in delivering new dwelling supply.
Hence, at some point we can expect that, as overseas migration continues and population growth returns to trend, the continuing increase in demand could see prices start to stabilise and then to begin increasing.
The market in the not-too-distant future might be very different to what it is today.
So next time you find yourself trying to study and understand the diverse and numerous datasets being released on a daily basis, remember, the housing market is primarily about people and the need for dwellings.
Remember, also, that Melbourne is rapidly approaching a population of 6,100,000 people bringing both new opportunities and challenges.
By Julian Coppini