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People boom will cushion housing slump

Posted on 4 April 2017

Liz Jordan, Australian Property Journal

 

POPULATION growth will soften a housing downturn in Australia, according to UBS.

According to UBS, population growth lifted at 0.4% over the third quarter of 2016, at 1.5% or 349,000 people year-on-year, which is the equal fastest rate since the opening quarter of 2014.

"For housing, while a sharp lift in dwelling completions and consequent jump in vacancy (and weaker rents) likely still lies ahead, this 'people boom' may contribute significantly to softening the housing downturn," economist George Tharenou said.

"Meanwhile, helped by a sharp fall in the Australian dollar over recent years, there was a coincident boom in net short-term (one year or less) visitor arrivals. When combined with population growth, our estimate of 'UBS people growth' those physically in Australia skyrocketed by more than 3% year-on-year, the fastest ever," he added.

In January, UBS said record completions meant the residential rental vacancy rate would likely rise further from its near-decade high of around 3% currently.

"However, the steady trend of vacancy over the last year was lower than expected. This seems to reflect strong population growth of almost 1.5% year-on-year in Q2 2016 at 338,000, the fastest in two years, with migration bouncing to 182,000, the fastest in a couple of years, despite the end of the mining boom," Tharenou said.

"Indeed, this has been combined with booming net arrivals, seeing our estimate of 'people growth' physically in Australia jump to a record pace of more than 3% year-on-year.

"With the rental vacancy rate set to rise further, it is still likely that housing-related inflation will weigh on overall consumer price index (CPI) ahead. CPI rents (which are a 7% share of the CPI basket) already slowed to a 23-year low of 0.6% year-on-year in Q4 2016, and it's plausible that rents moderate further," he continued.

He said the peak of new house building approvals already also dragged new dwelling cost inflation an additional 9% share of CPI toa cycle low of around 2.0% year-on-year.

"Together, this significant circa-16% bucket of CPI will probably stay below the RBA's target ahead,"

UBS' latest report suggests population growth also bodes well for the nation's economy more generally.

 

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