This article is from the Australian Property Journal archive
A SUSTAINED decrease in population growth should ease the pressure on rising interest rates but the shortage of new dwelling constructions will persist, according to BIS Shrapnel.
BIS Shrapnel’s senior economist Jason Anderson said in the last two years over 2007/08 and 2008/09 net overseas migration delivered a comparable population impact to that observed over the five years to 2005/06.
“This strong population growth, which equated to 2.1% in 2008/09, has filtered through the Australian economy in many ways.
“Public attention has been directed towards housing markets, particularly the rebound in residential property markets, but there is also undeniable evidence of tight rental markets and acceleration of rental growth,” he added.
Anderson forecasts that a sustained decrease in net overseas migration over the next two years, to be down to 175,000 persons in 2010/11 and 145,000 persons in 2011/12 which will result in national population growth to slow to about 1.5% in 2010/11, and 1.3% in 2011/12.
“We should expect to see some dampening of household spending growth but there should also be some alleviation of inflationary pressure that has resulted from the strong demand growth for domestic goods and services.
“In terms of the housing sector, shortages will remain and there will be less upward pressure on interest rates,” he added.
BIS Shrapnel said even with lower population growth, the rate of new dwelling construction will remain below underlying demand, shortages will persist and rental markets will stay very tight.
“If net overseas migration had stayed at the 2008/09 level of 300,000 persons per annum, then the queues for some rental properties would have started snaking around the block,” Anderson said.
“The economy can handle moderate household spending growth because there is already solid growth in national income in store for 2010/11. The impending jump in Australia’s export incomes, due to the surge in commodity prices, is set to provide a large income injection – mainly for company profits, tax revenues and state government royalties.”
However, the retail sector is the nation’s biggest employer, so overall employment growth is likely to be moderate, as population growth slows. BIS Shrapnel is forecasting the unemployment rate will remain above 5% during 2010/11.
In this context, there should be less upward pressure on interest rates in 2011 and 2012 – which would support turnover of established properties and demand for new dwellings. BIS Shrapnel expects the Reserve Bank of Australia will make only two interest rate rises in 2010/11, so the standard housing variable rate will be about 7.9% by June 2011.
“Overall, a few years of weakening population growth will have some mixed effects on the economy,” Anderson said. “It will lead to more moderate growth in household spending, at a time when the income gains from the commodity cycle will already be boosting national income.
“This combination would allow for a relatively benign interest rate environment, which would be supportive of residential property markets, and enable a sustained increase in dwelling construction, which is badly needed to address the shortages that already exist,” he concluded.
Australian Property Journal
