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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 18 February 2015

Australia 23,750,000

23.75 million and counting

Early this morning (yes, I'm an early riser) Australia's population clock stood at 23,748,669.

With the population of Australia growing at an estimated 1,107 persons per day - according the latest ABS figures - the population clock will tick past 23,750,000 million on Friday morning.

This continues a very long history of strong population growth in Australia.

Onwards to 38-39 million

I spend an inordinate amount of time thinking about demographics and projecting best estimates of what might happen each year in terms of net interstate migration, immigration and natural growth.

I previously projected that population growth might fall quite sharply from above 400,000 in 2013 to slightly more moderate levels in 2014.

Although the final numbers haven't been confirmed yet the rate of growth has certainly slowed driven by declines in net overseas migration, although population growth in Greater Sydney in particular has remained rampant.

"Big Australia"

While it is impossible to forecast demographics with any level of accuracy, it is nevertheless true that population growth remains very strong in Australia and is expected to be so over a very long period of time.

The beleaguered Mr. Abbott is due to release his Integenerational Report in the weeks ahead, although delayed until March as more pressing issues such as making Prince Philip a knight and dealing with the fallout take precedence.

This report is expected to show Australia adding 220,000 to 240,000 persons annually via immigration over the decades ahead.

When combined with natural growth this means that Australia's population is on track to hit 38 to 39 million by the middle of the century.

These projections are actually somewhat higher than Kevin's Rudd's "if we can just start with a figure of 36 million..." which is generally referred to as "Big Australia" policy.

Capital cities to expand rapidly

These are huge numbers.

What various forecasts from the ABS and other sources have shown is that the great bulk of this population growth is to take place in our major capital cities such as Sydney, Melbourne, Brisbane and Perth,

Most of New South Wales' projected population growth, for example, is projected to take place in Sydney, with a forecast population for 2061 range from 8 million to 8.9 million.

The "rest of state" projections by comparison are very small, potentially as low as only a few hundred thousand for New South Wales. 

Both Brisbane and parts of regional Queensland are expected to experience strong population growth, but the "low end" forecasts for regional Victoria comprise a scenario whereby the population may not have increased at all by 2061.

This has clear implications for investors, and not only those interested in property.

Household wealth growing

Australia's economy is going through a slow (and slowing) period as mining construction slows and commodity prices take dive.

Listening to the posturing of the major players in the iron space - and not only those in Australia - suggests that 2015 is to be a year of further price declines as the market is flooded with supply, which is the prevailing dynamic that has lead to talk of an "income recession".

Although forecasters such as Commsec optimistically expect growth to rebound to an "above trend" pace by 2016 (see below) - and the Reserve Bank itself is sticking with some upbeat forecasts - the reality is that the economic environment is soft and likely to be so for some time yet.

Australia's wage price index as I looked at here is at a survey low recording growth of only 2.6 percent.

Not all doom and gloom

Is it all doom and gloom for Australian households, though?


Lower interest rates will be needed to stimulate the economy and asset valuations have been recovering strongly from their financial crisis shock.

The latest ABS Finance and Wealth figures showed the main components of household balance sheets were land and dwellings ($5,286 billion) and financial assets ($3,865 billion), offset by household liabilities of $2,049 billion.

Household net worth increased by $122 billion in Q3 2014 to claim a new record, pushed forward by gains in both land and dwellings ($77 billion) and financial assets ($15 billion).

Australia is step ahead of many other nations in terms of its compulsory pension contributions.

Thank goodness we are - if it weren't for the introduction of the superannuation guarantee many Australians would save nothing at all for their retirement.

Financial assets saw a large increase in deposits and some gains in superannuation in the quarter, offset by a net sale of equities in Q3.

With the index of Australia's top 200 companies by market capitalisation and liquidity recently claiming a record 12 positive trades on the bounce and dwelling prices rising in most locations, we will see another new high for Australian net worth when the Q4 figures are released on March 26. 

Drivers of wealth 1994-2014

Since 1994  household wealth has increased at an average quarterly rate of 1.9 percent.

The rate of growth was much quicker at 2.7 percent in the 8 years leading up the financial crisis correction.

Previously the rate had been increasing at a much more sedate at 1.8 percent per annum in the years 1994-2000.

The impact of compulsory superannuation from 1992 is clearly visible which forced households to effectively invest for the future via pension contributions, largely into equities.

A number of privatisations of large government enterprises also led household equities ownership to become more widespread.

Unsurprisingly in a country where home ownership is favoured the average household balance sheet remains skewed towards residential real estate.

The chart presented above shows how residential land and dwellings have driven household wealth higher since the official cash interest rate began to decline from the nosebleed level of 17.50 percent in January 1990 to just 2.25 percent today. 

As noted by the ABS commentary the gains in household equity have been driven disproportionately by capital city housing rather than dwellings in regional Australia:

"The value of residential land and dwelling assets mirrored the growth in net worth over these years due to an increase in housing prices, particularly in the capital cities."

The good news is that the household debt to assets level and, more particularly, the interest payable to income ratio on Australia's mortgage debt has declined with interest rates.

The Wrap

There is a good deal of doom and gloom around at the moment, and not only in the media - some of it is real.

It is true that average household wealth as a percentage of annual household disposable income remains a little lower than it was prior to the financial crisis.

Household Wealth and Liabilities graph

However, we don't live our lives in percentages, and opportunities abound for those who choose to see them.

Share prices are consistently nudging 7 year highs. Property prices will also break new all-time highs in 2015. 

And with the population expected to expand by more than 14 or 15 million by 2050, there are ample opportunities to build wealth as an investor for those who understand how to snowball or compound their wealth - both in residential real estate and through building a diversified portfolio of industrials.


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