Why Population Growth Does NOT Predict Capital Growth (Data Dive)


People often say you should look at population growth to try and predict capital growth. The idea is that if an area has population growth it is a desirable area and that will lead to capital growth.

However, there is a fundamental flaw in this assumption and today I sit down with Jeremy Sheppard from Select Residential Property to discuss why population growth DOES NOT predict capital growth.

Select Residential Property Article: Avoid High Population Growth Suburbs

0:00 – Introduction
0:45 – Macro vs micro level
2:50 – Population growth is a lagging indicator of supply
3:40 – Really you want a suburb where there is little to no population growth but the suburb is still desirable
4:52 – Taking the macro and applying it to the suburb level
6:17 – What to look at instead of population growth
6:43 – Population decline is a negative indicator
8:25 – Other issues with looking at population growth
9:23 – When population growth is a negative indicator


Ryan 0:00
People often say that you should look at population growth to try and predict capital growth and that if an area has high population growth, then that means that it’s going to grow in the future in terms of the price of properties and capital growth. Today, I have with me, Jeremy Shepherd from selected residential property to actually talk about this, and to analyze and say, okay, is this actually true? Or is this something that just kind of sounds good, but doesn’t have any data to back it? So I’m really excited to jump into the data trying to understand, okay, what does predicts capital growth? And it goes through population growth in particular. So, hey, Jeremy, thanks for coming on today.

Jeremy 0:38
Thanks for having me, Ron. Yeah, so

Ryan 0:40
talking about this, I think we discussed this years ago when we record it maybe four or five years ago. And I really liked your approach to this because most people say, Okay, if an area is growing in population, that means there’s more demand for properties in the area. And as we know, demand versus supply, there’s more demand prices are likely to go up. So people say population growth means there’s more demand, which means prices are likely to go up.

Jeremy 1:07
Yeah, and I think at that level, that makes perfect sense. And, and when I look at it from a macro perspective, like Australia and immigration over over the previous years, it does seem to work. The problem is that, from a practical perspective, investor has to find a suburb, they have to find an individual property, and saying that a particular city is going to have excellent population growth, which is going to pump up demand. That’s where it sort of loses its practicality because you’ve got to find an individual suburb. So if you go down to the suburb level, and look at how the population has been changing the suburbs, and a lot of people do that, they’ll get ABS data about population growth and suburb level. This is where it all falls apart at that micro level, like at a suburb or local government area, because the only major way in which you can get population to grow at a suburb level, is if there are more dwellings so that people don’t just, you know, move into the streets and, you know, live in a cardboard box under the freeway bridge, they occupy an already vacant dwelling. So if a whole bunch of dwellings are built, then a whole bunch of people can occupy those dwellings, and then you get that population growth measured. But of course, you needed massive supply beforehand. And so quite often, population growth, especially population growth forecasts, is really a forecast of supply. You know, the local council and developers get together, I think I agree, we can open up what they call a growth cartel. But it’s really what investors should call a supply curve, because it’s just extra dwellings. So wherever you get extra dwellings, that’s going to be a problem because of supply, you know, supply and demand story.

Ryan 2:50
And so I think this is really interesting, because we look at population growth, often the data as well as quite lagged behind, you might get census every five years or have a way to get more updated information on that. But if you look at that, that means Okay, in that time, a certain amount of properties have been built or opened up or converted to duplexes or apartments have been built. They have been vacant when they were built and then filled in. And those people now live there. So it doesn’t really give you that indication of Okay, population has grown, where’s it going to go in the future? It’s kind of it’s a lagging indicator, as you said, of supply and the people that have filled that supply, it’s not actually an indicator of the future and future growth.

Jeremy 3:35
Yeah, exactly. I mean, most people, when they talk about this topic of population growth, they’re picturing a bunch of people at a gate, you know, open up, let me in, you know, that’s the demand that’s building up from this population. But really, what you want is a location where the population cannot grow. There just isn’t enough new dwellings there. So if you’ve got zero population growth for a suburb, it means like, say, over the last 10 years, it means that there’s been no additional dwellings that have been built. So if you were to purchase a property in a built up area, you know, that unless council increased the densification, you know, like, we’re allowing duplexes now townhouses or or units, then you’ve got more people crammed into tighter, tighter dwellings, then you can have some some population growth, but that’s, again, the creation of more dwellings. So it’s really a case of finding those suburbs where Council is against that sort of thing. Where there is the potential for zero population growth, so long as that suburb is still desirable. So the demand still there, unless you don’t have that additional supply. So it’s really

Ryan 4:51
again, what is looking at that sort of macro level and then taking it down to the suburb to say, Okay, let’s say we’re looking at Sydney, for example. And as you said, Look Immigration data once all of this virus finishes up and people start moving back into the country or take Brisbane and people are moving into state into Brisbane saying, okay, on the macro level, we’ve got X amount 1000s of people moving into this city per year, then if we’re looking at individual suburbs, we can say, Okay, this suburbs already completely built out with houses or units. If, at a larger scale, we’ve got all these people moving in, and if we got a desirable suburb that people want to live in, but there’s no new properties being built for those new people to live in, it’s okay, we’ve got more people now wanting to live in this one area, not as much supply or the same amount of supply. And so that kind of puts pressure on prices there. So yeah, just look, suburb by suburb population growth, you have to kind of take a step back and say, What is the larger picture of this?

Jeremy 5:53
Yeah, yeah. So I just need to clarify that at the macro scale, like the city, as you said, you know, no harm looking at population growth. It’s when you dive deeper into the minutiae, the the local government area, the suburb, if that micro level, that’s when, you know, population growth figures don’t really help. What would we want to see is how many people are missing out how many people want to live in this suburb? Because because there’s no accommodation available? That’s an indication of demand.

Ryan 6:26
And that would be to look at vacancy rates, right? Yeah.

Jeremy 6:29
Yeah, exactly. We should

Ryan 6:32
really get a survey of how many people want to live in this suburb but miss out because it was too hard.

Jeremy 6:38
Hands up, if you disappointed Yeah.

Ryan 6:41
But I do think something to discuss is the flip side of this, which is population decline. And so I call flags when you’re looking at an area if there’s indicators that are negative indicators for the area. While population growth might not be a positive indicator, would you say that population decline is a negative indicator, because if you’ve got this existing supply people have been living in and people are leaving out of an area? I guess this is more in country towns and stuff, you’ll see more of this than that would be a negative indicator, at least Yeah. Would you agree?

Jeremy 7:13
I think that’s a very, very good point, actually. Because unless you’re going to dismantle the dwellings, there’s going to be additional supply there. So yeah, that’s very good point.

Ryan 7:23
Yeah. And you can also look at vacancy rates in alignment with that as well, if population is going down, and vacancy rates are going up and means Okay, the dwellings are still here. But there’s now more available for people to choose from, which is going to put negative pressure on prices. That’s right. Yeah, yeah. So I think this is just a quick little video to kind of look at this, you know, just I don’t know, I like the way that you kind of take a different angle and look at things Jeremy and say, okay, we’ve just been told by all these people, population growth is a super important indicator. Yes, it’s one thing to look at. But it’s kind of a lagging indicator that indicates what supply has been created, and people have moved into not necessarily an indicator for future growth. So you need to take that macro level, look at the bigger picture, and then look at saying, okay, is this area still desirable? Is there pressure of how many people want to live in here versus what is available? Is there anything?

Jeremy 8:20
Oh, yeah, I think you nailed it. When you said that. There’s, there’s two other issues. You know, first of all, it comes from census, which is only once every five years, the vacancy rates, I mean, you can get figures, like up to the minute, you just see what’s available on real estate or condo demand or come to you. vacancy rates is a much better indicator, it’s not just more timely, it’s more accurate. And so, you know, there’s, there’s no inclusion of population growth metrics in the in the demand of sclerotia. For example, any algorithm that we come up with trying to pick high growth locations, we just don’t even look at population growth, it just

Ryan 8:57
doesn’t become a factor at all.

Jeremy 8:59
But I did like your point about the, at the macro level, you know, start at the city. We do know, once the borders are open that places like Sydney, Melbourne, they’re going to get a lot of migrants, students. So we do have some population growth, macro level, but then you go pick a suburb, that’s when you’d probably look at vacancy rates as a better indicator.

Ryan 9:21
Yeah. And also, I think something we didn’t touch on is sometimes population growth can actually be a negative indicator, again, you got to kind of take a step back and look at a broader view. But if you’re in a Greenfield suburb, or a suburb kind of on the edge of a city where there’s a lot of rural land that will eventually be developed or is being developed, you can have good population growth in that area. But the population growth is because there’s so many sites and so many new houses being built, and there’s going to be so many more new ones in the future, as well. Like I used to live in Virginia Beach, up on the Sunshine Coast. And that was kind of that sort of thing that was Virgin springs, I think it was called was opened up, and that would have had super high population growth. And then there’s just so much more to develop out there that it was growing. And I think in this suburb which, in this report, sorry that you’ve written out, which I’ll link up down below, you talked about, did you talk about pimpama? Or something in this one? Was that

Jeremy 10:17
Yeah, yeah. Scroll down. Let me just see if I can find that. Because Yeah, somewhere halfway between, like, Brisbane and Gold Coast, or Mu pimpama, or something like that. I love that photo.

Ryan 10:36
article talking about mooloolaba.

Jeremy 10:39
All right, yep. Yeah, there’s, there’s a good shot of a Greenfield. In fact, that’s what I do. I just jump on Google Maps, switch to satellite imagery. And I just check how much vacant land there is. And if the suburbs anywhere near vacant land, I just stay clear that because there’s a risk that that could be developed. So these are some examples of just typical cases where population growth just doesn’t work as a metric for indicating future capital growth. But yeah, I think that, you know,

Ryan 11:13
talked about Yes, we’ll probably cover it in a future video. But Malala bar, for example, is one where there wouldn’t be a lot of population growth, because I think it was looking at vacant land. But basically, that’s all. That’s all.

Jeremy 11:26
I want to see age, pattern dwelling age, the mooloolah bhawan. That’s about dwelling age.

Ryan 11:31
Okay. Yeah, that area is infield, there’s not a lot left to develop there. Whereas if you look at pimpama, which is a more rural area, there’s still a lot of land still left to be built. So population growth in those Greenfield sites in areas where there’s a lot of room for development can actually be a negative sign if they’re creating too much supply for the demand. So it’s definitely counterintuitive, this sort of thing. And that’s why it’s important that you look at multiple different aspects when it comes to trying to predict capital growth, and population growth just isn’t the biggest one to look at.

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