How Massive Population Growth Will Make Property Prices and Infrastructure Explode

Last Friday, Infrastructure Australia released its first ever Australian Infrastructure Audit report.

It’s the first audit of its kind in Australia. Covering locations from the drivers of development to transport and communication, it’s full of insight for both the private and public sectors. The Audit report made 81 findings. These bits of information will be turned into a long term infrastructure plan, after a public discussion period.

The Audit drew data from a wide range of sources. Everybody from the World Economic Discussion board to the IMF and of course the Ab muscles got a look in.

And they didn’t have the ability to nice things to say.

What did the report say?

One of the strongest points was that infrastructure is not meeting Australians’ anticipations. And it’s going to get worse, because of population growth. The first two points of the Audit findings said:

‘Australians expect their infrastructure networks to support a high quality, first world standard of living. They expect infrastructure to improve their quality of life in the future, notwithstanding significant population growth and major economic, social and environmental change […]

‘There tend to be grounds for concern that Australia’s facilities networks and the systems to which they are managed are not conference these expectations‘

So basically, things are already quite bad, and they’re going to get worse as our population grows.

And ‘grounds for concern‘ is putting it really lightly. Just look at just how much attention and activity Aussies give to all kinds of infrastructure, from roads and public transport to the internet. For example, here in Melbourne, there’s been more than ‘grounds for concern‘ over exactly how awful Myki is, and how individuals feel about the East Western Link, or Doncaster trains. The federal government saying that infrastructure might not be meeting your expectations could really feel a bit exasperating.

Points five to 12 covered future demand for infrastructure. They said:

‘Population growth will generate a significant rise in the demand for infrastructure services … Australia’s population is projected to develop from 22.3 zillion in 2011 to 30.5 million in 2031. Almost three-quarters of the growth … is projected to be in … Sydney, Melbourne, Queensland and Perth.’

Source: infrastructureaustralia.gov.au
[Click to enlarge]

That’s a lot of people flooding into capital cities. Cities which are already feeling the touch in many areas. Not least which is property prices.

How is that this going to affect property prices?

Generally, infrastructure spending is based on population stats. So often, the population of an area has to change dramatically before the government will build what the locals need. Infrastructure spending and new tasks don’t grow at the same period as the population. And infrastructure certainly isn’t built in anticipation associated with demand.

This can mean that interest in housing is concentrated in the places that there are already lots of roads, public transport, and utilities.

For example, the report says that greater Sydney is going to get roughly Eighty,000 extra people a year. That’s taking into account people who leave, too. So that’s 80,000 extra people that will require somewhere to stay.

According to the final census, there are 2.7 individuals per household in the higher Sydney area. Let’s assume that individuals coming in to Sydney may have roughly the same household or even family composition as they perform now. That means Sydney will require an extra 29,630 new dwellings per year. At the moment, there are only 22,750 a year. That’s a deficiency of nearly 25%.

And that’s not actually counting the trend towards apartment living. A trend which has been boosted, unsurprisingly, by insufficient infrastructure meaning people desire to be close to the city centre. Apartments made up 65.5% of new homes completed in Sydney last year. The majority of those were 1-2 bedroom flats. So Sydney would need even more apartments to keep up with demand.

With need growing so much faster than supply, prices will develop dramatically. Even more than they are actually.

Some analysts predict that, as Sydney gets denser, the marketplace will be split more distinctly than ever between apartments and houses. The premium that Sydneysiders pay for standalone houses will explode.

It’s possible that the Quarterly report apartment construction boom will continue for a long time to come. A number of firms are poised benefit from this. Including certain listed designers who hold the rights to critical areas of the harbourside town. And producers of building materials, fixtures and amenities.

The report also said that the government need to look at ways to boost development in other cities. It asserted ‘Adelaide, Canberra, Hobart and Darwin ? are projected to grow in total by slightly more than 0.5 million individuals or 26.7 percent. Given this, it is worth considering exactly what steps could be taken to foster greater long-term growth in those metropolitan areas, which may moderate the consequential infrastructure challenges in the larger cities.’ So those metropolitan areas, which are already very liveable, might get a bigger slice of the infrastructure funding pie. This could imply that developments — and property prices — in those cities, ramp up.

What about infrastructure companies?

Point Ten of the audit findings asserted ‘The infrastructure sectors projected to grow faster than GDP tend to be transport, ports, telecommunications, gas pipelines and airports. The actual sectors projected to grow reduced than GDP are water, petroleum, electricity, non-urban roads and non-urban rail.’

So after the property boom, companies that build or own those first five sectors could benefit.

There are several listed companies that achieve this. For example, a few of the major telcos own their own infrastructure, and rent it to other providers. Some airport corporations have the rights to expand, or to build new airports, in their respective cities.

How to get involved

At the moment, Infrastructure Australia is taking suggestions and recognized submissions on the findings from the report. They say that these will be used to inform the development of a 15 year plan. Which plan is due out later around. If you’d like to have your say, send an email to AIA@infrastructure.gov.au.

If you’re just looking for expense clues, you’ll have to wait until the plan comes out.

Eva Mellors,
Contributor, Money Morning

PS: Not all populace growth related investment opportunities depend on the upcoming infrastructure plan. There are lots of stocks which are already set to profit thanks to existing strong housing need.

In his report, ‘The Five Best ASX Stocks for 2015’, Kris Sayce covers a stock he believes is set to profit from the construction boom. Read this report, and you’ll also find out how rising consumer confidence could see one Aussie retailer bounce back. And how a low oil price could do wonders for an Aussie household name stock.

Click here to find out how to get your own free copy.