Freezing capital city population will lead to property price falls: New report

29 March 2011

Real estate prices will fall if the Federal Government uses its forthcoming sustainable population strategy to freeze Australias capital cities at their current size, according to a new report to be released today.


The People Power report was commissioned by the Urban Taskforce and prepared by respected property economists at MacroPlan. The Urban Taskforces chief executive, Aaron Gadiel, said that population growth was a vital part of a modern capital city.


The Federal Government has indicated that its sustainable population strategy may declare that some regions have reached their ˜carrying capacity, Mr Gadiel said.


Sydney, Melbourne and South East Queensland have been named and concerns have also been raised about other cities.


Mr Gadiel said the government does have the power to stop the growth of our major cities.


It could – if wanted to – prevent new home construction, restrict new infrastructure investment or stop immigrant settlement, he said.


But if the government uses those powers our cities, our communities and our national economy will suffer enormously.


With our ageing population, if a citys population is to remain static its workforce would need to decline to offset the rising number of people reaching retirement age. The loss of workers would hit household income, which would feed in to lower property prices.


The report says that a government policy capping a citys population at current levels will lead to:


¢ an 18.3 per cent decline for Sydneys residential property prices over ten years;

¢ a 15.3 per cent decline for Melbourne;

¢ a 14.7 per cent decline for Brisbane;

¢ a 6.6 per cent decline for Adelaide; and

¢ a 12.6 per cent decline for Perth.


Mr Gadiel said these projections should not be interpreted as suggesting that Australian real estate prices are likely to fall under current public policy settings.


The projected decline in residential property prices could only occur if the government made a decision to cap a citys population at its existing level, he said.


These projections are not relevant if existing policy settings remain and population growth in cities is able to continue, in-line with needs of businesses and the choices of households.


We dont foresee a US-style collapse in housing, unless the government deliberately uses population policy to engineer one.


Mr Gadiel said that major cities were the most productive places for people to live and work.


Larger urban areas tend to be more productive because they enable greater labour specialisation, better matching of skills and jobs, and a wider access to goods and services for both households and businesses, he said.


If government policy restricted Australians access to these places, more people would be forced to settle in areas where they are less productive, earn less and have more restricted choice of goods and services he said.


A systemic government policy seeking to redistribute population growth to less productive locations will have a greater economic impact than any changes to the headline rate of national population growth.


Even if the government allows the annual rate of national population growth to continue at recent levels, the Australian community may end up bearing huge social and economic costs if that growth is not able to be accommodated in major cities.


The People Power report says that a population cap imposed across Australias five biggest cities could reduce national income by $5,000 per person within 10 years.


Its time to stop talking down our major cities, Mr Gadiel said.


Our capital cities are powerhouses of national productivity – theyre our best assets.


We hope the People Power report will inject a bit more reality into public debate about population growth in our cities.


Population growth breeds economic prosperity and social health.


Our cities face challenges, but those challenges should be addressed with more investment not with a closed door.


The Urban Taskforce is a property development industry group, representing Australias most prominent property developers and equity financiers.


Note: The full report is available here . A table with key figures appears in the PDF available below.


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