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

https://www.youtube.com/watch?v=Z1k9zSVrMMg&ab;_channel=OnProperty

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 - Introduction0:45 - Macro vs micro level2:50 - Population growth is a lagging indicator of supply3:40 - Really you want a suburb where there is little to no population growth but the suburb is still desirable4:52 - Taking the macro and applying it to the suburb level6:17 - What to look at instead of population growth6:43 - Population decline is a negative indicator8:25 - Other issues with looking at population growth9:23 - When population growth is a negative indicator

Transcription

Ryan 0:00People 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 0:38Thanks for having me, Ron. Yeah, so

Ryan 0:40talking 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 1:07Yeah, 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,