It may seem like a simple metric, but it has profound implications for the property industry, for government and for Australia.
It’s the net annual change in the Australian population over 120 years between 1950 and 2070, focusing on the 15 to 64-year-old cohort – what we call the working-age population.
This is the cohort that shapes the workforce, pays most tax, drives consumer demand, takes out mortgages and delivers care.
This is a cohort whose rate of growth has already peaked and is now projected to decelerate over 50 years, changing the property industry and Australia in the process.
If you are in the business of building or investing in housing in Australia, and you intend to be in this business for a lifetime, then you should well understand the accompanying chart. It tells a story of reduced demand for new family homes. It is a chart that prompts strategic thinking and demands a strategic response.
The story is simple. The Australian population is expected to have increased from 8 million in 1950 to 39 million in 2070. That’s a fivefold increase. That’s a great era within which to establish a family-based property business that can be passed on to successive generations.
And best of all, within this time frame the working age population (15-64) is also expected to record close to a fivefold increase, from 5 million to 23 million. Lots of immigrants combined with a relatively strong birthrate (for a developed nation) produces a growing market for mostly family-type housing.
But look closely at the chart and it shows a steady diminution in the number of people added to the working-age population from the mid-2020s onwards. This is more than a knee-jerk reaction to the pandemic’s border closures and reopenings. This is a slowdown in the rate of growth in the working-age population caused by reduced fertility rates.
In the early 1950s the working-age population increased by 2 per cent per year. In 1988 the number of people added to the working-age population was 205,000 or 1.9 per cent. In 2009, the year prime minister Kevin Rudd declared that he “believed in a big Australia”, the number added to this cohort was 300,000, or 2.1 per cent.
Excluding the 2023 Covid-recovery-year anomalies, Australia will never again add this number (300,000) to its working-age population. The projected trend for this key metric (that underpins the home-building industry) is to shrink over the balance of the century.
Indeed, a family-based home-building business founded in the 1980s operated in vastly different market conditions to a similar business operating in the 2030s.
How housing might respond to ageing market
In the year to June 2071, according to ABS projections, Australia’s working-age population will rise by a net 67,000, or 0.3 per cent. That figure isn’t going to support today’s property infrastructure. It isn’t even going to deliver the price tension required to hold up family-home property values. Diminished growth in the working-age population is an agent of change in the property industry.
Indeed, later this century in an era when Baby Boomers have all but died off and transferred whatever remains of their property holdings to their millennial children or to their Gen Z grandchildren, the traditional home-building industry cannot but lose “heat”.
The scale of demand later this century for net additional family-type housing based on incremental growth must be an order of magnitude less than it is today.
The ABS’s wider projections show that the biggest growth market from the 2030s onwards will include retirees and others aged 60 and over. The home building industry must respond accordingly. Today’s focus on first-home buyers, upgraders and “forever homes” must morph to include tailored product for downshifters, lifestylers, retirees and those requiring assisted care.
The housing market must become more nuanced to include, for example, product for what I call “tag-along grandparents” who (according to census data) live in proximity to their grandchildren in new housing estates on the edge of the city.
Indeed, there may be a requirement for bedroom-bathroom-living space to be attached to, but to be separate from, a four-bedroom, two-bathroom home so as to accommodate a recently widowed grandma (delivering on-site babysitting).
And maybe as the population ages and requires in-home support services, there will be a market for housing with separate quarters for in-home daycarers to serve as a “carer’s retreat”.
And maybe there will be a requirement for lifestyle housing in an emerging lifestyle zone beyond the edge of the city aimed at 60-something and 70-something downshifters who continue to work.
Such a lifestyle home might require multiple bedrooms for visiting grandchildren (creating a kind of “cousin hotel”), plus his/hers study/office space for these “older knowledge workers” still working.
Wider implications of ageing
There are wider implications of the ultra-long-term trends outlined in the attached chart. A diminished rate of growth in the working-age population in a nation that has always presumed and had access to a surging working-age population is problematic.
The danger for businesses and government is that we Australians have become so used to growth, to presuming growth, and especially in the younger cohorts, that we do not respond to signals of the need for change.
A slow-growing working-age population delivers less tax than a fast-growing working-age population. And yet with a greater proportion of the population in the high-care 60+ cohort, let alone the 80+ cohort, there will be a requirement for ever more (publicly funded) services.
Reduced fertility leads to fewer children and therefore to shallower pools of talent from which to draw skilled labour. Mechanisation and digitisation must expand to fill the breach between the skills in demand and labour supplied.
These are issues that apply to all parts of the economy, which means that the building and construction industry must pitch itself as a worthy, rewarding and meaningful career choice.
Previous predictions of demographic change
The data underpinning the outlook for the attached chart was released by the ABS last November. The concept is not new. The data has trended in this direction for years.
The most recent projection updates the trend and reflects the migratory anomalies caused by the pandemic. But these flows are transitory; they’re expected to return to trend later in the 2020s.
The current issues of ageing and of diminished fertility have long been predicted. Indeed, for decades demographers have been warning of changes to consumer spending effected by ageing and diminished fertility.
(This is a 180-degree turnaround since the publication of Paul Erlich’s seminal – but flawed – 1968 book The Population Bomb, which predicted worldwide famine caused by overpopulation in the 2000s. The issue today is in fact depopulation caused by fertility decline!)
Here are some of the demographic predictions made over the past 30 years about consumer spending and housing.
In 1996 the England-born, Australia-raised, Canadian academic David K. Foot published a best-selling book, Boom, Bust & Echo.
Foot predicted fertility-triggered labour shortages in the 2000s caused by a big pool of retiring baby boomers being followed by a smaller pool of what we now call Millennials. Popularly this was known as the baby bust.
Foot (now aged 78) was a highly influential adviser/speaker in the North American corporate scene in the early 2000s.
I especially like one aspect of the thinking of American economist-cum-demographer Harry S. Dent, who posited via his many publications the idea that workers tend to buy what we would now call their forever home at (or by) 42, and that retirees tend to downsize at 64.
I think the first part of Dent’s dictum holds up better than the second, and especially within the Australian context.
And finally, Swedish demographer Hans Rosling (1948-2017), in a highly influential TED talk in 2006, popularised the ramifications of much-reduced fertility rates across the developed world.
Strategic shift in the market
There are two main ways that demographics is relevant to the property industry.
There’s tactical information, which helps marketing identify, for example, clusters of ethnicities (or of lone grandparents) in various suburbs. And there’s strategic insight, which shows how the foundation of a market might be changing.
The attached chart is an indication that the demand for housing will broaden from product mostly aimed at suburban families, to a wider market that includes the nuanced product needed by emerging subgroups aged 60 and over.
Bernard Salt is founder and executive director of The Demographics Group.
Data by data scientist Hari Hara Priya Kannan.
More Coverage
Reserve Bank silence ‘good sign’ of rate cut
The Reserve Bank’s ‘communication hiatus’ at a time when economists and investors overwhelmingly expect rate relief indicates it will trim borrowing costs on Tuesday for the first time since 2020.
Keep up: How CEOs are navigating the Trump frenzy
Some of Donald Trump’s biggest calls are sending financial as well as strategic shockwaves through business. And they’re all unfolding in real time.