If there is more supply than demand, then prices will mostly likely fall.
But if there is more demand than supply, then prices are likely to rise.
So, the variances between both these factors at any given time can put upward pressure, downward pressure or virtually no pressure at all on prices – including property.
Of course, fundamental to how supply and demand exerts its influence are human beings.
It's how we consume and interact with different commodities according to our needs and wants – property being one of them.
When cultural and social transitions occur and shift how humans exist and behave on a daily basis, we generally see those changes reflected in various market and industry cycles.
The Future Global Citizen
Now that we live in a global age, we’re also seeing more instances where investment markets are influenced by demographic transitions occurring in other parts of the world.
So let's consider what tomorrow's global citizen will look like and how that may impact the buying decisions of investors today.
In the future, the global population will be older and worldwide it will be difficult to replenish our numbers because of fewer children being born, which does seem rather gloomy.
In fact, experts say we’re currently experiencing the greatest demographic upheaval our world has ever seen – one that will shape a significant new chapter in human history.
While fewer babies are being born, life expectancy is on the rise and vast swathes of baby boomers are ageing at an increasingly accelerated pace.
People are far more transient now, too, with cities growing at exponential rates as mechanised industry settles in major infrastructure hubs, and greater numbers of workers seek out CBD employment opportunities.
And we’re getting older
Up until this century, young people always outnumbered their older counterparts.
The thing is, over the past decade or so, the elderly population has been steadily displacing emerging generations and by 2050 it’s anticipated that the tables will have turned.
There are presently 600 million people aged over 65 making up eight per cent of the world’s population, but by 2050 more than 1.5 billion of the projected 10 billion people populating this planet will be over 65 years.
At the same time, people aged over 80 will increase six-fold from 125 million to 700 million.
Families have been getting smaller for some time in Australia, with today’s female averaging 2.5 children.
By 2050 we’ll be back to whole numbers, with women worldwide averaging two children, although this figure is expected to be less in much of the developed world.
But what does this have to do with property investment?
With a highly transient population, more people are inclined to relocate to large city centres in order to find work.
In 1950, less than 30 per cent of the world’s population lived in urban areas but today over half of us opt for the convenience of inner or near city living.
No doubt this trend will continue – encouraged by planning and political policy designed to contain the need for additional infrastructure, services and amenity at a time when resources will be stretched to capacity.
Australia’s major urban centres could also prove attractive to skilled migrants seeking a better life abroad, along with foreign investors who’ll likely witness relatively strong and consistent rental yields and growth patterns.
As our population increases and families start to shrink, further pressure will be exerted on what many claim is an already critically undersupplied urban housing market.
So shifting social demographics are set to influence Australian property prices for some time to come.
Fewer family units, as well as a rising demand for inner-city living, means that property prices in our capital cities will increase – again, because more demand than supply means higher prices.
That's why investors need to think long and hard about what they want their portfolio to look like today to ensure they are prepared for the property market of the future.
And, of course, a commitment to only buying investment-grade properties is a very good place to start.