Jeremy Sheppard, creator of DSRdata.com.au, said that while a growing population should suggest more demand for properties and force prices upwards, the reality is quite different.
“For decades property investors have been taught that population growth is one of the most important drivers of capital growth. Not only is population growth the most overrated indicator of capital growth, but it can be an indicator of negative capital growth,” he said.
“The problem is perpetuated by many property investment advisors, educators and so-called experts. They incorrectly interpret property data, passing on their misunderstanding to investors.”
In the latest issue of Your Investment Property magazine, Sheppard explained that the problem with relying too heavily on population growth figures is that there is often a gap in the data.
Not only is census data only updated every six years, it seldom categorises what has actually happened to cause the population to increase. Among other indicators such as previous price growth, population data tends to lag behind.
“People don’t move into an area and live on the streets waiting for their new dwelling to become available. Instead, they move into an already vacant dwelling. Then the population growth figures are updated and then you and I hear about it,” Sheppard said.
“Investors need to consider population growth in terms of where people are going to move, versus where census data shows they have already moved to.”
He said that this is often accessible at a local level – some council’s provide population projections – but it is a difficult science. This is especially so when projecting to the next 20 to 25 years: the average length of a mortgage.
While Sheppard believes that population growth data can be an indicator of future capital growth in some circumstances, there are many cases when the data is virtually useless to property investors. And there are some cases where the data is downright misleading.
“Rather than try to discern one case from another, you should use more effective statistics such as vacancy rates. Vacancy rates don’t suffer from issues with geographical inaccuracy; low sampling rate; or unknown data breakdown. A very low vacancy rate is an indicator of imbalance. The balancing act is for either rents or dwelling supply to increase. If supply is limited, then there is only one option,” he explained.
To read the full report and ground-breaking analysis, read the latest issue of Your Investment Property magazine, out on sale on Thursday, 16 April.