The Australian Government’s Intergenerational Report was released on Monday, with the Property Council of Australia describing it as a ‘wake-up call’.
The report examines the sustainability of current policies and how Australia’s demographic, technological and structural trends may affect the economy and budget over the next 40 years.
Treasurer Josh Frydenberg indicated the pre-pandemic budget was adequately balanced, but COVID-19 has created long-term repercussions.
“Intergenerational reports always deliver sobering news, that is their role. The economic impact of COVID-19 is not short-lived,” Mr Frydenberg said.
It is predicted Australia will likely have a smaller population over the next 40 years, which could impact the real estate and housing industries over the long-term. .
In 2060, 23 per cent of the population is projected to be over 65-years-old. This is a rise of around 7 per cent for this age demographic when compared to 2020.
Additionally, working-age people compared to those over 65 is projected to fall from an average of 4 to 2.7 over the next 40 years.
The report suggested there will be a slower increase in population as well, which can create a slowdown in economic growth.
UNSW ARC Centre of Excellence in Population Ageing Research (CEPAR) Senior Research Fellow Rafal Chomik told The Conversation that these demographic changes will also affect future government spending and leave the budget in “continual deficit”.
He predicts spending on ageing and health will be increased more than previously projected. It can be assumed this has the possibility to affect spending elsewhere, including in the housing sector.
This is also where the impact of COVID-19 really comes in. The report indicated there may not be as much migration into Australia long-term, which it noted is the largest source of population growth and generally helps offset population ageing.
Property Council of Australia chief executive Ken Morrison suggested the government needed to boost population growth in order to address economic constraints.
“If safe immigration is not resumed until well into 2022, Australia risks losing ground to our competitors as students and high value workers take other opportunities,” Mr Morrison said.
There is also a lower fertility rate among younger generations, according to the report.
While the report does not directly indicate how this will affect housing, recent data from the New South Wales (NSW) Treasury shows how these predicted changes may come into play.
The NSW data indicated by 2060, the number of people per household would be down to 2.3. Currently, there are an average of 2.5 people per household.
The treasury also indicated that 1.7 million additional households will be required by 2061 in NSW alone.
Additionally, the NSW treasury points out that homeownership is the key to building secure and independent retirement.
With an ageing population, as the Intergenerational Report suggests, it appears to be more important than ever for people to buy a home.
All of these aspects also continue to affect housing affordability, which the NSW treasury defines as a “key challenge”.
According to their data, the time taken to save for a deposit has already increased from 6.6 years in 1996 to 11.5 years in 2020.
The projections are, of course, uncertain. In the last Intergenerational Report in 2015, it would have been impossible to predict the coronavirus pandemic and the changes it created.