Who we are and how we are changing
DEMOGRAPHICS – The socioeconomic characteristics of a population expressed statistically, such as age groups, gender, ethnicity, geographic regions, income brackets, average household size, unemployment, occupations, birth rates, net migration etc. etc
A National Census of the population is conducted every five years and collects information about a wide range of topics.
“The Census of Population and Housing (Census) is Australia’s most extensive statistical collection undertaken by the Australian Bureau of Statistics (ABS). For more than 100 years, the Census has provided a snapshot of Australia, showing how our nation has changed over time, allowing us to plan for the future.
The Census aims to accurately collect data on the key characteristics of people in Australia on Census night and the dwellings in which they live. In 2016, the Census will count close to 10 million homes and approximately 24 million people, and the most significant number counted to date.
The information you provide in the Census helps estimate Australia’s population, to distribute government funds and plan services for your community – housing, transport, education, industry, hospitals and the environment. Census data is also used by individuals and organisations in both the public and private sectors to make informed decisions on policy and planning issues that impact the lives of all Australians.”
The demographic factors to consider when making a property investment decision include:
1.Population growth – both national and local. Shelter is a basic need, and so as the population grows, does the demand for housing. With increases in population, the demand curve for housing shifts out to the right and ‘ceterus paribus’ (all other things being equal such as supply remaining constant), prices will rise to ration the available options. Australia’s population is increasing rapidly, hitting forecast milestones ahead of time – a result of both natural increases (births – deaths) and net migration. (new arrivals – people leaving)
RMIT ABC Fact Check
We have seen that the property market is a misnomer. Demand and supply vary from state to state and town to town and between varying types of properties.
We have all viewed the stories about towns ‘dying’ due to the construction of a new freeway bypassing the local area or a change in export demand for raw materials or even government policies that condemn inefficient manufacturing to become a ‘sunset industry’. Car production in Australia and more recently, the cessation of the manufacturing of the iconic Australian car, Holden, is a classic example.
Allocative efficiency assumes that resources (including labour) will be redeployed to new ‘sunrise industries’. Labour is not however perfectly mobile nor is resources, and so if the jobs ebb away, people do too.
The population existing and projected for Local Government Areas is an influential demographic that needs investigation.
Buying in an area that has a population of at least 100,000 within a 10 km radius is an important benchmark. These people constitute the tenant pool now and the market on resale.
2. Household composition – there are approximately 10 million households in Australia and their makeup varies – couples, couples with children, singles,empty-nesters, extended families, and many other variations. The average number of people per household and the relationships of those cohabiting will influence the demand for housing and the type of accommodation. For example, the increasing divorce rate means that in most cases, two houses are required in place of the marital home. Changing family composition may lead to an increased demand for smaller, higher-density living to accommodate more modest budgets. A rising number of households with ‘grey hairs’ may mean an increasing demand for low maintenance apartments and townhouses and dual living arrangements.
A family-oriented demographic tends to supply stable tenants. Once children are established in schools and sporting activities and neighbourhood friendships, the desire for permanence increases, reducing tenant turnover and the costs associated with vacancy periods and lease renewals.These factors are all taken into consideration by a qualified advisor, knowing the type of tenant that is in their client’s best interest and is their preference and satisfies their strategic approach.
3. Average age- the dominant age group in an area is a significant factor. If an area is dominated by millennials (those born in the ’80s and ’90s), we are told they are unlikely to move to outer metro areas on large lots of land with grass to mow! Their preference is for more urban, medium-density locales. The other side of the coin is that in an area with a significant young family presence, it wouldn’t make a lot of sense necessarily to invest in an apartment. Though, there are always exceptions to the rule. Many families are sacrificing space to be within preferred school catchment areas, and so demographics need to be co-examined along with the other ‘things that count’.
4. Incomes – As incomes rise, people are prepared to pay more for housing both as tenants and as owner-occupiers. Above average and rising incomes is what allows prices to rise. However, it’s important to remember the key appeal factor of affordability. Many lower socioeconomic demographics make stable, reliable tenants and the lower price bracket maximises the market on exit.
5. Unemployment – to be able to pay rent consistently, most people need to be employed. Higher average unemployment rates are to be avoided, but once again, a proper analysis will consider the employment hubs in the area and the property’s proximity to those. It may be a matter of being more selective when it comes to tenant income and employment checks – and industry concentration. Some professions are recession and unemployment proof, such as those in health and education. Proximity to a new or newly expanded hospital in a suburb with a large and growing (even ageing) population may make an excellent choice.
6. Tenure – there are two ways of looking at this metric. A high proportion of renters may indicate that an investment property is appropriate because it seems to be in demand. It may be because the population is somewhat transitory as in the case of students (but there is an endless supply of them) or because it is a boutique area that has a very high ownership entry point. Alternatively, a much higher owner-occupier rate may present an opportunity to provide a solution that is lacking in the area and be in demand also, in other words, fill a gap in the market.
7. Occupations – Being aware of the predominant occupational categories in an area will also be a guide as to the type of property that will have market appeal. For example, if predominately ‘Trades & Technicians’, then garaging and storage is probably going to be necessary. This data also is an indication of the preference for and ability to afford higher quality housing and therefore the need to meet higher expectations in terms of amenities, design and inclusions.
A compelling motivation to invest
and create wealth
is to provide a financially secure
and independent retirement.
The best way to predict the future
is to create it
If you want to have future choices, you need to understand the conditions you will most likely face in retirement and make some informed decisions now.
Consider the following:
(a). Welfare dependence – Australia provides a welfare safety net for those unable to provide for themselves in the form of pensions and other income support measures.
Currently, social security and welfare absorb approximately 35% of the budget or around $192 Billion in 2019-20. (www.aph.gov.au)
The Age Pension is available for those who are no longer working and over the age of 65.5 – 67 years and meet residency and asset test limits.
As of 29 June 2018, 2.6 million people aged 65 and over received income support payments, equating to 2 in 3 (67%) of the population aged 65 and over. Of these, 95% (2.5 million) received the Age Pension
Post-retirement, nearly two-thirds of Australians receive government assistance as their main source of income (ASIC 2018), to meet everyday costs of living. (https://www.aihw.gov.au )
Given the accelerating size of the retiree cohort, (the ‘baby boomer tsunami’) a substantial proportion of those whom are reliant on government support plus the fact that 35% of the budget is already devoted to social services, it is clear that welfare dependence is unsustainable.
Assuming a baseline of outright homeownership and relatively good health, the Association of Superannuation Funds Australia provides an annual estimate of what income per year as a minimum is required to fund either a “Modest” or a “Comfortable” lifestyle in retirement. (www.superannuation.asn.au)
|Basic Requirement||Modest Lifestyle||Comfortable Lifestyle|
|Total income per year||$27,648||$39,775||$43,317||$60,977|
Now consider the level of income the Age Pension provides, and the predicament of welfare-dependent retirees becomes more self-evident:
|Aged Pension||Modest Lifestyle||Comfortable Lifestyle|
|Total income per year||$24,081||$36,301||N/A||N/A|
A ‘modest’ lifestyle is basic, and while a ‘comfortable’ one sounds more attractive; it is certainly not extravagant. It just means that it’s likely a couple can have a reasonable car, possibly private health insurance and an occasional overseas holiday.
(b). Australia’s Ageing Population
Welfare spending already absorbs 35% of public funds and will continue to grow because our population is rapidly ageing.
In 2017, 1 in 7 Australians were aged 65 or over. It’s estimated that over the next 40 years the proportion of the population over 65 years will double to approximately 25%. Additionally, because fertility rates are falling (average number of babies born) potential workforce participants and consequently, the taxpayers to support the elderly, are diminishing. Every workforce ends up supporting the generation before them, and so the burden on the future workforce is likely to be tough and unsustainable.
There will be fewer working-age population to support the growing group of senior citizens, and their level of support and services is likely to be compromised:
“In 2002 there were more than five people of working age to support every person aged over 65. By 2042, there will only be 2.5 people of working age sustaining each person aged over 65.” (demographics.treasury.gov.au)
Combined with a falling birth rate (3.1 babies per woman in 1921 to 1.8 babies in 2016) and the shrinking workforce, the pressure on the public purse will increase.
The logical conclusion is that individuals
will be under pressure to
fully fund their retirement
or at the very least accept a reduced level of support.
“The effects of ageing will be felt more over the coming decade than in the past due to the impact of the baby boomer generation retiring. This change has already begun to detract from economic growth, after decades of providing a boost to growth…Ageing will reduce tax revenue and add to spending pressures…”
AUSTRALIA’S AGEING POPULATION Understanding the fiscal impacts over the next decade Parliamentary Budget Office 2/19
(c). Life Expectancy is increasing
The current life expectancy for Australia in 2021 is 83.64 years, a 0.18% increase from 2020.
Before the introduction of the Age Pension (originally called the ‘Old-Age Pension’ ) the old and infirm had no financial support whatsoever. They were reliant on their families, churches or charities or government asylums!
In 1909 a Commonwealth funded, means-tested, non-contributory (funded by current worker’s tax) was introduced and paid to men from the age of 65 (women at 60 from 1910) when life expectancy for a man was 55 years!
Renamed in 1947, the Age Pension wasn’t intended to be a widespread or a long-term solution.
“The social effects of improved life expectancy at older ages include an increase in the aged population and the associated issues of income support for the aged and their need for health resources. However, the impact on the individual receives little attention…. the Third Age… refers to the lengthy period of active life following retirement and points out that it is a distinct and significant phase in most people’s lives…….an era of personal fulfilment.
Laslett, P. (1989) A Fresh Map of Life: The Emergence of the Third Age Weidenfeld and Nicolson, London.
Report of the House of Representatives Standing Committee for Long Term Strategies (1992) Expectation of Life: Increasing the Options for the 21st Century AGPS.
Retirement now means living for another 20, possibly 30 years as technology and health management advances. The health of the aged is also improving generally, and expectations in later life are very different in 2020 to what they were decades ago.
“The concept of ‘working age’ is slowly changing and through better health and greater longevity, mature-aged Australians continue to contribute socially, culturally and economically to the broader community. All political parties now recognise the importance of encouraging ongoing workforce participation and increasing retirement earnings and assets.”
Findings from the Work, Care, Health & Retirement: “Ageing Agendas” Project 2017
Consider too that life expectancy is increasing at an increasing rate. We can predict that a child born today will live well into their 80’s on average. Given the pace of improvements in medical knowledge and technology, these figures are likely to extend beyond the ’80s and into the ’90s within a decade or two!
(d). Compulsory Superannuation
Recognising the emerging need to reduce the burden of age-related welfare, in the late ’80s, the Federal Government formulated a retirement income policy identifying superannuation as a way of both boosting national savings and self-funded retirement incomes.
In return for the condition that a person’s super stay untouched or ‘preserved’ a concessional tax environment is provided as an incentive.
The Compulsory Superannuation Guarantee was introduced in 1992. Employers are compelled to pay an additional 9.5 % of wages into an employee’s complying fund. The Super Guarantee is legislated to rise to 12% of wages between 2021 and July 2025.
As of the end of 2019, superannuation assets in Australia totalled $2.9 trillion. (www.apra.gov.au)
Compulsory Superannuation is one of the four pillars of the retirement income system (along with the Age Pension, private savings and homeownership) and it aims to help maintain living standards across our lifetime – i.e.’ lifetime consumption smoothing’.
“People tend to focus too much on the short term, leading many to save less for their retirement than is needed if they want to consume at about the same rate across their lifetime”
Financial System Inquiry  Financial System Inquiry, Final Report
“Average superannuation balances at the time of retirement (assumed to be age 60 to 64) in 2015-16 were $270,710 for men and $157,050 for women.
Given that the system is still maturing in terms of reaching the proposed long term rate of contributions and many Australians have received compulsory contributions for not much more than 20 years, the majority of adult Australians still have relatively modest levels of superannuation. It will be another 30 years or more before most individuals will have the full benefit of a mature SG system.”
October 2017 Ross Clare, Director of Research ASFA Research and Resource Centre
The Old Aged Pension was introduced in 1909 and was accessed by a tiny percentage of the population as the qualification age was 65, and male life expectancy was only 55!
Currently, 2.4million recipients receive the Age Pension or part thereof.
The current Age Pension for a couple combined is $36,301 per annum or $1396 per fortnight.
Almost half of the retirees depend to some degree on Government welfare.
The Age Pension affords a couple a ‘Basic Lifestyle’ (assuming you own your own home outright and are in comparatively good health)
Our population is ageing. By 2060 it is estimated that 25% of us or 1 in 4 people will be over 65 and there will be only 2.5 people of working age for each 65+ individual. There will not be enough taxpayers to keep the pension at current levels.
A “Comfortable Lifestyle’ requires a minimum of $61K for a couple.
The qualifying age to receive Government Age Pension benefits is rising to 70 for those born after 1965 by 2035
We are living longer – life expectancy for males born now is 80.4 years, and for females, it is 84.6 years. Retirement income needs to last longer than ever before.
Women’s superannuation balances are on average significantly less than for males.
Abundance isn’t finite, there are opportunities for average Australians to create wealth, but you need to know about them and be prepared to act on them!
It comes down to knowledge and attitude.