Understanding Property Cycles and Structural Change - Part 1 of 2

“The difficulty lies not so much in developing new ideas as in escaping from old ones” - John Maynard Keynes, The General Theory of Employment, Interest and Money, 1935

Property Cycles

Economic cycles in Australia are the key determinant of fast value growth in the property sector.  As economic booms approach, the Australian population growth accelerates (as indicated in Figure 2)[1].  As the figure shows, net overseas migration increases in tandem with the increasing GDP.  It also shows that the share of Australian population growth contributed by net overseas migration varies between 20% and 60%.  Natural population growth rates have increased over time (i.e. fertility), but this factor moves slowly.  In contrast, net overseas migration responds quickly to economic opportunities.

Figure 1: Average GDP Growth, by Decades Average GDP Growth, by Decades

Source: ABS Cat. 5206.0 (2013);Treasury, N. G. Butlin (1962)

Net overseas migration generates direct demand for dwellings, and indirect demand for retail, office and industrial floor space, either in terms of the consumption of goods and services or through employment.  Net overseas migration not only varies dramatically over time (e.g. by up to 100% annually over the past 20 years), but this variation extends to specific locations within Australia.

Figure 2: Net Overseas Migration and GDP Growth Net Overseas Migration and GDP Growth Source: ABS Cat. 3412.0 ; Department of Immigration and Citizenship

Figure 3: Sydney – Overseas Migration Compound Annual Growth, 2001–2011 Sydney overseas migration compund annual growth

Source: ABS Census (2001, 2006, 2011); MacroPlan

This means, as Figures 3 and 4 indicate, that at a local level, areas like Sydney’s inner city, which attracts on a long-term average attract about 5,000 migrants per annum, could annually attract between 2,500 and 7,500 migrants, depending on economic cycles; This research and insight prepared by Macroplan chief economist Jason Anderson is indicative of the extreme impacts which structural change can have on urban areas. From a property perspective, this means the annual demand for new apartments could vary between 1,250 and 3,750 in any given year.  Identifying the growth years and building early can result in profit margins 25–50% higher than the average; hence the critical importance of understanding how the property market is responding to economic cycles.

The variability in GDP growth also translates directly into employment growth as distinct from population growth.  This is critically important, because employment is the key determinant of household decisions to purchase dwellings either as a first home buyer (i.e. through household formation) or an upgrader.  Figure 6 indicates that while employment growth in Australia has been consistently around a long-term trend of 1.5–2%, from peak to trough, there is a 300% band of variability.  This translates directly to home purchase decisions and dwelling construction.

Figure 4: Sydney – Strongest Growth in Overseas Migrant Numbers, 2006–2011 Sydney - Strongest Growth in Overseas Migrant Numbers, 2006 - 2011












Source: ABS Census (2011); MacroPlan

For example, economic cycles in Australia translate into annual dwelling demand fluctuating from 130,000 to 190,000 per annum, with average construction levels at around 145,000 dwellings.  The boom years in Western Australia (2003–2007) added 100% to the price of fringe dwellings for example, with raw land prices (i.e. englobo) not contributing much to the price equation in the short term.  This meant that around 50% of the value of price increases was additional profit.

Figure 5: Unemployment in Australia, 1900–2000 Unemployment in Australia, 1900 - 2000

Source: RBA (2004); ABS (2013)

The major economic cycle control technique in Australia has been interest rates.  Since 1996, these rates have been set to keep inflation in a medium-term band of 2–3%.  As the Australian economy moved into boom conditions in 2007, interest rates hit 9%.  Savvy property developers were able to make major profits at this time, particularly in relation to fringe residential land subdivision and project home construction.

Figure 6: Employment in Australia, 2003–2011    Employment in Australia, 2003 - 2011









Source: ABS 6202.0; MacroPlan

Fixed and Variable Interest Rates, as at March 1982–2013 Fixed and Variable Interest Rates, as at March 1982 - 2013

Source: RBA (2013); MacroPlan


[1] For a more detailed discussion, see ‘Follow the Money’ in Made in Australia (2012), B.Haratsis and D.Haratsis.


Over the next few months, Brian Haratsis will share excerpts from his book, Beyond the Fringe on the MacroPlan website.  If you have any questions regarding the excerpts or you would like to order a copy of the book, please contact Dorothy Patrick, Executive Assistant to the Chairman on 03 9600 0500 or via email patrick@macroplan.com.au


About the author:

Brian HaratsisBrian Haratsis Executive Chairman E: haratsis@macroplan.com.au P: 03 9600 0500
Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years’ experience as an advisor to governments and major corporate clients throughout Australia.Brian commands an unparalleled, on-the-ground knowledge of residential markets across Australia, having worked extensively and regularly in all capital cities and key regional markets. 
About MacroPlan:
MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Brian Haratsis, Executive Chairman today to discuss your property research requirements.