As a background to the current Sydney bubble a report from Planning NSW based on the 1990 – 2010 period shows that there had been three clear cycles of population growth and dwelling completions. Where in the third cycle the massive population growth from net immigration was not met by any real increase in construction of new dwellings.
The report shows that in 2009 Sydney’s population was 4.5 million people or 63% of the state’s population of 7.1 million at that time. It suggests that by 2036 the Sydney’s population is forecast to increase to 6 million. Of course this also shows that 37% of the state’s population don’t live in Sydney, something Macquarie St often appears to forget.
It does appear that construction over the period lagged seriously behind growth, largely due to the unattractive return on investment for developers with construction and development costs dramatically rising over 15 years. While investor rental yields struggled to achieve 4% something that is now even more of an issue with current growing vacancy rates. Which is something of a contradiction however the current development boom particularly in high rise apartments may outstrip demand and push rental returns even lower.
Many people believe that low economic growth regulates interest rates however the Planning NSW report clearly shows that historically his has not been the case as the graph below shows the significant variance in the CPI as against the RBA cash rate.