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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 24 March 2017

Gold in them thar hills!

Gold rush!

In 1851 the population of Victoria was below a lowly 80,000, although Aboriginal inhabitants weren't included in the Census counts. 

By 1854, the state population had tripled according to some estimates, and by the time of the 1861 Census the population had doubled again, by which point the population of the state had hit a seething mass of 540,000, more than 320,000 of whom were men. 

There was a similar trend unfolding in New South Wales, though the numbers weren't as dramatic, as hundreds of thousands of men and their wives came from Britain, other parts of Europe, and America.  

The reason, of course, was gold

The 1861 Census of Victoria makes for eye-popping reading, with employment for gold mining and mechanics dwarfing everything else, including agricultural work, and reported unemployment extraordinarily low. 

Boom & legacy

Gold production reached a peak in 1853, yet immigration continued to boom for long after this point as men came to seek their fortune.

This reflects one of the paradoxes of a population boom: when the music stops - that is, when the initial or underlying drivers of a demographic boom subside - then the downturn can get nasty.

During the 1850s the population of Victoria exploded - the value of property rose rapidly and for a while this was the richest "country" in the world, with Melbourne becoming a genuine boomtown and one of the British Empire's greatest cities. 

The gold rush in many ways made Australia what it is today, with the national population rising from under half a million to 3.8 million by the turn of the century. 

The boom wasn't without its challenges, with the famous Eureka Stockade arising from the poor conditions experienced by workers, racism and killings experienced on the goldfields, and ultimately changes in legislation surrounding gold exports and a slump in global demand. 

Last of all, there was the Great War, which bled Australia of its mining labour. 

Melbourne reigns again


Since the tail end of the gold rush boom in 1888, for many decades population growth in Victoria failed to attain the top spot of the states. 

Over the last two years, however, Victoria has returned to number one.

There are three components to population growth: the natural increase (births minus deaths), net migration from interstate, and net migration from overseas.

Victoria has historically lost residents interstate, but now this trend has reversed with gusto, and population growth is once again soaring to record levels. 

Net interstate migration (17,185) is at levels we've not recently seen and rising, natural increase is pumping along (41,700), and net overseas migration (68,613) is reverting northwards too, particularly into Melbourne.

The result is explosive annual population growth of 127,498, with the total state population blazing past 6.1 million.


There have been many predictions of apartment oversupply, but in the short term at least, these have been negated by the accelerated population growth. 

In fact, dwelling completions have not been keeping up with demand, and Melbourne's vacancy rates have declined close to a 10-year low


Cautionary note

There was no gold rush, this time around, rather we've seen a Melbourne jobs rush, with the construction boom and its associated multiplier one of the underlying drivers (arguably there's the dubious "most liveable city" thing as well). 

Yesterday's employment figures showed that nationally the greatest net jobs creation was seen in construction (+45,500) over the three months to February 2017, far outweighing employment growth in all other sectors of the economy.

Total employment in the construction sector has now risen to more than 1.1 million from a total workforce of under 12.1 million.

Of course, I don't know for certain where the limit is for construction employment, but I'm personally willing to take a bet that we're somewhere close to the top here. 

There's an inherent associated risk for Melbourne's property market.

As I've noted before on various podcasts, explosive population growth is great for property markets until it isn't, and you never want to hit a bump in the road when you're travelling at twice the speed limit.

Should employment from the record residential construction boom subside quickly, or should Melbourne fail to create the necessary jobs to sustain its population boom at gold rush like levels, there could eventually be some fallout given that dwelling units under construction are still at near-record levels.

In the meantime apartment landlords can probably breathe a bit of a sigh of relief.