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Population Density and Residential Property Values: An Academic Exploration

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In the realm of residential real estate, the impact of population density on property values stands as a subject of considerable interest and practical significance. This article aims to delve into the nuanced relationship between population density and home values, drawing insights from current Core Logic data. Through a scholarly lens, we examine the multifaceted dynamics presently shaping Australia’s housing market and offer discerning property buyers a comprehensive understanding of the interplay between population density and residential property values.


Theoretical Framework

Population density, defined as the number of individuals residing within a given area, serves as a fundamental determinant of housing market dynamics. Grounded in economic theory, the demand-supply framework posits that population density exerts a substantial influence on housing demand, with higher densities often correlating with increased competition for limited housing stock.

Drawing upon the principles of urban economics, the bid-rent theory further elucidates the relationship between population density and property values. According to this theory, areas characterized by higher population densities typically command higher land rents, reflecting the heightened demand for housing in densely populated urban centres. This theory can be witnessed in practice within the 15km radius of Sydney’s CBD, notably in the Eastern Suburbs, Lower North Shore and Inner West.


Empirical Insights

Recent Core Logic data highlights the empirical reality of population density’s impact on residential property values, as evidenced by trends observed in Australia’s housing market. Across the entire continent, approximately 3% of its area is inhabited by 75% of the country’s population. Contrary to many other countries, the majority of Australia’s land mass is desert, so the populations tends to be proliferated throughout the coastal capital cities.

Urbanisation trends and demographic shifts play a pivotal role in shaping the housing market landscape, with denser urban environments often experiencing greater demand for housing and subsequent appreciation in property values. Furthermore, urban consolidation efforts and infrastructure investments contribute to the desirability of high-density areas, further bolstering property values in these locations.

Looking at the data once again, medium density housing development approvals – such as apartments and townhouses – are at record low levels. In fact, according to the ABS they are the lowest they’ve been in the past 14 years.


Policy Implications

The implications of population density on residential property values extend beyond theoretical constructs, with significant implications for housing policy and urban planning initiatives. Policymakers must consider the socioeconomic ramifications of population density on housing affordability and access to housing, particularly for low-income households.

Moreover, strategies aimed at promoting sustainable urban development and improving housing affordability must account for the complex interplay between population density, land use, and property values. By fostering inclusive and equitable housing policies, policymakers can mitigate the adverse effects of population density on housing affordability and promote sustainable growth in Australia’s housing market.


Where To From Here?

The relationship between population density and residential property values is a multifaceted phenomenon that warrants careful consideration by property buyers and policymakers alike. Grounded in economic theory and supported by empirical evidence, the influence of population density on housing market dynamics is undeniable.

As our population continues to grow, the housing effects experienced in each capital city will be diverse. With a low capacity for urban sprawl, Sydney will likely experience greater medium density development. This is in contrast to capital cities such as Perth, which can afford to geographically spread. How each capital handles housing for their increasing population will likely be dynamic and highly idiosyncratic.

As discerning property buyers navigate Australia’s dynamic housing market, a nuanced understanding of the interplay between population density and property values serves as a valuable asset. By leveraging academic insights and empirical research, buyers can make informed decisions to optimise their investment outcomes and contribute to the sustainable growth of Australia’s residential real estate sector.

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