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Australia population boom breeds economic fortune

A large part of Australia consists of uninhabitable desert or bone-dry bush. The country is battling one of its worst droughts ever and is one of the most vulnerable nations in the world to climate change. Locals were reminded of that last week when a storm swept 2,000 km from the centre of the country to cloak Sydney in fine red dust.

A large part of Australia consists of uninhabitable desert or bone-dry bush. The country is battling one of its worst droughts ever and is one of the most vulnerable nations in the world to climate change. Locals were reminded of that last week when a storm swept 2,000 km from the centre of the country to cloak Sydney in fine red dust.

Australia is in the middle of a population boom that played a major part in saving it from a global recession and promises to fuel economic growth for years to come.

Figures this week showed population growth topped two per cent in the year to March, the fastest pace on record and the highest of any advanced economy. There could well be 60 per cent more Australians in the next four decades, a fertile contrast to countries like Japan and Germany where numbers are shrinking.

"While Europe and Japan are stagnating, Australia is moving ahead," said James Craig, chief economist at CommSec. "More people translates to increased spending and demand for homes, and as a result, increased momentum for our economy."

Many of those people were imported. Net migration of 278,200 was the highest for any year since 1788. Yet the natural rate of increase, or births minus deaths, also hit a fecund 15 per cent.

Australia's population jumped by a record 439,100 in the year to March. That growth rate of 2.1 per cent was faster than the United States, Canada, almost all of Europe, China, India, Singapore, South Korea and Japan.

The impact of all these new people has been crucial for the Australian housing market, which has avoided the double-digit price losses seen in the US and UK that have crippled consumer confidence and left banks laden with bad debt.

Data from property experts Residex showed house prices rose 1.3 per cent in August, the third month of gains. National average house prices were 1.9 per cent above their 2008 peak, a long way from the 40 per cent falls seen in some US states.

The resilience of house prices was one reason the Australian economy managed to grow over the first half of this year, even while most other developed economies wallowed in recession.

Home construction is already failing to keep pace with demand, a trend exacerbated by a squeeze on financing for big apartment projects because of the global financial crisis. And the gap could only get worse.

The Labor government now estimates Australia's population will jump to 35 million by 2049 from the current 21.9 million and compared with a previous forecast of 28 million.

In contrast, Japan's population is forecast to fall by a quarter over the same period.

Australia's Housing Industry Association reckons an extra 70,000 homes need to be built every year.

"Already Australia has a substantial gap between the supply of dwellings and underlying demand," said Shane Goodwin, HIA's deputy managing director. "The gap is set to widen further with obvious consequences for house prices, rents and affordability."

More people also means more workers and, potentially, more economic output. Even if gross domestic product per head remained steady, such an increase would double the country's annual economic output to A$2 trillion. Assume past rates of annual growth, and it easily tops A$3 trillion.

Policy makers have also concentrated on bringing in skilled migrants, greatly easing what had been a major handicap for business here, particularly in healthcare and mining.

And they are generally young, so helping address the problem of an aging population, a common problem in the developed world. Australians have also been encouraged to have more kids with tax breaks, generous leave and help with child care.

Japan this week marked a venerable milestone when one in every four women reached 65 or over. China also faces a rapidly aging population, while for Asia overall, the proportion of those 65 or over is expected to quadruple by 2050 to almost one billion.

For the Australian government, more people of working age means more potential tax payers.

"So many countries are shrinking and that poses a real problem in terms of having a strong tax base for the future and a strong economy," Prime Minister Kevin Rudd declared last week. Not everyone is happy at the prospect of a world with more Australians in it.

Some say water, infrastructure and health resources in the world's driest inhabited continent are already overstretched.

Australia may be the 12th largest country in the world and only 55th in terms of population, but much of it is uninhabitable desert or bone-dry bush. It is battling one of its worst droughts ever and is one of the most vulnerable nations in the world to climate change.

Locals were reminded of that last week when a storm swept 2,000 km from the centre of the country to cloak Sydney in fine red dust. "Sleepwalking into an environmental disaster," was how one of Labour's own lawmakers reacted to the population predictions.

Yet economists are optimistic.

"Yes, there's a danger of overcrowding and shortages damaging our quality of life," said Brian Redican, senior economist at Macquarie. "But other countries have managed it."

"As long as its planned for with more spending on roads, schools, hospitals and such, it should be very positive for economic growth."

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