What Australia's population growth means for investors

Australia's surging population, propelled by a wave of overseas migration, is reshaping the economy and creating a once in a generation structural investment opportunity across housing, healthcare and financial services.

According to the Australian Bureau of Statistics (ABS) the national population is projected to reach between 36 million and 45 million by 2056.

The country recorded net overseas migration of over 667,000 people in 2024, slightly down from 739,000 in 2023 but still significantly ahead of government forecasts by approximately 200,000 annually.

We believe this strong migration trend is more than a statistical anomaly. This structural population growth and migration-driven demand is going to serve as key catalysts for long term investment opportunities, particularly benefiting Australia's small cap companies.

Population growth boosts aggregate demand and acts as a shield against economic contraction, while simultaneously allowing the economy to expand without rapidly encountering labor market constraints.

Australia is now entering a multi-year, demand led growth phase, particularly in segments where supply is structurally lagging.

Housing undersupply is a persistent issue across all states now.

As of March, the total number of dwelling units commenced rose 11.7% to 47,645 dwellings, far behind both on estimates of demand and the government's target of building 1.2 million homes in five years.

As a result, vacancy rates in major cities have dropped below 1%, despite interest rate pressures.

Healthcare sector is gaining traction due to expanding patient loads, growing aged care requirements and in financial services there is increased activity in mortgage origination. We see these trends accelerating in response to population growth.

Much has been discussed about the parallels between Australia and Canada, both of which have embraced high immigration as a growth lever.

However, Australia appears to be better positioned to monetise the demographic shift. Australia posted GDP growth of approximately 2.3% in 2023, compared to Canada's 1.2%.

Despite similar migration rates, Canada is grappling with demographic and housing challenges, while its real GDP per capita is projected to decline.

Meanwhile, Australia is leveraging its immigration tailwinds more effectively, helping maintain consumer confidence and labor market stability.

In terms of investment strategy, we believe the most effective exposure to these macro forces lies in high-quality small and mid-cap companies with the capacity to scale into under served market segments.

The healthcare industry, in particular, is expected to continue its upward trajectory, with a projected compound annual growth rate (CAGR) of 4.5% from 2021 to 2028, driven by an aging population's increasing demand for healthcare services and the pressing need for digital infrastructure.

The industry offers favorable demographics due to Australia's aging population, a strong focus on research and development (R&D), a robust regulatory framework, public-private partnerships and opportunities in medical tourism.

Looking ahead, the Datt Capital Small Companies Fund is well positioned across thematically aligned businesses in residential development, diagnostics, mortgage servicing and digital financial infrastructure.

Passive strategies often overlook these sectors, but companies in these sectors offer strong earnings growth and pricing power. For investors willing to target underserved pockets of the economy, the implications are potentially transformative.

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