A common question people ask is, “can property values continue to rise at the same rate which they have over the past 3 to 4 decades?” The short answer is no, they cannot. Mathematically, this is unlikely to occur as incomes are not rising at the same pace.
I came across the interesting graphic/visualisation (below) which sets out how property values have changed in real terms (excluding inflation) since 1970. The surprise for me was how much Canberra prices have risen (thanks, public servants and politicians!) and how attractive Brisbane prices appear.
What has driven growth over the past 3 to 4 decades?
In order to form a view with respect to future property growth, it is important to understand what has driven property values over the past few decades. There have been some events which are unlikely to be repeated. Below are some of the key factors, in no particular order.
Population growth
Australia’s population has been growing at a faster rate than other developed countries, mainly due to higher levels of overseas immigration. Population growth increases demand for housing, especially in capital cities as skilled migrants are attracted to job opportunities.
Increase in access to borrowings
Australians are borrowing 2 to 3 times more than they were in the 1970s. Banking deregulation in the ’80s and ‘90s opened up more competition between lenders and reduced home loan margins i.e. mortgages became cheaper. The tables were turned, and suddenly potential borrowers were being approached (marketed to) by the banks, not the other way around.
Increase in household income
In a family unit, it is a lot more common for both spouses to work compared to fifty years ago. In fact, often it is necessary for both spouses to work in order to afford to live in their desired location. The transition from one to two household incomes has extended property purchasing power.
People are buying their first home later in life
In my experience, most first home buyers are in their late twenties to early thirties. This is partly because homes are relatively unaffordable for younger people in their early twenties.
But also, younger people tend to prefer to focus on their career thereby maximising t
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