Property Investment, Success & Money | The Michael Yardney Podcast What are the big influences in our property market today?
The main one is one you probably haven’t thought about. We often talk about price growth and supply and demand and the economy, but the one I’m going to share with you today may change the way you think about buying your next investment.
So hopefully, at the end of today’s show, you’ll have some clarity on the big influences and what we at Metropole research when we help make our recommendations.
Is this the most significant factor driving our property markets?
What is the little secret behind whopping price growth?
It’s not the economy, even though that’s important.
It’s not supply and demand, even though that plays a role.
It’s not infrastructure spending, availability of finance, or population growth either.
Although all of these things are important and undoubtedly impact our real estate markets, the truth is there is one major factor that drives property values more than anything else.
And that factor is homeowners or as we sometimes call them – Owner Occupiers.
Fact is: they own close to 70 percent of all the properties in Australia and therefore dominate our market and without them, it simply falls over.
So, it’s interesting that while owner-occupiers are one of the most significant influences on property, they are commonly overlooked.
Here’s a relatively current snapshot of the national property market according to the Australian Bureau of Statistics (ABS) and CoreLogic:
- There are 10.7 million residential dwellings Australia-wide with a total value of $9.8 Trillion Spread across around 15,000 suburbs
- An additional 130,000 to 160,000 new dwellings are added every year
- The total debt against these dwellings is $2 Trillion (giving an overall Loan to Value Ratio for residential property of just over 20%)
- Residential real estate makes up 55.6% of Australian household wealth
- Investors own around 27% of Australian dwellings by number, and 24% by value.
- There are more than 2 million individual property investors in Australia
- Each property investor in Australia owns an average of 1.28 properties
This is why I always give the following advice to investors who are searching for a strong property performer:
Buy the type of property that will appeal to owner-occupiers.
Owning a property with an element of scarcity that is located close to amenities, jobs, transport, lifestyle features and cultural, social aspects like cafés, bars, and arts precincts will always attract home buyers.
But these are features that appeal to tenants, too.
In general, the more established suburbs with better infrastructure, shopping, and amenities tend to be close to the CBD and the water and that’s where the wealthy want to and can afford to live, and they’re prepared to pay a premium to live there.
The rich do not like to commute.
Overall, by focussing your research on what those often-overlooked owner-occupiers are doing, you may just find an investment that outperforms the market and delivers strong value and growth over the long term.
The 7 biggest influencers of our property markets
Regardless of the economy, cycle, or market conditions, property is always a hot topic of conversation.
The reality is that the property market isn’t an independent economy sector.
Rather, it’s inextricably linked to a myriad of other financial, social, and political factors, all of which impact what your family home, or your next investment property, might be worth.
So, what are these factors?
- Household formation
This oft-overlooked factor is actually more important than overall population growth because what increases the demand for housing isn’t the number of people living in a city (or country), but the number of dwellings needed to accommodate them.
- Demographics
It's likely that now that we're moving into a Covid normal life our borders will open meaning more and more people will want to come and live in the safety of Australia.
The population growth corridors of our cities tend to be poor capital growth locations.
At the same time these locations tend to be where new families and migrants move, and this demographic, which tends to have a little spare cash left at the end of the month, are areas where there is little ability to push up the value of properties – these are not high wage-earning areas.
- Affordability
Investors should avoid blue-collar areas or young family suburbs and seek out suburbs where wages growth is higher than the state averages.
These are locations where people can afford to and will be prepared to, pay a premium to live. These are often the gentrifying middle ring suburbs of our capital cities.
- Credit policy
Over the past few years, we’ve seen the significant impact changes in credit policy can have on our property markets.
The fact is people simply can’t buy properties if they can’t access the cash.
And while interest rates are unlikely to rise in the next little while, APRA is likely to interfere to try and slow down our property markets.
- National wealth, wage growth, and job creation
Artificial intelligence experts have estimated that anywhere from 20 to 40 percent of all jobs could be taken over by robots in the future, meaning there will be fewer employment opportunities for unskilled workers or those who perform repetitive tasks.
This means we will have fewer people doing more productive work.
All of this could impact buyers’ abilities to save deposits, secure finance, and pay mortgages, and in turn, influence house prices.
- Supply of dwellings
As I’ve already explained, increasing the supply of dwellings is going to be paramount as our population increases.
But people won’t buy a house and land package 40km from the CBD if they can’t get to work, or if local schools, shops, and medical facilities are lacking.
- Consumer confidence
Regardless of how readily available credit is, or how fast the population is actually growing, people’s perception of these things is just as important.
Buying property is an emotion-heavy process, and buyers – both owner-occupiers and investors – often let their heartstrings pull them in directions their heads might not.
Links and Resources:
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Shownotes plus more here: What are the big influences in our property market today?
Some of our favourite quotes from the show:
“While investors look at all types of drivers of capital growth, they often forget that it’s owner-occupiers who primarily drive our property markets forward.” – Michael Yardney
“The research that we do is looking at where more household formation is going to occur.” – Michael Yardney
“Currently, the media is full of negative headlines scaring off potential buyers.” – Michael Yardney
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