Learning to know what are the root causes of property price fluctuations can be challenging for any investor. What do the statistics really mean? Do they represent the factors that change prices in the property market?
There are some well-recognised factors that drive the market and, whilst not a science, by paying attention to them you will be in a great position to understand housing market trends.
1. Supply and demand- Population change is the key driver of demand. When an area becomes popular more people want to live there given that there are fewer dwellings than interested parties, prices increase. Conversely, when the population declines and there are more dwellings than people, prices decline, as Marquette Turner reported only recently. Generally trends in population growth don’t change rapidly.
There are, however, instances whereby population growth can accelerate, and thus provide investors with opportunity: these include changes in immigration quotas, changes in infrastructure making areas more or less attractive and accessible to live in, and changes to employment such as the booming resources industry.
2. Affordability and availability of money-Affordability is the relationship between housing prices, interest rates and wages. It’s the cost to the owner or investor to retain and enjoy a property. When prices, interest rates and wages reach a ceiling in a particular area, residents often realise they can have a better lifestyle elsewhere.
A good example of this has been the rapid migration of Sydney homeowners moving into the Brisbane and Gold Coast regions. This, in turn, has raised prices significantly in Brisbane to the point where the median price is almost on par with Melbourne. Thus, this would suggest Brisbane’s price have reached their peak for some time.
3. The resources boom-The current boom in natural resources being mined, harvested and extracted to fund international infrastructure projects, especially in China and India, has increased the demand for skilled and semi-skilled workers. Unlike some other industries, the mining industry pays most of its workers high salaries and demand for these workers is driving salaries even higher. These workers are then seeking to improve their lifestyle by buying bigger and better homes, or maybe an investment property or two. In Perth, Darwin, parts of Queensland and other mining areas there are whole suburbs, towns and cities of people with the ability to afford more.
4. Infrastructure-Infrastructure is always a major driver for price growth when it increases the attractiveness and amenities of an area.
The benefits of infrastructure are generally recognised after the changes. Here are a few examples:
North-West Sydney – the opening of the M2 and M7 freeways made the north-west of Sydney more accessible and attractive and resulted in increased property prices and rental return.
5. Sea change-The population shift towards waterside living has pushed prices up in all capital cities and many coastal regions. This trend is continuing and has resulted in waterside investors obtaining greater returns.
6.Ageing population-Over the next five to ten years most Baby Boomers are expected to retire from the workforce and look to move to the seaside in order to improve their lifestyle. They will also need income and many have responded in surveys that they intend to buy investment properties.
This may include consideration of commercial property investment as they can use their super scheme to invest as it’s easier to manage than residential property and has greater returns.
Put a number of these drivers together and you have an extremely good understanding of what’s going to drive price growth. Having identified these areas, careful homework may reveal good cash-flow returns as well.