I actually wrote today’s main newsletter article late last week; I called it “Truth About Housing Affordability”. Coincidently, this very topic has had much media debate this week and after reading Christopher Joye’s online blog yesterday, Is Australian Housing Expensive, and listening to a segment on Lateline where Steve Bracks and Bob Carr discuss population growth, I couldn’t refrain from writing a follow up to my first article. I have called this; “mrd’s Property Selection Bias”.
Many have read my earlier contributions to the housing affordability debate; which are at odds with the populist view that ‘Australian housing is very expensive by international standards’. Christopher Joye is the managing director of Rismark and the arguments he puts forward in his article ‘Is Australian Housing Expensive’ are quite compelling, in my opinion.
- Australia has a very high rate of home ownership internationally (around 70 per cent at the time of the 2006 Census). How so if housing is so expensive?
- Another indicator that our housing is not internationally expensive – we also have amongst the lowest mortgage default rates in the world with just 0.66 per cent of the five million borrowers with a loan, materially behind on their repayments. This is just 10% of the US figure and 25% of the UK data!
- Based on the RBA’s preferred benchmark, housing affordability is no worse than it has been on average over the last 28 years.
mrd’s Property Selection Bias
Clients and subscribers alike would notice that it is the exception to the rule, that we recommend house and land; our featured property of the past few weeks, Lily Rise, is one such exception.
The issue is not so much what to buy as it is where to buy (or invest). Freestanding houses are generally located in areas remote to essential infrastructure such as transportation, shops, hospitals, employment and so on. New subdivisions developed on the fringe of capital cities mean (busy) residents must spend more time stuck in traffic burning fuel. Looking forward, with an understanding of changing demographics, I believe these areas are likely to experience a slower rate of capital growth. Regional towns where the population base is small are also likely to produce slower capital gain, in my opinion.
NB: Investing is personal and one size doesn’t fit all. My comments are to support a broad-brush philosophy, not offer advice to any individual. There are times when investing further away from an infrastructure hub may best serve your particular situation; as property mentors our job is to thoroughly explore all options and their impact for you.
Attractive rental returns may initially seem enticing, however, based on my 10 years experience the success I have enjoyed from my property portfolio has been a “capital growth story”, I was never going to get rich on rents.
Christopher Joye Commented
After reading Christopher Joye’s comment it should become apparent as to why I was so interested:
The supply that is coming online is also a poor substitute for existing homes because it does not have the same ‘amenity’ value (think location, schools, hospitals, transport etc). This creates additional risks for investors since the high cost and poor location of new supply means that it has questionable demand prospects, which is one reason why the finance available for development has dried-up.
So when you see us recommending units in places such as Robina Town Centre it is because the infrastructure (new rail line, new hospitals, new shops, highway extensions etc; in fact over $7,000,000,000 worth – that’s seven billion dollars) has meant demand has pushed land prices to a point where units and townhouses are the only viable options. You simply cannot buy house and land and remain in the “centre of the bullseye”.
Lily Rise Is The Exception
I mentioned Lily Rise as an exception. WHY? Because these are house and land, but just 800 metres from the “bullseye” of Coomera Town Centre. The state government is pushing for this Town Centre to complete within four years, reportedly creating 20,000 new construction jobs. Lily Rise is, therefore, one case where it is possible for you to buy as the town centre is developing, in an area which is expected to boom with a population of 83,000 by 2016 and 100,000 by 2026.
To again quote what I once heard Michael Matusik say at a conference:
If you want capital growth, remember this, infrastructure rules, you go where the infrastructure is going.
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Happy Investing,
Martin Bell,
mrd Customer Care Program… because investing is personal
Read: Is Australian Housing Expensive
Read and View: Steve Bracks and Bob Carr discuss population growth
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