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Mark Armstrong | March 21, 2011

I’ve said it time and again that the residential property investment is a long-term proposition.  The property market takes about seven to 10 years to move through a full cycle – from low capital growth/high rental yield, to high growth/low yield and back again. Despite this, many property investors choose locations and property styles with little potential to survive and thrive throughout market fluctuations.

Some investors choose locations that lack the long-term underlying demand to drive capital growth, while others choose property styles that don’t reflect trends in the way people want to live. In other words, the property investment decisions that look good today may not prove so attractive in five, 10 or 20 years.  It’s essential to understand the nature of long-term economic and demographic trends, then select assets accordingly.

Interest rates rise and fall, but in the long term, dwindling oil reserves and rising petrol prices will be a key economic trend influencing the property market.  In the coming years, rising prices at the pump will make outer suburban living and commuting less feasible and less appealing. This will curtail the urban sprawl and increase demand among homebuyers for property in the middle suburbs close to public transport corridors, shops and schools. At the same time, rising property prices in the inner and middle suburbs will put home ownership beyond the reach of more Australians, or at the very least, delay it significantly.

Figures from the Bureau of Statistics tell us that the proportion of households renting from private landlords increased from 19 to 22 per cent in the 10 years to 2006 when the last census was completed. What’s more, the proportion of Australians aged 35 to 44 who were renting rose five percentage points over the same period, to sit at 32 per cent.  There’s every reason to expect that this trend will continue. Because many tenants want to maintain the trappings of an urban lifestyle, the trend away from home ownership will increase demand for rental properties within walking or short driving distance from trams, trains, shops, cafes and entertainment.  This will further boost capital growth prospects in the inner and middle suburbs.

Delaying having children is another trend set to influence the residential market well into the future. The median age for parents is growing, at 30.8 for women and 33.1 for men.  And women aged 40 to 44 said to have completed their families have an average of two children, compared with 2.8 in 1981. The shrinking family unit means that demand for low-maintenance, compact dwellings will rise, while demand for the conventional sprawling home on an outer suburban block will fall. When you look at all these trends in their entirety, it’s clear that pockets of the middle suburbs with large blocks on land close to public transport, shops and schools will provide feasible long-term opportunities for residential property investment, particularly for investors who have been priced out of the tightly held inner suburbs.

Mark Armstrong is an independent property analyst and adviser.

>>> Why it’s essential to have long-term investment views.

Population growth has been a bit of a political “football” in recent times but the fundamental pressures are beyond question.

Recent figures from the Australian Bureau of Statistics (ABS) reveal that population growth has slowed considerably from its peak level of 2.2 per cent in 2008, down to just 1.6 per cent for the year to September 2010. This is however close to our 25 year average, with 345,000 new residents for the latest year; primarily due to a slow down in the surge of net overseas migration that we witnessed in the past few years.

In a recent article in the Australian Property Investor magazine , Michael Yardney has commented that this lower level of population growth is likely to be short lived.

He is reported as saying – “The bottom line is that we’re an ageing population and in order to sustain our economy and support the millions of retirees and pensioners that will be flooding the health and welfare systems over the coming years, we simply have to ‘populate or perish’. Regardless of how hard our politicians push the political barrow and how much noise they make about slowing down immigration, the fact remains that we have to increase our skilled labour force. Then there’s the rising rate of natural population growth due to our increasing lifespan and birth rate, which is completely outside the government’s control. “

The aging population is an issue common to all countries to a greater or lesser extent. We are told that around 43 per cent of our workforce is made up of Baby Boomers, many of who are going to retire over the next 15 years, but lack sufficient savings or superannuation to see them through their senior years.

As they leave the workforce they’ll stop paying tax, many will go on the pension and most will use our public health care system, placing a massive burden on our economy.

As Michael Yardney says “Despite the rhetoric from both sides of parliament we have to significantly increase our population to replace the workforce, capture skills and grow the economy. The question then becomes: where do we house these essential new residents?”

Adding to the population issue a recent article in the Courier Mail said that thousands of Queenslanders were already on the waiting list for public housing.

The main points in the article were-

1. Almost 30,000 in Queensland were waiting for a roof over their heads.

2. Canberra has declared state-managed public housing “outdated” and financially unsustainable.

3. Federal Housing Minister Mark Arbib has called for private investment into the state housing market, labeling the present system unsustainable.

4. Mr Arbib has forecast a 28 per cent spike in demand for housing in the next decade.

Politicians can debate the population issue as much as they like but the demographic pressures will continue to grow.

Happy investing,

Martin Bell

By PETER KOULIZOS, API Blog, April 11 2011

There’s much debate at the moment in relation to Australia’s future population. We’ve moved from Kevin Rudd’s ‘Big Australia’ to Julia Gillard’s ‘Sustainable Australia’.

Some are saying we should severely limit overseas migration and limit families to a maximum of two children. Others are saying we need many more (skilled) migrants and we should also allow more refugees to settle here. To make the population question a bit clearer, I’ve outlined the case for a bigger Australia against just two criteria: economics and the environment.

Read more >>> Australian Property Investor :: API Property Blog.

Terry Ryder, The Australian, 21.4.2011

The planets are falling into alignment for property investors at present. We not only have a buyers’ market in many key locations, but the scenario for rents and yields looks positive.

Two reports from credible research sources record a revival in rental growth in most of our major cities and predict solid rises throughout the year.

Rising median weekly rents in the March quarter point to sustained increases throughout the year, according to Australian Property Monitors.

“Renters should prepare for significant growth in rental prices throughout 2011, driven by accelerating economic activity, housing shortages and a depressed first-home buyer market,” said APM’s senior economist Andrew Wilson. Units in particular have seen a major shift in demand, with low vacancy rates for inner-city residences in most capital cities intensifying competition.

This shift continues a trend whereby some of the dominant paradigms of real estate are changing.

>>> Lifestyle changes push apartment prices level with houses | The Australian.

THOUSANDS of Queenslanders are languishing on public housing waiting lists while the State Government faces an uphill battle to build hundreds of promised new homes. The summer of disasters has put even more pressure on the system, with hundreds of flood victims joining a queue of almost 30,000 waiting for a roof over their heads.

The rental crisis comes as the State Government fails to meet its building targets after receiving $1.16 billion in Federal Government stimulus cash for public housing.With construction behind by almost 25 per cent, the Gillard Government has warned of a dire resource and labour shortage following the floods, which could mean Queensland never reaches the program’s building quotas. Canberra has declared state-managed public housing “outdated” and financially unsustainable.

State Housing Minister Karen Struthers has also flagged a possible overhaul of how the houses are allocated, saying Queensland can’t afford for anyone but the “most needy” to take up the homes. Ms Struthers told The Courier-Mail she was considering a “mixed rent model” of public housing, whereby tenants with potential to earn would be asked to pay more to live in housing in an attempt to encourage them back into the private market. Under the current system, households pay 25 per cent of their income to live in the housing and escape the strife of the private rental market. The wait list of eligible tenants has soared by several thousand people in the past year alone, and 145 flood victims are still waiting to be housed.

Despite this, The Courier-Mail can also reveal 800 public housing residences are sitting vacant some for almost four years and taxpayers are left to fork out for maintenance. Queensland has 198 public housing properties ready to be lived in but sitting vacant some because of a lack of demand for housing in the area of the property. The longest vacant is a property at Birdsville, which has been empty for 1403 days, with a Department of Communities spokesman saying no eligible applications had been received for the home. Another 597 homes are sitting empty because they are considered “untenantable”. One former motel at Mount Isa has been empty for 1279 days and is for sale. A department spokesman said 77 per cent of the untenantable homes were undergoing repairs. The rest of the listed properties were still being assessed for sale or possible demolition.

The Courier-Mail can also reveal there are 491 households earning $80,000 living in public housing even though the Government pledged in 2007 to end the practice. Just four years ago, the housing system was overhauled with then minister Robert Schwarten launching a blitz on families with high incomes taking up the homes. More than 300 tenants were turfed out for being “too rich”, with the changes ending the concept of tenancy for life in an attempt to shake up the wait list. Now, Ms Struthers has defended the current group of high earners, saying they were there because of special circumstances mainly serious disability, or scarce housing in the area. She said each case was individually managed and, of the 491 households earning over the threshold, just 90 of them made that money from the main household income. Federal Housing Minister Mark Arbib has called for private investment into the state housing market, labeling the present system unsustainable. Mr Arbib has forecast a 28 per cent spike in demand for housing in the next decade.

via 30,000 stuck on public housing waiting list as State Government fails to meet building targets | Courier Mail.

The Big Picture

There is an old adage in economics – there are lies, damned lies and statistics. And when it comes to the issue of housing valuations and affordability, there is a lot of data that can be categorised in the two former terms and much less in the latter.

As we go across the country we are amazed at the number of people concerned that our home prices are overvalued. Magazines like The Economist must take some of the blame, together with websites like Demographia and even some industry groups like the Housing Industry Association.

via Investor signposts – week beginning 27 March 2011 – The Experts | Switzer.

A  critical  shortage of vacant properties has led to sharply rising rents with no relief in sight for tenants this year.

Escalating median rents in the March quarter point to sustained hikes throughout the year, according to Australian Property Monitors’ Rental Price Series Quarterly Report.Housing affordability, and the shortage and spiralling costs of rental properties across the country will continue to put the squeeze on renters in 2011, the report says. Nationally, unit rental prices rose sharply by 2.3 per cent, reflecting high demand in most capital cities, while national house rentals increased 0.1 per cent during the quarter.

In Sydney, median asking rents for houses rose 1.0 per cent to $485, while units jumped 2.3 per cent to $450 per week, ensuring the city remains the most expensive place to rent in the country.  Adelaide and Canberra topped house rental rises for the quarter with increases of 3 and 2.2 per cent respectively. Unit rents rose in all capital cities, except Brisbane and Hobart where rental markets remain flat. Demand for units in Darwin, Canberra and Melbourne pushed rents above the national average.

House and unit supply shortages in Brisbane caused by flooding are expected to be reflected in the June quarter. “Renters should prepare for significant growth in rental prices throughout 2011, driven by accelerating economic activity, housing shortages and a depressed first homebuyer market,” said Dr Andrew Wilson, Senior Economist, Australian Property Monitors.

“Units in particular have seen a major shift in demand, with chronically low vacancy rates for inner-city residences in most capitals intensifying competition amongst prospective tenants for available properties. “However it is expected that rising rental yields will renew investor interest in the market and may provide some relief for renters in the longer-term.” RP Data said the rise in rents came against a background of sluggish property growth and higher interest rates.

Limited new development during 2011 is likely to add to the upwards pressure on capital city rental rates, RP Data report analyst Cameron Kusher said.”With limited purchasing activity based on concerns about affordability, we are likely to see increasing demand for rental properties,”  Mr Kusher said.” As a result, we expect capital city rental growth to revert to around five-year average levels, with inner city units and outer more affordable housing stock having the strongest prospects for rental growth. “In Sydney, 600,000 families live in “serious rental stress”, paying more than 30 per cent of the family income on rent, according to Anglicare’s Rental Affordability Snapshot found. Anglicare CEO Peter Kell told The Daily Telegraph that 220,000 new social housing dwellings were needed nationwide, but new developments had been cancelled. The number of dwellings to be rolled out under the National Rental Affordability Scheme was slashed from 50,000 to 35,000 when money was reallocated for Queensland’s flood victims. “We are terribly disappointed that the Federal Government has cut growth targets for affordable housing,” Mr Kell said.

via Bleak outlook for tenants in Australian rental market | Courier Mail.

IRB.com, Wed 13 April 2011

The International Rugby Board (IRB) and Australian Rugby Union (ARU) have together announced that the Gold Coast will become the new home for the Australian leg of the HSBC Sevens World Series for the next four years, and will kick off the 2011/12 World Series.

The first International Sevens Gold Coast tournament will be staged at the Skilled Stadium on Queensland’s Gold Coast on 25-26 November 2011.

The announcement represents an exciting development for the HSBC Sevens World Series, which continues to reach out to new fans, sponsors, broadcasters and now venues around the world as the global Rugby family counts down to the 2016 Olympic Games in Rio de Janeiro.

>>> Official HSBC Sevens World Series – Gold Coast to kick off new World Series.

I’ve said it time and again that the residential property investment is a long-term proposition. The property market takes about seven to 10 years to move through a full cycle – from low capital growth/high rental yield, to high growth/low yield and back again.

Despite this, many property investors choose locations and property styles with little potential to survive and thrive throughout market fluctuations.

Some investors choose locations that lack the long-term underlying demand to drive capital growth, while others choose property styles that don’t reflect trends in the way people want to live.

In other words, the property investment decisions that look good today may not prove so attractive in five, 10 or 20 years. It’s essential to understand the nature of long-term economic and demographic trends, then select assets accordingly.

Interest rates rise and fall, but in the long term, dwindling oil reserves and rising petrol prices will be a key economic trend influencing the property market. In the coming years, rising prices at the pump will make outer suburban living and commuting less feasible and less appealing.

This will curtail the urban sprawl and increase demand among homebuyers for property in the middle suburbs close to public transport corridors, shops and schools.

At the same time, rising property prices in the inner and middle suburbs will put home ownership beyond the reach of more Australians, or at the very least, delay it significantly.

Figures from the Bureau of Statistics tell us that the proportion of households renting from private landlords increased from 19 to 22 per cent in the 10 years to 2006 (when the last census was completed).

What’s more, the proportion of Australians aged 35 to 44 who were renting rose five percentage points over the same period, to sit at 32 per cent. There’s every reason to expect that this trend will continue.

Because many tenants want to maintain the trappings of an urban lifestyle, the trend away from home ownership will increase demand for rental properties within walking or short driving distance from trams, trains, shops, cafes and entertainment. This will further boost capital growth prospects in the inner and middle suburbs.

Delaying having children is another trend set to influence the residential market well into the future. The median age for parents is growing, at 30.8 for women and 33.1 for men. And women aged 40 to 44 (said to have completed their families) have an average of two children, compared with 2.8 in 1981.

The shrinking family unit means that demand for low-maintenance, compact dwellings will rise, while demand for the conventional sprawling home on an outer suburban block will fall.

via Why it’s essential to have long-term investment views.

A $68-BILLION pension blow out will force the Federal Government to raise immigration levels and taxes.

Economists say the mass retirement of 4.5 million post-war baby boomers over the next decade, with the first wave born in 1946 reaching the pension age of 65 this year, will lead to a $68-billion-a-year blowout in the cost of aged pensions and healthcare, creating an “Enron-style” black hole in the federal budget. Analysis by demographic economists MacroPlan Australia, using government data, shows the annual bill for pensions will almost double to $63.5 billion a year by 2020.

Health-related spending for retirees will rise by $40 billion a year, from $51 billion in 2010 to $90.7 billion in 2020. And experts warn the Labor Government’s already-flagged measures such as increasing the Super Guarantee from 9 per cent to 12 per cent, raising the retirement age to 67 from 2017, and targeting “improved productivity” — especially from older workers — are “too little, too late” to avert the impending financial crisis.

“We have to radically increase the number of taxpayers through more immigration – and increase the amount of tax we all pay,” MacroPlan CEO Brian Haratsis said. “The Government tried to raise billions through its mining tax to pay for all of this but it’s fallen far short — some say $60 billion — of its target.  Now it is talking about a $5 billion disability levy.  We will see more of these little taxes introduced before the real tough decisions are made.

“Although the Families, Housing, Community Services and Indigenous Affairs Department insists the pension system is “sustainable”, Treasury’s own data shows it is not. In its latest Intergenerational Report on the ageing population, Treasury admits to a slowly shrinking budget within just seven years. “From 2018-19 onwards . . . ageing and health pressures are projected to lead to a gradual deterioration in government finances,” it says.” A fiscal gap [deficit] is projected to emerge in 2031-32 and grow to around 2.75 per cent of GDP by 2049-50. “Economists say personal taxes will rise shortly into the next government’s term to head off the massive shortfall.

The number of people aged 65 or older will this year jump by 7.8 per cent to 248,641, and increase aged pension payments by $2.4 billion to $31.8 billion.  But that is just the start. The costs steadily increase year on year, pushing the pension and income support bill for retirees to $38.5 billion in 2013-14 — an increase of 30 per cent in just four years. And it’s not just pension payments that are spiralling. Government spending on aged residential care will rise by $1 billion a year to $7.5 billion annually by 2013-14. Other expenses such as community care, seniors allowances and concessions, and wages of staff at aged-care and health facilities will all rise in line with the retiring boomers, the government figures show. All this spells bad news for generations X and Y, who will be asked to foot the bill despite already struggling with record house prices, rising interest rates, rents and utility bills. “This is the baby bust,” demographer Bernard Salt warned. “This crisis has been waiting for 30 years or more and has come home to roost.” The costs are astronomical and adjusting to it is going to be painful and expensive.” A spokesman for Treasurer Wayne Swan said the Government faced an uphill battle.

via Retirees will cause economic ‘black hole’ | Adelaide Now.