The Aussie Property Market and the Land of the Lucky Suburbs

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There was a time when Australia was renowned as the Lucky Country. It applied to every aspect of our day to day lives. Standard of living, affordable healthcare, job opportunities, you name it. And it was topped off with the realistic expectation to one day own property. As cheesy as it sounds, we might’ve really been the Lucky Country.

These days, however, that moniker seems badly out of date. As least on the property front, we need a new term to describe the nation. Instead of the Lucky Country, the Lucky Suburbs might be more appropriate.

I’ll explain what I mean by that in a moment. But first a primer on how we got here.

There was a time when the whole nation shared in the spoils of the property boom. It wasn’t that long ago, either. The roaring 2000s, as we might call them, were a time of great prosperity. The property market could do no wrong. As long as ever rising commodity prices were around, how could it?

Then, the boom died. And cracks started appearing.

It began as a national divide. There were the chosen few like NSW and Victoria. These states seemingly grew no matter what. Populations were on the rise, which helped spur demand in those states. And with services at the heart of their economies, they weathered the downturn better than most. To this day, Sydney and Melbourne continue to see double digit annual growth. Even recent price declines in those cities aren’t enough to lower year on year growth below 11%.

But we’re now seeing a new development in the market. It’s taking place at the local level. And it’s especially pronounced in high growth cities. This is what we might call the rise of the Lucky Suburbs.

In the property game, it matters where you live

We’ve always had suburbs where properties were valued higher than others. For one reason or another, that will always be the case. Either the suburbs are situated close to the city core. Or they’re in close proximity to the coast. People want to live in these suburbs for good reason. The jobs are all here, as are the best schools, and public transport is plentiful.

The problem, if we can call it that, is that these Lucky Suburbs are growing in number. They’re increasingly found in places far from the city centre, and even further from beaches. And they’re cropping up in places that were traditionally the reserve of blue collar workers.

Take Maribyrnong as an example. A working class suburb of Melbourne, Maribyrnong is set to become the next millionaire’s playground. What’s astounding about Maribyrnong, and others like it, is that it’s located 10–15 kilometres outside the CBD. And yet, median house values are expected to top $1 million over the next three years. Not bad for a blue collar suburb in Melbourne’s underdeveloped west.

Yet Maribyrnong is far from being the only beneficiary. The Australian Financial Review reports:

The rippling wealth effect from traditional exclusive central suburbs is also creating a widening wealth arc around Melbourne’s CBD, spreading up to 16 kilometres west, north-east and south-east.

The gentrification of the city’s inner communities, which has taken about 40 years to reach suburbs like Essendon West and Northcote, has produced annual growth rates of about 10 per cent, pushing them close to a $1 million median.

Suburbs in the north-east with even higher growth rates are particularly popular with Chinese buyers for investment property and student accommodation.

First-time buyers and growing families needing more space are often moving into sprawling suburbs built around freeways and toll roads in the city’s south and west.

Elsewhere around Australia, we’re seeing the same thing play out. The only differences between fast and low growth cities are ones of scale.

Chelmer, a suburb 10kms south of Brisbane, is expected to break the million dollar barrier soon.

Perth has its own diamond suburbs, despite prices falling steadily for over a year across the board. Oakford, North Beach and Ardross could all see median house prices of over a million soon.

And then there’s New South Wales, where things work on a different plane.

The state has seen land values rise by 20% over the past financial year. Much of that growth stems from Sydney’s outer west. In Blacktown, land values are up by 47%. Holroyd and Parramatta have both seen growth of over 25% in the same period.

These are all suburbs located some 35kms from Sydney’s core. Granted, Sydney’s west is unique compared to most. You can think of it as its own mini metropolis.

Why the lucky suburbs risk a social divide

This might not sound like much a problem to you. If the property wealth pie is expanding out from the city core, isn’t that a good thing? For the people that live inside this core, undoubtedly so. But not so much from the perspective of those that live outside it.

We’ll use Melbourne as an example.

Median house prices in the Victorian capital climbed above $700,000 recently. If we include apartments as well, median dwelling prices stand at $602,000.

If a typical house, in a suburb 15kms from the CBD, is valued at a million, there’s a problem.

The biggest of these is the fact that it creates an arc of haves and have nots. Now, we’ve always had that to some extent. But it’s been somewhat contained in cities, and situated much closer to the core. What we’re seeing now is that this arc is not only gobbling up inner city suburbs — it’s expanding.

Of course, there are natural limits to this growth. At some point, this arc will reach its peak. Once it does, we run the risk of creating a true class-driven property market.

Many first time home buyers already find housing affordability out of reach. Anyone short of a cool million will have to forget any ideas of buying close to the city. Somewhere far beyond the arc will be there only bet. For many, that’s already the case.

And they won’t be receiving much help anytime soon. Anyone pinning their hopes on a slide in property prices at the top end of the market might want to think again.

A report from the AFR reads (emphasis mine):

Another surprising result [in December] was the falling prices in the Sydney and Melbourne premium market — the top 25 per cent of the market at an average of $1 million for Sydney and just under $1 million in Melbourne — which the industry had hoped would stay up given strong economic conditions in NSW and Victoria.

Over the December quarter, capital city premium dwelling values fell by 1.9 per cent. The largest fall was in Sydney, down 2.3 per cent in the last quarter followed by Melbourne, down 1.9 per cent.

The premium end of the market in Sydney is still at a very high price point, causing more unaffordability despite strong economic conditions and continued demand from overseas buyers.’

And there’s your problem. Even if prices at the top end are declining, it remains expensive to buy property. The difference between a $1.1 million and $1 million isn’t much. Not to someone that can only afford a $400,000 home anyway. It’s still over a million, however you cut it. Scrimping together money for a deposit is beyond many households, and will only become harder. At least if they have any aspiration of owning a home within an hour of the city centre.

Ultimately, the further the arc expands, the further out first time buyers will have to go.

Whether any of this is cause for concern is debatable. It depends on where you stand on equality and equal opportunity. Maybe it’s naïve to think that we should all be capable of buying a home in Richmond or Randwick. It probably is. But it’s a nice idea.

One way or another, we’re entering uncharted territory. Million dollar suburbs 15kms from city cores are here to stay. For those of us shut out from this arc, our best hope is to one day find a nice shack on the outer of edges of civilisation. That’s something at least.

Mat Spasic,

Junior Analyst, The Daily Reckoning

PS: Blue collar suburbs turning into millionaire playthings are set to become even more common in the future. The Daily Reckoning’s property expert, Phillip J. Anderson, says house prices are yet to hit their peak. And he thinks we’re at the edge of another boom that could last a decade.

Phil’s 20 years of experience as a property analyst and advisor has given him a keen sense for where the property market is, and where it’s going. He predicted a housing market crash in 2008. He also went against the mainstream in 2009, saying house prices would go on to boom this decade.

He was right on both accounts.

In a free report ‘Why Australian Property is on the Verge of a Decade Long Boom’, Phil guides you through this coming decade. He’ll show you the right time to buy property at its cheapest, and how you can use this to time your investments. To find out how to download his free report, click here.

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