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Alice Stolz: An investment in knowledge pays the best interest

ALICE STOLZ MAY 30, 2022

Do you ever play that largely inane game where you think, “What if…?” or worse, “If only…?” Kicking yourself when you add on: “…started saving earlier”, or “…bought that house before the suburb took off”. You know how it goes, a rather pointless circle.

And so I was initially encouraged this week when my daughter in year 11 showed me what she was working on in economics; an overview of Australia’s housing market.

Amongst understanding the history and size of the market, they’re forensically looking at house price growth and the fluctuations it’s gone through over the decades.

They’re unpicking why foreign investment in Australia became so alluring. They’re looking at the factors that influence interest rate rises. They’re weighing up the pros and cons of negative gearing.

And they’re bending their minds about the country’s shortage of housing as well as how to tackle the affordability crisis. It’s terrifically meaty stuff.

Now granted, my own daughter is fortunate enough to be studying this, but I have other children who may very well not go down this path and what of them and the millions of Aussie kids who choose chemistry or drama over a subject like economics? Does this become a blind spot for them?

Like many Australians, when I finished school, I rented a shared house (found in the classified pages of the Sydney Morning Herald) and then dreamt of buying a house with a pretty picket fence. I knew “what” I wanted (a place of my own) but in all honesty, in my late teens and early twenties, I didn’t know much about the “why” or “how” beyond what my parents had told me (“work hard”).

Had I been exposed to insights and education around personal finance, taught about market dynamics, the options of renting versus investing, and of course the importance of saving (for anything!) I might have understood earlier that I was already closing doors that would impact my future.

If we’re the lucky country, why aren’t these crucially important topics baked into the school syllabus?

Whether we like it or not, property touches everything and is something we need from cradle to grave. Arming the children of today with financial literacy, as well as an understanding of housing and affordability, is surely the least we can do.

The stakes are too high not to.

CategoriesNews

Why community is more important than ever

Presented by Frasers Property Australia 30 May 2022

The concept of community — being closely connected to those around us — has fundamentally changed.

Communities are the bedrock of our society. More than merely physical buildings or organisational groups, a cohesive community is the feeling that you’re in a place where you really belong.

However, with the decline of trusted institutions, rise of social media and isolation of COVID-19 lockdowns, the valuable human interactions which help maintain these communal bonds have frayed, says Susan Stancombe, CEO at Stancombe Research + Planning.

The result is a decline in the health of society, as well as of individuals.

“Partially what is contributing to the decline in mental health, not just for our young people, but for people generally, is that lack of real connection,” Stancombe says.

“(It’s) the lack of day to day, face-to-face, genuine, authentic connection and support that really helps people just feel cared about, to feel significant, to feel like they’re contributing to society and that they’re important.”

But while the threads which hold our shared sense of community together are being challenged, for people looking for a new place to call home, community has never been more important. 

Shifting sands

The decline in trust in large institutional bodies is perhaps the most notable symptom of the disintegration of our traditional concept of community, Stancombe suggests.

“What we do see as a society is a decline in the big guiding structures that used to bind us together in the past — things like religion, things like community groups, things like even political organisations that people used to have as strong affiliation to — those big guiding structures have really declined as people have lost trust in the institutions,” she says.

This decline has been felt in almost every type of social institution. For example, a 2020 survey from the University of Melbourne revealed that 40% of Australians now claim no religious affiliation — a sharp rise from the 25% recorded in 2004.

In the 1980s, the average vote for the two major parties at federal elections was above 90%. In 2022, around a third of Australians cast their vote for alternative parties and independents.

Trade union membership has also precipitously declined — while in 1992, around 40% of employees claimed membership, as of 2020 fewer than 15% did.

“At one point we were all bound by those things; we shared common beliefs; we were all part of the same organisations; we all followed the same things,” Stancombe says.

“The death of the big institutions and that decline of trust in politicians and religion … was a really significant contributor to a disintegration of our very cohesive communities.”

Searching for connection

In the wake of institutional decline, digital communities have emerged. For many, social media is replacing daily physical interactions. But while social media imitates the physical interactions we have with others, it can’t replicate the resulting sense of shared community, Anthony Boyd, CEO of Frasers Property Australia, says.

“I think the natural thing around social media and technology, in particular, is despite it being there and potentially creating more connection than ever before, perversely, it actually creates a lot of isolation,” Boyd says.

“That means that whilst people probably think they’re connected, those deeper connections aren’t really there.

“Face-to-face connection has declined a lot, but once you have those deeper connections, that’s the backbone of community.

“It’s deeper than a lot of the superficial contacts that people can make through either digital or social media platforms.”

Stancombe says the enforced isolation of COVID lockdowns brought these simmering tensions to the fore, making people understand that living a cohesive community is more important than ever before.

REA research shows that more than 50% of buyers place a premium on living in a good community and one that they’re proud of — one of the top-three criteria when it comes to choosing a location for a home.

“I think what’s really important is we’re seeing return from that now where people really want to be part of a community,” Stancombe says.

“That’s really driven by the profound sense of loneliness that we experienced as a community, which was happening before we had the COVID lockdowns

“But what COVID lockdowns have brought home, particularly for people who live alone, is that it’s really unhealthy to be in isolation.”

Turning the tide

Facilitating this sense of community is particularly important for developers when they are creating new communities.

“I don’t think people really think about developers and what they’re doing and what their role is in terms of social cohesion, but it’s incredibly important,” Stancombe says.

“If new communities aren’t developed with people in mind, they don’t become communities, they become places that people sleep — dormitory towns.”

Boyd says a neighbourhood is only ever successful when there’s a community that’s able to thrive.

“For us, it’s about making sure that we get the layers right, that we’re not only creating the places, but we’re creating the opportunities for people to make those authentic connections,” he says.

“The essence of really good property development is: how are people going to actually use those spaces? How are they going to interact in those spaces?”

“The more you can provide both those opportunities and places for people to enhance their mental and physical wellbeing. That’s going to create a lot of value for people who live there.”

For developers designing the communities of the future, really understanding the people who are going to be making it their home is the key, Stancombe says.

“It all comes back to … who they are in terms of their values, what’s important to them as human beings, how they currently live their lives and how they want to live their lives aspirationally,” she says.  

“Designing with that in mind is part of the puzzle in terms of developing great communities of the future.”

CategoriesNews

Reserve Bank says property market buoyed as households downsized

Shane Wright May 25, 2022

A sharp fall in the size of households, as people moved out of share houses or their parent’s homes, helped offset the effect of the collapse of immigration on the Australian housing market, the Reserve Bank believes.

In a speech on the property market this morning, the bank’s assistant governor Luci Ellis also noted government programs – including the federal Coalition’s HomeBuilder subsidy – helped to push up prices while she also warned rents in Sydney and Melbourne may rise quicker than expected.

House prices soared at their fastest rate in more than 30 years during the pandemic on the back of government support programs and record low official interest rates despite stagnant population growth. House values are now starting to fall while the RBA last month increased interest rates for the first time since 2010.

Ellis said while Australia’s population had been made permanently smaller because of the drop in migration, this had not affected the housing market.

 

This was because the size of Australian households fell through the pandemic as people used the chance to move into their own home.

“Spurred by the experience of lockdown and self-isolation, many people understandably wanted a bit more space, and perhaps a garden. Some also needed space where they could work, or perhaps just fewer flatmates to share that space with,” she said.

“While some young adults moved back in with their parents at the onset of the pandemic, that shift has since reversed. On the question of who you would rather be locked down with, at least some Australians have voted with their removalists’ van, by moving out of their share house and in
with their partner.”

Ellis said while the population was smaller, the nation’s housing stock had continued to grow.

She said housing supply has now run ahead of demand for “a number of years”.

 

Holding up prices had also been government support programs such as HomeBuilder and state level first home buyer grants. In the case of NSW, HomeBuilder was worth more than $20,000 while first home buyer assistance was worth at least another $10,000.

Ellis said even though these programs had ended, they were still weighing on the market.

“Whether it’s time-limited subsidies bunching demand and boosting prices, or the interplay between low yields globally and rental yields locally, policy can have pervasive effects on housing outcomes.”

The strong demand was also contributing to a 50 per cent increase in the time it takes for a new house to be built. The average build time had been 6 months but now it was closer to 9 months.

 

But Ellis said there were some signs of easing in the established home market.

“Prices of existing homes have been easing in some cities, so the relative attractiveness of
building a new one is reduced. In this environment, it is likely that buyer interest in
new homes will ease as well,” she said.

“The current pipeline will sustain activity for quite a while, but the backlogs and strained capacity will ultimately work themselves out. Exactly when that will happen is hard to know. But when it does, we can expect some of the current rate of cost escalation and squeeze on margins to ease.”

Ellis said the property market would continue to change, noting that rents in Sydney and Melbourne – which had fallen through the pandemic – are showing signs of picking up.

CategoriesNews

Big-ticket infrastructure projects that could drive house price rises

Vanessa De Groot 24 May 2022

‘Follow the infrastructure’ has long been a catch cry for residential real estate investors because it’s seen that infrastructure can have a big – and positive – impact on property markets.

The opportunities for investors to capitalise from infrastructure projects in Australia has recently grown, with the country going into an era where there will be much more, said Hotspotting director and founder Terry Ryder.

Post-COVID, governments all around Australia have been planning to invest in infrastructure to generate an economic recovery, with the impact on residential property expected to be “quite profound”, Mr Ryder explained.

“It’s a great strategy for property investors to follow the infrastructure trail – buy a property that lies in the path of progress and look at the big-ticket items that are being rolled out,” he said.

According to Simon Pressley, Propertyology head of research, not every infrastructure project positively impacts property values, but those that do are the ones that create operational jobs over the long-term and benefit the economy of the town or city where they are being built.

PropTrack economist Angus Moore said trying to time an investment in line with an infrastructure project was difficult.

“Investors should look at areas that best fit what they’re looking for, in terms of yields, affordability and pricing, and factor in potential improvements, including infrastructure,” he said.

Price rises from infrastructure aren’t reflected immediately but over time, and some areas could even be negatively impacted, Mr Moore added.

According to the experts, these are the top big-ticket infrastructure projects that could drive long-term property market growth in Australia.

Inland rail – Melbourne to Brisbane

Experts agree this $15 billion giant, which is one of the biggest infrastructure projects in Australia, is the number one project set to impact property markets over the long term. 

The Inland Rail project is a 1700km freight rail line currently under construction and set to be completed in 2027.

It will connect Melbourne and Brisbane running inland via regional Victoria, New South Wales, and Queensland, covering 36 local government areas.

The project, which is described as “transforming how goods are moved around Australia”, is designed to fill in the missing links in Australia’s rail supply chain. 

It will take trucks off roads and get goods to consumers faster and more reliably.

Inland rail is the biggest of the big-ticket infrastructure project that will directly impact property markets in Australia by an “absolute mile”, Mr Pressley said.

He said it would significantly benefit towns including Albury, Armadale, Toowoomba, Wagga, Parkes, Dubbo, and Beaudesert, with the biggest benefit to property markets being post-construction.

That is when more jobs are created through food manufacturing, logistics, and warehousing, with local businesses to benefit from all the extra activity in their towns, he said.

Inland rail will have an impact on economic activity and create jobs locally, which will have a flow on effect to the property market by creating demand for real estate, Mr Ryder added.

“A big project like that has multiple impacts – when it is being built if creates a lot of economic activity and jobs, with local businesses getting contracts and people coming to work on the construction.

“There will be new people coming into the areas where it’s being built, and they’re probably going to need somewhere to rent. It just generally pumps up the property market.

“Then when it’s finished it’s going to bring more commerce to the places that have stops along the way as businesses will want to set up in those places. 

“This will include places like Parkes, which is already a very important regional centre of New South Wales, as well as Moree, Narramine, Narrabri, and once it gets into Queensland, Toowoomba.”

Mr Ryder said the biggest impact of the Inland Rail project would be in Toowoomba because there was a big transport hub planned for the city, right next to the airport on the western fringe.

“Suddenly, Toowoomba has become the place that investors all over the country want to buy property in, and there have been some big increases of around over 20% in the past 12 months.”

Western Sydney International Airport and surrounds

This $5.3 billion airport at Badgerys Creek is under construction and expected to be completed by 2026.

The project itself is expected to generate economic activity and support almost 28,000 direct and indirect jobs by 2031, but there is also a planned 11,200ha Aerotropolis surrounding it, which will further boost the area with an estimated 200,000 new jobs.

The Aerotropolis will be an economic hub for industries including aerospace and defence, manufacturing, healthcare, freight and logistics, agribusiness, education, and research.

Other infrastructure projects in Western Sydney include transport links such as the $11 billion Sydney Metro – Western Sydney Airport rail line.

“There’s a lot more happening infrastructure-wise in western Sydney,” Mr Ryder said.

“It’s one of the most dynamic economies in the country – but really, the big-ticket item is the airport and everything else it creates around it.”

He said the relatively affordable property markets in the local government areas surrounding Badgerys Creek, including Liverpool, Blacktown, and Penrith would all get an uplift from the infrastructure project.

“There is going to be lots of jobs during construction and also through the operation of it, and not just in the airport itself but in the commercial industrial businesses that want to be close to the airport.   

“People want to live close to where they work so we’re going to see demand for housing in these local government areas.”

Being such a big project, the Western Sydney Airport will really open up western Sydney and draw more people into the area, PRD chief economist Dr Diaswati Mardiasmo said.

“The main thing is that it will attract more people into the area, and they will need some sort of place to live, whether a rental or to buy a property,” Dr Mardiasmo.

She said the high demand would lead to property price growth, particularly with the housing supply chain lagging.

Hells Gates Dam, North Queensland

The Commonwealth has committed $5.4 billion in funding to build the Hells Gates Dam, subject to approval of the final business case.

The 2,100 gigalitre dam is considered to be transformative for North Queensland – it will boost the economy by facilitating 60,000 hectares of new land for irrigated agriculture, doubling crop production regionally and increasing annual agricultural output by $800 million.

Located in the Upper Burdekin catchment west of Townsville and north of Charters Towers, it will make Burdekin Basin a major food bowl of Australia.

While the project is yet to get the final go ahead, and may not start for at least four years, it is estimated it will could 10,600 construction jobs and 3,300 ongoing jobs.

It will also add an estimated $6 billion in revenue per year to the North Queensland economy, according to Mr Pressley.

“Townsville and Cairns are the major centres that will benefit from it but there are other smaller communities including Innisfail, Tully, Charters Towers that will be impacted.”

Queen’s Wharf, Brisbane

This $3.6 billion integrated resort development in the Brisbane CBD is currently under construction and due to be completed by the middle of next year.

Covering more than 12ha of the city’s CBD, the project will include four luxury hotels, three residential towers, the equivalent of more than 12 football fields of public space, a new pedestrian bridge linking to South Bank, high-end retail space, a casino, and eateries.

It will employ 8000 people when completed, which is when Brisbane’s property market will see the biggest benefit, as it will put the city on Australia’s tourism map and place upward pressure on prices due to greater demand, Mr Pressley said.

“Whilst Brisbane is Australia’s third biggest city, it doesn’t have a visitor economy – it’s not a place that people typically go for a holiday,” he said.

“Queen’s Wharf is probably equivalent to the Crown precinct at South Bank in Melbourne – it’s a destination.

“There will be plenty of people in the cooler months of the year that will now say ‘let’s go to Brisbane, they’ve got that new major entertainment precinct there’. “So, for the first time in Brisbane’s nearly 200-year history, it is going to develop a visitor economy.”

2032 Olympic Games, southeast Queensland

The big-ticket infrastructure project to come out of Brisbane hosting the Olympics in 10 years’ time is the $1 billion redevelopment of the Gabba stadium in the suburb of Woolloongabba, which would host the opening and closing ceremonies as well as the athletics.

Brisbane’s $5.4 billion Cross River Rail project, which is a new 10.2 kilometre rail line running from Dutton Park in the city’s inner south to Bowen Hills in the inner north, will see the Woolloongabba station precinct transformed into a mixed-use hub, with a new pedestrian plaza linking the stadium to the new train station.

Aside from the Gabba redevelopment, there will be plenty of infrastructure spending to come in association with the Games in Brisbane, the Gold Coast, and the Sunshine Coast including the upgrading of sporting facilities and transport links, and investment in the hospitality sector, Mr Ryder said.

He said the boom in these areas would happen before the Games.

“Research indicates from other cities that have hosted the Olympics, the locations that will have the biggest growth in house prices are those that are close to main venues.

“By that logic investors should target suburbs that are close to Woolloongabba, including East Brisbane, Annerley, and Woolloongabba itself, that could be expected to get uplift from proximity to the Olympic action.”

Mr Ryder said the Commonwealth Games had a huge impact on the Gold Coast in the lead-up to 2018, with infrastructure fast-tracked, and the same would happen in southeast Queensland ahead of the Olympics.

“The Olympics is so much bigger than the Commonwealth Games –  the infrastructure spend these events necessitate is huge for residential property.”

Alternative energy projects, various locations around Australia

There is a huge boom in the construction of alternative energy projects around Australia, which will impact markets around the country, Mr Ryder said.

“There are literally dozens and dozens of large-scale solar farms, wind farms, and hydrogen energy projects under construction and in planning,” he said.

“It’s collectively tens and tens of billions of dollars.”

Mr Ryder said the NSW Government had created renewable energy zones, and the New England region, including Tamworth and Armidale, was one area being pumped up by this infrastructure spending.

“It’s really giving areas that perhaps have economies that have been fragile an extra string to their economic bow to give them diversity and strength.”

One of the biggest renewable energy projects in NSW currently is the $1 billion Yarrabee Solar Farm in Morundah in the Murray region, which is expected to start construction this year, requiring up to 600 workers.

Meanwhile a $1.6 billion solar farm and battery project known as the Merriwa Energy Hub is proposed near Merriwa in the Hunter Valley region of NSW. It is expected to be one of the largest renewable energy hubs in Australia, and could create 500 jobs.

Dr Mardiasmo said renewable energy projects were fairly new, with the past year or so seeing a massive injection in funding for projects.

For the markets in which they are located, there will be a new industry and job creation, which will be a drawcard for people to move to the area, and in turn, higher demand for property in that area, she said.

There would be a flow-on effect with more services required including hospitality, she added, which would further boost the economy.

When will property markets see a boost from infrastructure projects?

The evidence shows that over time there can be several boosts to real estate markets due to an infrastructure project, said Mr Ryder.

Typically it is when is it announced and when construction starts, but sometimes there can also be a boost on completion, he added.

“That might apply to a new motorway for example, in an area that has become more accessible because of the construction,” he said.

 
 
CategoriesNews

Australian home values have grown 190.5% in the past twenty years

Eliza Owen 05 May 2022

National dwelling values increased 190.5% in the past 20 years.

Figure 1 shows the cumulative growth in the CoreLogic Home Value Index for national dwellings over the past two decades. The change in the index measures the movement in values across the Australian dwelling market over time. It is equivalent to a rise of around $485,000 dollars at the median value level, where the median dwelling value in Australia was recorded at $738,975 in March 2022.

The increase in dwelling values over this period was comprised of a 139.4% lift in Australian unit values, and a 209.3% rise in detached houses. Of the greater capital cities and regional markets of Australia, the highest gains over the 20 year period were across the Hobart dwelling market (up 315.2%), while the lowest gains were across Darwin dwellings (89.4%).

Australian-home-values-growth

In the past 20 years, the Australian housing market has seen six periods of upswing, interrupted by 5 periods of notable decline. These downswings in the housing market have largely occurred off the back of changes to credit conditions, such as macro-prudential changes or lift in interest rates, alongside negative economic shocks like the GFC, or the initial onset of COVID-19. In the past two decades, housing market downturns have lasted, on average, around 25 months,  with an average peak-to-trough decline of -5.0% in value.

Housing values have generally trended higher over time through this period. Market upswings in the past two decades have averaged around 30 months, with average gains of  24.8% through these periods of uplift. The past 20 years has largely been characterized by declines in the official RBA cash rate, especially from late 2008 amid the GFC.  Strong value growth was also realized off the back of a surge in net overseas migration between 2004 and 2009, which remained fairly elevated until the start of the COVID pandemic. However, the pandemic period also coincided with ultra-low cash rate settings, high household savings and government incentives for home purchases, which has actually generated the fastest upswing in values since the 1980s. The past year has taken cumulative growth in dwelling values from 145.8% at March 2021, to 190.5% at March 2022.

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