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The long term housing equation

Whatever is happening in the housing market, whether it’s a building boom in one part of the country or a lack of supply in another, one thing is certain; in the long term shelter is required for all Australians.

But not all Australians want the same type of roof over their heads in the same part of town, which means it isn’t a straightforward numbers game.  You can’t keep investing in accommodation expecting the next family in need of a home will step off the queue and into your property investment.

Therefore, in the long term, it’s essential that we have a good grasp of demographics.  Not just the total number of people who live in our country, but what type of people they are, the types of households they comprise – such as young family or retired couple – and where they might actually want to live.

In the short term, housing markets experience big fluctuations due to cyclical factors which are driven by two sets of influences.  The first influence is interest rates which are, to a certain extent, under government control.  We are currently enjoying the lowest interest rates in history and, as a consequence, we have been experiencing a housing boom.  The other set of influences on our housing markets is external and beyond national regulation.  These are factors such as the impacts of a slowdown in the Chinese economy, world stability, Donald Trump’s presidency and the UK’s vote to exit the European Union.

These things do not exert an influence on long term housing demand which is affected by structural factors.  The structure of an economy and that structure includes the number of people and the ability of the housing industry to provide for housing and land at prices which people can afford.

The best way to invest in housing is in the long run, because the factors are far more predictable and certain.

So what should you look for when investing in housing for the long term?  Look for growth in wealth because this leads to growth in demand. Also look at changes in our preferences for amenity.  Are we seeking out access to better public transport and roads?  Is education and schooling topping our priority list?  Because if these amenities are highly sought after, then it would be wise to invest in areas which offer good transport connectivity or good academic institutions.

The other major consideration is changes in location of employment.  People want to live in close proximity to their jobs.  If there are growing employment hubs or sites where there are plans for major industry development, then homes will be in demand too.  Business and industry cannot stand in splendid isolation.  People are required, and when they are not at work, they have to be housed.

At Macroplan, we research to develop a picture of the future shape of industry and where our new jobs might actually be.

An understanding of these factors allows us to identify locations which will grow faster than trend.  A smart investor, who takes a long term view, will begin to see where they might invest and why.

There are tricks to spotting where future value growth might occur.  These include scouring infrastructure plans to determine where public transport extensions may occur and when.  Or analyzing new metropolitan strategies to determine where land release might take place.  And in some of these areas, older townships might be significantly undervalued.

Combine these understandings with people’s locational choices in relation to employment, and you can pick the future Templestowe, Ku-ring-gai, Northern Beaches or Peppermint Grove.

Happy investing!


About the author: 

Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years experience as an advisor to governments and major corporate clients throughout Australia and New Zealand. For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or amy.williams@macroplan.com.au.

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