To know what properties are going to be in strong demand in the future, you first need to know what market changes you need to prepare for and we give you three big ones in our catchup with Michael Yardney.
Kevin: Here’s a great question: what property is going to be in strong demand in the future? What a great question, one that I guess property investors ponder quite often. To help us answer that, Michael Yardney joins me from Metropole Property Strategists.
Michael: Hello, Kevin.
Kevin: How would you answer that?
Michael: I think we have to have a look at the changes that are ahead for us, the changes with our economy, our demographics, the way we live, and our property markets, because that’s an important question for all investors, as you say.
It’s not what the next hot spot is going to be or what’s going to be important in the medium term. What’s your property going to look like in 20 years’ time? Who’s going to want to buy it, who’s going to want to rent it?
Kevin: Let’s talk about the demographics first. What impact will they have?
Michael: In my mind, our changing demographics will be more influential in the long term than the short-term influences of interest rates, bank lending policies, all those things that we tend to get worried about day to day.
It’s no secret that our population is aging, but the latest Australian Intergenerational Report shows that by 2055 – and that’s not that long away – the number of people over 65 is going to double.
Perhaps a bigger threat, though, is going to be the ratio of people in the workforce compared to the baby boomers – people in your and my age group – who are going to be retiring. We’re going to have less people in the workforce for every retired person. And what that’s really going to mean, Kevin, is we’re going to have to keep growing our population – and it won’t happen by natural growth but really by immigration – so that we have enough people in the workforce who are going to pay the taxes and allow the economy to keep going.
So, I guess the big, big factor we have to pay attention to is where are all these new people coming into Australia are going to want to live and what sort of properties they’re going to want to live in?
Kevin: Great points. What about the economy, Michael? That’s obviously going to have a big effect.
Michael: Yes. The mining boom is over, and we’re not really manufacturing things anymore either, so another important factor to property markets is what sort of jobs are people going to have and where are they going to want to live?
In general, as an investor, we’re going to want to find those areas where affordability is higher – not because properties are lower or cheaper, but because people can afford to buy and want to buy, because they have high wages.
Really, we’re going to be a service-driven economy in the future. IT, education, health are going to be the areas that are going to grow. That’ll translate to wages growth, the ability to pay for more properties. And in general, that’s going to be in our three big capital cities, and Kevin, in general, it’s close to the CBD. Those are the areas where property values are going to increase more proportionately than outer areas.
Kevin: From what you’ve told me, Michael, we’re obviously headed for a period when the Australian market is going to be pretty well fragmented, I guess. Tell me about that. How are you preparing for that?
Michael: What’s going to happen is that the requirement for living close to work, close to where the action is is going to create a disparity between the inner and middle ring suburbs and the outer suburbs of the capital cities. In fact, even the capital cities are going to be much more important than regional Australia.
It’s very different from the turn of the 1900s. At federation, more people lived in regional Australia and we lived off the land. And then coming into the period after the Second World War when we started to become a manufacturing country and people moved into our cities near the factories.
But nowadays, as our cities grow, how are we going to cope with that? Sydney is at 5 million people, Melbourne is at 4.6 million people. Cities over 5 million people start to become a bit unlivable. So, proximity to transport, proximity to public transport, and good infrastructure is going to be even more important, and I believe, Kevin, people are going to pay a premium in the future to live near those locations.
Kevin: Obviously, Michael, just listening to what you’re saying now, we’re changing in terms of demographics, how we live, where we live, and so on. But there’ll always be a popular demand for detached houses. But we have to be aware that where people want to live is changing, isn’t it? A much more higher density.
Michael: I think it’s a combination of more older people – remember that people over 65 are going to double in the numbers – more single households, one and two people households, and therefore we really don’t need those big McMansions with three or four spare bedrooms.
When they do the studies, Kevin, they find that most houses have got one, and many houses have got two extra rooms. They’ve got more TVs than they’ve got people in them. We’re going to have to live a bit differently. It’s a first world problem, isn’t it, Kevin?
Kevin: It is. And I guess as investors, we’re going to have to take a long-term view, change our view about the style of property, Michael?
Michael: Sure. There will always be people who are going to want to live in detached houses with a front- and backyard for their families, but I believe there’s going to be more requirement for medium density dwelling, townhouses, villa units, and apartments as people trade their backyards for balconies and courtyards, Kevin.
Kevin: Well said. Michael Yardney for Metropole Property Strategists. Thank you for your time, Michael.
Michael: My pleasure, Kevin.