29 May Regional areas that are set to grow – Pete Wargent
With so much talk about affordability, is this the time we will see the emergence of the regional areas as people need to move further out of the cities to find a place they can afford. Pete Wargent says this could be the answer and suggests the areas he believes will benefit.
Kevin: A questions I’m commonly asked is whether we should be buying in the city? Are the cities becoming too over-priced now, and should we look at some of the regional areas? I guess a lot depends on your personal situation.
But let’s get a bit of an overview on that. Pete Wargent joins me, a recognized expert, one of our experts we use on the show quite often. He has a great blog site, too, which is PeteWargent.blogspot.com.
Pete, welcome to the show. Thanks for your time.
Pete: Pleasure, Kevin.
Kevin: What is the best? Is it best that we start to look in the regional areas? Are the cities becoming a little bit more over-priced and unaffordable?
Pete: Going back to the fundamentals, in the simplest terms, property prices rise when demand exceeds supply. Most people live and want to live in the capital cities, and that’s where there’s a critical mass of population growth. In fact, population growth is becoming even more focused on the capital cities.
Over the longer term, incomes grow faster in the cities, more jobs are created, and that’s where most of the property price growth is.
Kevin: In the past, of course, state and federal governments have tried to encourage people to move to more regional areas, citing the fact that now with the Internet and transportation so much easier, it could be an easy solution to affordability, but it doesn’t seem to have had much traction, Pete.
Pete: Not today. In the most recent statistics, the demographics always lag a little bit, but they show that the population growth has really shifted between the states a little bit, but the capital city proportion of that growth has actually increased and is projected to increase over the next decade, as well. So today, the regional centers haven’t really gotten that traction.
Kevin: One of the other issues, I guess, with investing in the regional areas is that quite often, they’re reliant on one or two major industries and if they tend to fail, then property prices are impacted quite heavily, aren’t they?
Pete: Yes. We’re obviously generalizing here, and Australia is a diverse country. We had a one-in-150-year event after the Sydney Olympics, a construction boom that really ran all the way through until 2012. So, a lot of regional areas did really well in that period up to 2012, but many of those have come back again since that time and under-perform the capital cities.
But there will always be some regional out-performers; it’s really just a question of which. If you look at, say, Geelong, at the moment, there’s a confluence of factors – proximity to Melbourne and the coast, affordability, and you already mentioned some government incentives, the First Home Buyers Grant and stamp duty exemptions – so that could create a mini boom in a city like Geelong.
Kevin: I know a couple of really good examples in New South Wales would be Gosford and Newcastle, too, which have benefited a lot from being so close to Sydney and it’s so easy to commute back into Sydney, as well.
Pete: That’s right. It’s what they call the ripple effect, when the capital city prices out some buyers and they will start to look at the next most affordable location – and proximity to the capitals can certainly do that.
Kevin: Some of the other areas that have probably come under heavy concern, some of the tourist areas like Townsville and Cairns in north Queensland, even Mackay and Rockhampton in Queensland. These are areas that we’ve been waiting to grow and develop for some time, but they’re so reliant on things like tourism and mining.
Pete: Yes, I think with the lower dollar, you would expect to see tourism booming, and it has been more lately. I think if you throw in for Queensland, the Commonwealth Games that’s coming up, you’d expect to see the Gold Coast seeing more demand and maybe seeing prices rise.
I think, in the capital cities on the supply side, land value. Land is inherently scarce close to the capital cities, but there is a glut of high-rise apartments in some cities. So, if you take the old adage of land value and land depreciating, you really want to be finding something with scarcity value if you’re looking in the capitals.
Kevin: We had a talk in a recent show about the West Australian market and how the development of a railway line going up and down connecting north and south to Perth is going to be a bit of a boost for some of those regional areas. Western Australia is a fairly unique location in what it could do for the development of some of those regional areas, Pete.
Pete: Yes. Western Australia is really in the middle of a recession. We already mentioned the mining boom there, and since 2012/13, Western Australia is coming down the other side of that construction boom. Really, all parts of WA from Perth and the regional areas have really struggled since that time. A lot of people trying to beat the bottom.
I think rents are still declining. There are high vacancy rates in a lot of WA locations as people drift away to Melbourne and other parts of the country. But at some point, it will become cheaper for people to buy than rent, and I guess at that point, you’ll see the inflection and prices will begin to rise again.
Kevin: Just around this now, Pete, your view on what people should be doing if they want to invest in the regional areas: how should they go about researching it?
Pete: As I mentioned, Australia is a diverse country. I think if it was me, personally, I would be looking at locations that do have that proximity to the capitals that you mentioned. Geelong is one such example, which I think is going to have a really good run. If you’re looking in Queensland, maybe places like Ipswich or Toowoomba.
But I wouldn’t be venturing necessarily too far away from the capitals because, as you say, there’s less diversity of employment in industry the further you get from the cities.
Kevin: Good talking to you, Pete. Pete Wargent, and that blog site again is PeteWargent.blogspot.com. Thanks for your time, mate, and we’ll talk to you again soon.
Pete: It’s always a pleasure. Cheers, Kevin.