The 6 key drivers of property prices



Learning to know what precedes property price increases can be challenging for any investor. What do the statistics really mean? Do they represent the factors that change prices in the property market? How do we use these primary sources?
There are some well-recognised factors that drive the market. Seasoned investors should stay informed about two main economic conditions and four current situations where demand and affordability interact to create opportunities.

1. Supply and demand

Population change is the key driver of demand. When an area becomes popular more people want to live there. Given there are fewer dwellings than interested parties, prices increase. Conversely, when the population declines and there are more dwellings than people, prices decline. The Australian Bureau of Statistics (ABS) publishes figures on population growth after each five-yearly Census. Generally trends in population growth don't change rapidly. 
The other driver is availability of land. Natural geography limits this, while in other areas such as the ski fields it's limited by National Parks.
Things that do change population growth rapidly - and provide investors with opportunity - are changes in immigration quotas, changes in infrastructure making areas more or less attractive and accessible to live in, and changes to employment such as the booming resources industry.

2. Affordability and availability of money

Affordability is the relationship between housing prices, interest rates and wages.
It's the cost to the owner or investor to retain and enjoy a property. When prices, interest rates and wages reach a ceiling in a particular area, residents often realise they can have a better lifestyle elsewhere. A good example of this has been the rapid migration of Sydney homeowners moving into the Brisbane and Gold Coast regions. This, in turn, has raised prices significantly in Brisbane to the point where the median price is almost on par with Melbourne.

3. The resources boom

The current boom in natural resources being mined, harvested and extracted to fund international infrastructure - especially in China and India - has increased the demand for skilled and semi-skilled workers. 
Unlike some other industries, the mining industry pays most of its workers high salaries and demand for these workers is driving salaries even higher. These workers are then seeking to improve their lifestyle by buying bigger and better homes, or maybe an investment property or two. In Perth, Darwin, parts of Queensland and other mining areas there are whole suburbs, towns and cities of people with the ability to afford more.

4. Infrastructure

Infrastructure is always a major driver for price growth when it increases the attractiveness and amenities of an area.
The benefits of infrastructure are generally recognised after the changes. Here are a few examples:

  • North-west Sydney, NSW - the opening of the M2 and M7 freeways made the north-west of Sydney more accessible and attractive and resulted in increased property prices and rental return
  • Airlie Beach, Queensland - the impending addition of a multimillion-dollar marina and additional infrastructure to cater for tourism has caused property prices to increase by over 25% in the last year
  • Gladstone, Queensland - the introduction of a new aluminium smelter is providing new jobs, and a strong economy is another major driver
  • Mt Hotham, Victoria - the re-development of the Mt Hotham Village and the concomitant limited land release will increase prices

5. Sea change

The population shift towards waterside living has pushed prices up in all capital cities and many coastal regions.
This trend is continuing and has resulted in waterside investors obtaining greater returns.
6. Ageing population

Over the next 5-10 years most Baby Boomers are expected to retire from the workforce and look to move to the seaside in order to improve their lifestyle. They will also need income and many have responded in surveys that they intend to buy investment properties.

This may include consideration of commercial property investment as they can use their super scheme to invest; it's easier to manage than residential property and has greater returns.

Put a number of these drivers together and you have an extremely good understanding of what's going to drive price growth. Having identified these areas, careful homework may reveal good cash-flow returns as well.

John Moore is President of the Property Investors Association of Australia (PIAA)

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