There are around one million holiday homes in Australia. Starting as secluded mountain love shacks or family weekenders on the coast, many became cheap accommodation for post war families. They have a long history and an exciting future for investors. John Lindeman explains why

The story of Australia’s holiday homes traces back to the earliest days of colonial settlement, when our nation was founded on the notion that land had intrinsic value.

Land was given as a reward to retiring soldiers and emancipated convicts and those grants provided their owners with security. Once the land was cleared and became productive, it offered a self-sustaining lifestyle where almost everything needed for survival could be produced. Enterprising farmers took their surpluses to town and many became wealthy and influential members of society. 

Everything changed after gold was discovered. Not only did the promise of quick riches cause an enormous growth in the number of free immigrants, it created an atmosphere of optimism and enthusiasm. It also provided capital for the expansion of capital cities, creating our first suburbs where most of the gold diggers moved when the gold gave out. When the gold rushes ended, colonial governments continued to fund their grand visions by borrowing money from Great Britain to build magnificent public buildings, monuments and ports. 

The great land boom – and bust

As the gold ran out in the 1870s, private investors turned to land. Huge population growth saw Australia’s population treble in just 20 years to 1.7 million in 1871, creating ever increasing demand, and the expansion of railway lines were opening up vast areas of the hinterland for development, providing the supply. 

Land was subdivided and put on the market everywhere – along the probable routes of as yet unbuilt railway lines, in projected future suburban areas, along the coastlines or wherever it appeared likely that existing cities would spread or new cities would be founded. Large tracts of the original land grants were purchased and hastily sub-divided, then put on the market. They were speculatively traded and re-traded, with the price rising spectacularly each time. 

The attraction of residential land as a secure investment was irresistible. Increasing numbers of investors became involved as the demand for land proved to be insatiable. In many cases hasty subdivisions were put on the market without even having been surveyed on the ground, but rather than demonstrating the firmly entrenched belief that land had intrinsic value, what was being exhibited was pure speculation.  

In 1880 the original land grant on which the townships of Leura and Katoomba now stand was sold to speculators for £400, or £1 per acre. The land was then sold three years later at £7 per acre after the railway line had reached Katoomba. In 1885 the area was rezoned as residential and subdivided land sold from £50 a block, rising quickly in price to £400 each by 1887. By 1889, prime residential frontages at the new Leura station were sold from £700 to £1,000 each. 

Bust followed boom in 1890 when Great Britain’s bankers, becoming increasingly concerned by the huge amounts of money being lent to the Australian colonies, turned off the tap. Without funds, the land speculation boom collapsed and in Katoomba and Leura premium land quickly fell to £25 a block, but there were no buyers. The last buyers lost almost everything and newspapers of the day tell of their desperate attempts to sell at any price.  

The 1880s boom has left many well-known legacies, such as our railway networks, major ports and fine public buildings. It provided the drive that united the colonies into a nation, but those boom years also left us with over one million residential blocks around Australia, speculatively developed during the boom years – and this was at a time when the population of Australia was only around three million. Our major cities were now surrounded by huge amounts of residentially zoned subdivided land in some of the most beautiful mountain and seaside locations, but virtually all of this land was inaccessible, unserviced and virtually worthless.   

The automobile creates the weekender

In the years following Federation, many families owned one or more of these blocks of land in the bush beyond the suburbs, purchased by grandad during the boom. They languished unwanted and unvalued but then something came along to totally transform their value - the motor car. From the early twenties onwards Australian families took to driving and this gave them access to some of the most beautiful coastal areas around Sydney, Melbourne and Brisbane and the mountains that lay behind them. 

Cars also gave them access to the blocks of land that were located throughout those areas, undisturbed since their original subdivisions. Although many of the access roads were dirt or gravel, this only added to the excitement of a weekend getaway to the Central Coast, the Gippsland Lakes or the Fleurieu Peninsula. 

Cheaply built weekenders started dotting the more accessible areas, where swimming, boating, fishing, hunting and bushwalking became popular activities. As more families bought cars, they also purchased blocks with the intention of building holiday homes and the value of land started to rise, but then the Great Depression and the Second World War stopped further growth.  

Cheap family homes after the War

During the post war baby boom, an acute shortage of housing saw many of these holiday homes turned into permanent accommodation, especially on the urban fringes of Sydney and Melbourne. Even though most were not sewered and some had only tank water, they were snapped up and prices rose quickly. 

Weekenders on Sydney’s Northern Beaches that were on the market before the War at £50 each were selling for over £400 after the war. This was still well below the median house prices of the time and as the suburban sprawl continued during the 60s and 70s, holiday homes became islands in the most sought after areas, surrounded by modern unit blocks and houses. 

A surprising number of holiday homes survived this period of suburban expansion intact, but for the most part the attraction of holiday homes that were now situated in the fringes of city suburbs was their potential. Investors only purchased them for future redevelopment and in the mean time they became cheap rental options that were looked upon with some disdain by other home owners.  

The highest long term capital growth

As our major cities expanded their geographic expansion in the 70s and 80s, the old holiday homes, now absorbed into suburbia, were located in the most desirable areas. Their location is now their greatest asset, and many have been renovated or pulled down and replaced. For those still standing, the stigma attached to them as sub-standard housing has long since disappeared. A new generation of home owners has seen the potential of their location and the fact that they are still priced well below other houses in the same areas.  

The greatest potential for renovation  

Investors in ex-holiday homes can achieve the highest growth in equity that is currently possible in the housing market, by renovating these properties. This is because they are invariably located in the most sought after suburban areas, facing beaches and lakes in streets where many houses are at the high end of the price range for the suburb. 

The potential of old holiday homes for renovation is enormous and unlike areas with heritage listings and council restrictions on development, such renovation is encouraged by council and the local residents. The trick is to find the right area and the right street – an area with excellent location and a street that has a mix of both old weekenders and renovated mansions.  

The best opportunities in regional areas

The problem is determining where to buy holiday homes for renovation and capital growth. Almost any coastal town or village has a selection of older holiday homes as do towns near national parks, rivers, lakes and getaways in the hills and mountains. Although this supply is limited, it is also relatively constant. 

To find the best areas, we need to look at future demand. Not for unrenovated holiday homes, but for the types of homes these properties can be improved to. In city areas, holiday homes are renovated to become desirable residences for upper socio-economic families, with four or five bedrooms, ensuites and entertainment areas. In regional coastal areas, renovated homes will be sought after by retirees, not families. 

The location of the property is the most important consideration. It should have a view and be close to the beach and facilities. The house itself should be easy to maintain and have room for children and grandchildren to stay. Over-renovation is therefore as dangerous as buying in the wrong location. 

Avoid the glamour retirement areas or locations with a preponderance of older residents. The last thing retirees want is to be surrounded by older people with walking frames as a constant reminder of what’s waiting for them. Each generation seeks out their own retirement areas and they keep moving there until price rises force them to look elsewhere. 

Towns and regions such as the Whitsundays and Sunshine Coast in Queensland, New England, the Central Coast and the South Coast in New South Wales, the Bellarine and Mornington Peninsulas in Victoria and the Fleurieu and Yorke Peninsula towns in South Australia are obvious candidates. 

John Lindeman has been investing in property for over thirty years. He is chief property consultant at innovative housing market analysts,  Property Power Partners