Seven Drivers of Value in the Australian Real Estate Market
A few months ago, I hosted a live webinar for about 350 Australian property investors. A big question on everyone's mind has been, "Are we in a bubble?"
The answer may seem obvious to you, but one of my jobs is to try to lead people into understanding how to reach their own conclusions. There are too many people giving bad advice in the property industry in Australia, trying to tell people what they should believe about the future of home prices.
Unfortunately, most of these "professionals" are highly incentivised to get you to follow their bad advice. The more I can equip people to form their own opinions, the less likely they are to do dumb stuff with their money.
Here's a segment from the webinar where I explain the seven primary things that have caused real estate, particularly in Sydney and Melbourne, to become so expensive. The question then remains for investors, "How sustainable are each of these seven drivers of value?"
In case you couldn't be bothered to watch the entire video, here's a quick summary of the seven drivers of value:
1. strong population growth
2. strong employment
3. wage growth
4. scarcity of homes near jobs
5. low interest rates
6. loose lending policies
7. investor tax incentives
Of course, an eighth could be foreign investors, but that one is really tied to low interest rates and the creation of money in China.
Which of these seven drivers do you think has contributed the most to high property prices in Australia?
Jason Staggers
Hey Jason, i would also not discount the risk that property owners might have to stump up more for land tax and rates in the future if State Governments feel the need for more revenue. Their revenue is already getting squeezed by several factors, and this trend may continue. Just my thoughts anyway.
Good point. Local and state governments are no doubt riding the property market wave. They'll be forced to tighten their budgets eventually, which is always tough for politicians to do. Their risk is that as taxes rise there is less incentive to invest which exacerbates their problem.
Interesting to learn about the Aussie market, following!
Upvoted & RESTEEMED :]
Congratulations @jasonstaggers! You have completed some achievement on Steemit and have been rewarded with new badge(s) :
Click on any badge to view your own Board of Honor on SteemitBoard.
For more information about SteemitBoard, click here
If you no longer want to receive notifications, reply to this comment with the word
STOPI guess at some point it´s as well driven by foreign investment companies getting into the market, decreasing the supply and therefore increasing the prices. Together with the growth in Population with it the overall demand prices are going up and up and up...
Hi Jason, thanks for the post. I take it that Australia will never be able to sustain employment and population growth. They contradict each other prohibitively (mothers can't work full time at 3 jobs and deliver babies). Further, Australia is one of the last countries to really be very occupied with primary industry (mining, forrestry, fisheries, agriculture). A large part of this will soon fall away. As we see in Europe, most institutions which delivered on knowledge on how to process ores to concentrates, now teach on how to process scrap to valuables, at a lower cost than mining ores. Australia urgently needs to buckle up on industry 4.0 and manufacturing or the game will very soon be over. Breweries will be in high demand. My personal opinion.
All good points. I think that's true for all the western world. Big changes coming that very few are likely prepared for. Thanks lucky for sharing your thoughts.
Great presentation Jason, very informative. Just as a side note, if you look at most financial charts from around the world, just like your last chart you can clearly see parabolic spikes. Most of these spikes occur in 1971 or just after when the last anchor to the gold standard was severed for the whole world. Cheers and great job my friend.
Thanks silverbug. Yes, good point. Someday our descendents will all look back and wonder how we could have been so dumb for letting the Keynesians control the world's money supply.