Let’s take a quick look at the Motor Vehicle Census to see what we can learn from it.
Firstly and most obviously there has been a huge increase in the number of vehicles on Australia’s roads, up from 15.67m in 2009 to a staggering 17.63m in 2014.
The population of Australia is growing at 1.7 percent per annum but the number of vehicles is increasing at a much faster pace of more than 2.5 percent per annum, and the growth rate has accelerated.
The number of vehicles is up by a staggering 12.5 percent over only five years equating to nearly 2 million additional vehicles.
In terms of vehicle types, there are many more motorcycles over the past half decade as our major capital cities become denser, but in fact there are just many more of, well, everything.
The lowest percentage increases in vehicles were in South Australia and Tasmania largely due to weak population growth in those states, but elsewhere the percentage growth rates were exceptionally strong ranging from 2.1 percent to 3.5 percent.
The percentage increases instead presented graphically:
Australians are becoming wealthier and with low interest rates have higher disposable incomes and this is translating to what can only be described as a splurge on vehicles.
When we look at the number of motor vehicles registrations by population we can see that there has been a dramatic increase across every state, reinforcing the point.
The average age of vehicles has remained flat for the past five years at 10.0 years as new vehicle sales have remained robust.
When we consider the absolute numbers of vehicles on the register the figures make for eye-popping reading.
In particular, New South Wales has seen the number of vehicles increase from 4.56m to more than 5.1 million in only five years.
Meanwhile Victoria is not far behind running up from 4.0 million to nearly 4.5 million, and Queensland (3.3 million to 3.7 million) and Western Australia (1.8 million to 2.1 million) are also seeing similar trends.
The figures were comparatively small in other states.
Implications for investors?
This is all good for levels of economic activity in the four major capital cities, but what does it mean for investors?
Firstly and most obviously, don’t spend more money on new cars, because in ten years you will have an average car which is worth a heck of a lot less than you paid for it!
In terms of the share markets, the last century has taught us that it does not make sense to invest blindly in car manufacturing companies simply because there are millions more cars on our roads.
Clearly, that would not have been a profitable move in many cases. In a similar vein, while one of the greatest trends unfolding over the past century has been a huge increase in global travel, investing in aviation companies has largely been an unprofitable exercise, some of the reasons for which I discussed here previously.
Ultimately, investors tend to see outstanding returns when they invest in companies which have a strong economic moat, generate strong and sustainable profit margins and that cannot easily be undercut by competitors based in locations with cheaper labour and materials costs.
Australia’s car industry, as has been the case in other developed countries, has struggled badly to remain profitable or viable, and will now be allowed to die.
Just as investors in companies which service the resource giants have frequently seen greater returns that those owning shares in the mining companies themselves, investors might instead look towards investing in infrastructure and engineering companies.
Property market impacts
As for property market impacts, we’ve always believed that the best property investments are those located in prime-location, landlocked suburbs in thriving capital cities with booming population growth, such as Sydney and London.
Over the course of a property cycle, the demand outstripping available supply helps certain properties in these locations to outperform.
One of the things we have always looked for is easy access for train links to the Central Business District and employment hubs.
It’s been an important lesson learned from mature capital cities such as London where car ownership is often seen to be a bind rather than a benefit, and homes located close to Tube stations and key transport hubs can at times fetch huge premiums while remaining more robust in economic downturns.
The new Crossrail in London which is to be constructed over the next four years is forecast to increase property prices by 40 percent in certain suburbs which stand to benefit from the improved transport links.
The above data merely serves to reinforce that view in relation to Australia.
With more than half a million vehicles on New South Wales roads in only five years it is a cast iron certainty that Sydney traffic congestion will continue to worsen dramatically over the coming decades, and I for one know that I want to own as many inner suburb properties close to key train links as possible.