With capital city house prices rising strongly, a lot of people are asking me where I’ll be buying investment properties next year – and why.
It’s common knowledge that capital city housing markets are on the rise, but what’s the point of investing in overheated markets that inevitably cool down.
My prediction is that the next housing boom will occur well away from capital cities and there are three million good reasons why.
That’s the number of people at or near retirement age and many of them will be motivated by current price rises to sell their empty nest family homes and move. Such a huge number of buyers will act like a grey tsunami swamping some coastal housing markets and they’ll send prices shooting upwards –the only question is where and when.
The answer lies in the three dynamics at work in retiree markets – location, comparative price and the cohort effect. Together they tell us where and when retiree booms take place and reveal where to get in before price rises start, so let’s take a look at how they work.
Attractive and accessible locations
Like previous generations who created new retirement havens such as the Gold Coast, Hervey Bay or Byron Bay, the baby boomer generation will create their own destinations, but because of their general cosmopolitan nature, they are also likely to live near larger towns with good recreational, health and entertainment facilities.
The key is that such locations will be pleasantly situated coastal towns with good access by road, rail or plane to the nearest capital city – a few hours’ drive or short flight at the most from the children and grandchildren.
The comparative price difference
Although retirees are immune from housing finance constraints, interest rate rises, unemployment or economic fluctuations, their largest asset is likely to be the family home. Not only must its sale enable then to buy their retirement dream home, but they’ll want enough left over for a world trip, new car or caravan as well as a retirement nest egg. [sam id=37 codes=’true’]
This means that the buying price of their retirement home price needs to be significantly lower than what the old family home sells for. The Global Financial Crisis of 2008 knocked the stuffing out of many boomers’ superannuation and share holdings, and encouraged them to put off retirement until their losses could be recovered.
What we have, in effect is a huge backlog of aspirational retirees hoping for a financial miracle and now at last they have one, as the rise in capital city houses prices provides them with the motivation to sell.
Birds of a feather flock together
Once a new retirement location becomes popular, more and more retirees move there which demographers call the ‘cohort effect’. We have witnessed this in the past on Queensland’s Gold Coast, South Australia’s Fleurieu Peninsula, Victoria’s Mornington Peninsula and many other well-known retiree locations.
Prices shoot upwards until they reach the comparative price ceiling and then they stop, by which time over half the local population may be aged over 65. These towns then slumber along for many years with a gradually aging population and no house price growth, until eventually the older folk are moved to hospices and nursing homes and the increasing number of homes on the market sends prices spiralling downwards.
The current generation of retirees shun such areas because they don’t want to be constantly reminded by motorised scooters and walking frames of what lies ahead. Instead, they create new retirement locations of their own – maintaining long cherished friendships, or making new friends the same age.
The current rise in capital city house process is likely to motivate many potential retirees to make their move and by doing so, create a retiree led housing boom. The three dynamics of retiree markets show us that the highest growth will occur in well located, attractively situated towns at low comparative house prices, where values have not crashed in recent years, but not risen either.
The local population will contain only an average number of older residents. Such locations can easily be found on the Sunshine Coast, in South Gippsland coastal towns and some of the south coast holiday resorts in New South Wales. Many of these towns have not experienced real price rises for over ten years and there are already early signs of growing retiree housing demand, with much more to come over the next few years.
John Lindeman is the research columnist for API Magazine and chief property consultant at innovative housing market analysts, Property Power Partners. For more information visit www.understandproperty.com.au