What influences your investment property’s performance the most? Part 2

I recently discussed what influences your investment property’s value the most  and today we continue with an analysis of the same question I asked in a Matusik Pulse Question – What influences your property’s performance the most over the medium to long-term?  Tick your top two responses.

The most frequent reply was – its location with 62% of the vote as discussed last week here

The second most popular response was – supply versus demand with 46% of the vote.

Whilst I struggle with the predominance of the weight most investors gave to location, I get the high ranking of ‘supply v. demand’.  Well, up to a point that is…but more on that at the end.

Supply:
As at the end of the 2011 financial year – and the last set of figures that we used to work out our supply/demand equation in mid-September last year – Australia was building – overall – too many new dwellings.

We wrote back then that “since the GFC, Australia has built about 60,000 more new dwellings than it really needed.”

We also noted that “the rate of overbuilding had slowed down over the last twelve months, with 137,000 new dwellings needed during 2011/12 and with 139,000 actually supplied.”

We now have 2012 figures – sadly the ABS has stopped the dwelling commencement series, and we have to use dwelling approvals instead; but factoring that close to 18% of new housing starts (approvals) are not commenced by the end of each year – we can still make some pretty good estimates as to what the actual state of dwelling supply v. demand is across the country.

Demand:
On the demand side, we use population growth – and a moving annual average divided by the number of people per private dwelling across the location in question.  The release of the 2011 Census has improved our modelling in this regard.

The new supply/demand equation has shifted dramatically across Australia over the past twelve months.

The country is now approaching an under build situation – with 32,000 too few dwellings, we estimate, being actually commenced last year.  Australia’s rate of population growth rose from 259,000 during 2010/11 to 360,000 during financial 2012 – a 40% lift.

This has helped underlying demand catch up with new dwelling supply.

The barrage of red/green tape; infrastructure charges; NIMBYism & a very high financial bar has contributed to keeping new housing starts low.

A date set for the federal election; improving consumer & business confidence; a return to generic house growth (albeit mild by historical standards); okay employment numbers & low interest rates should further lift demand, even if our population growth stabilises.

As we also discussed last year, there are always swings and roundabouts, with certain areas across the country under supplied; others building too many new homes, whilst others have got it about right.

Areas of under supply:
In no particular order, these areas are now not building enough new homes relevant to underlying demand.

  • Sydney
  • Brisbane
  • Perth
  • Gold Coast
  • Newcastle
  • Wollongong
  • Townsville
  • Cairns
  • Rockhampton
  • Hervey Bay
  • Whitsundays

Those areas that have the mix just about right include:

  • Hobart
  • Darwin
  • Mackay
  • Gladstone
  • Toowoomba
  • Hervey Bay

The locations with an oversupply of new stock are:

  • Melbourne
  • Adelaide
  • Canberra
  • Geelong
  • Ballart
  • Bendigo
  • Bundaberg

Future demand & new supply patterns will change of course. 

Whilst population growth drives the broad number of new housing starts needed, whether these new properties are actually purchased depends largely on employment trends.

Our Matusik Pulse Survey found that 21% of respondents believe that employment is a major influence on a property’s investment performance.  We have found substantial evidence to corroborate such a belief.

Local employment – in terms of its depth; growth trends & distribution across industry sectors – forms an integral part of our residential project review process.

Recently the ABS will release their small area labour force data.  The publication number is a very easy to remember – 6291.0.55.011 (ha!) & table 16 is the best one to download & review.  This data, in concert with table B43c in the 2011 Census Community Profile of your location of interest, will tell you who works in the area & whether or not new jobs are being created.

Happy data crunching!

……..

Michael Matusik will be presenting at the National Property and Economic Update seminar in Brisbane on 13th April. Click here now for full details and to reserve your seat.

Michael is the director of independent property advisory Matusik Property Insights and writes the  Matusik Missive which is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.



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Michael Matusik

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Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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