What drives investment activity in one suburb over another?
Is it pursuit of a high yield or is it a desire for good capital gains?
These are often debated topics and interestingly the data suggests there is not one clear-cut answer.
For instance, a review of the proportion of houses owned by investors in the inner, middle and outer suburbs shows a high level of investment in suburbs with low and high yields.
In the inner city, those suburbs within a 10km radius of the CBD is where the highest level of investors can be found in Carlton North, followed by North Melbourne and Richmond.
Carlton North has a historically high level of appreciation and low yield whereas Richmond has a very low appreciation and higher yield.
In the middle suburbs, those between 10 and 20k from the CBD, the investor activity is highest in growth suburbs with new housing – Laverton, Derrimut and Deer Park. These suburbs have good yield according to the research but lower capital gains prospects given the high level of supply.
Conversely, an established suburb such as Clayton has a high level of investors and very low yield, presumably because the market is purpose-built around students.
Finally, in the outer suburbs the investment activity is again concentrated in growth suburbs which are seeing a high rate of new home construction. For example Point Cook, Tarneit and Truganina.
The research suggests that there is more to the decisions of investors than suburb level analysis of yield and historical capital gains. Issues such as the level of supply is important, some suburbs are popular simply because they provide affordable stock for investors.
Others are popular because investors are capitalising on a local factor, such as a university.
Possibly what’s more important is that investment decisions are also made after consideration of the actual house and its relative location and price.
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