In today’s show, we’re going to talk about the future of our property markets.
It’s important to understand what the markets will be going over the next five, ten, or fifteen years and what sort of properties will be in continual strong demand so that they outperform the averages.
I’m going to do talk about that in two separate segments.
Firstly I’m going to explain an important factor shape our futures, and it’s not the normal demographics I talk about. You’ll be surprised.
In the second segment with Dr Andrew Wilson, we’re going to talk about the apartment markets. Because we’ve had a building boom in apartments, many people said we had an oversupply that was going to lead to a crash. In some segments of the market that didn’t occur, but in other segments it did.
Also, in my mindset moment, I’m going to tell you about the first car, and what that has to do with success and money.
This will shape the future of our cities
I’d like to have a chat about one of the major factors that’s going to shape our cities and property markets in the future.
Property investing is a long-term game, and you want to own the kinds of properties that are going to grow at wealth-producing rates of return in the future.
Many people are saying that we can’t have the same sort of capital growth that we had in the last 10-15 years over the next decade or so. It’s just not possible.
There are so many factors that could be involved that I don’t want to predict exactly what capital growth will look like in the future. But I do want to suggest that what we should be looking for are properties that are going to outperform the averages.
The significant growth in our capital cities over the past couple of decades came about because of two major factors:
- A significant drop in interest rates
- Many households moved from single income to two-income households
What’s ahead in the future?
- A period of significantly lower interest rates, at least for the next decade
- Wages growth will remain low, despite strong job creation and low unemployment levels
Despite business profits and the low unemployment, wages are not going up. Workers are not only taking home less money, but they’re getting less bang for their buck. I see some major workplace changes on the horizon.
- A lot of existing jobs won’t be needed in the future. More and more jobs will be done by fewer people.
- An accelerated hollowing out of the middle class
- There will be more lower paying jobs, temporary jobs, and casual jobs.
Don’t blame Big Brother or the government, though.
A lot of this has to do with Artificial Intelligence coming.
A lot has to do with offshoring of manufacturing and other jobs.
But it’s all changing.
Michael Matusik created a great table where he explains the difference that he sees amongst the distribution of different jobs in Australia moving forward.
He classes people as being either high-income earners, low-income earners, or middle-income earners.
The trends are more important than the exact figures, but he suggests that over the last 25 years or so, 30 percent of us were high income earners, but it’s actually dropped to around 25 percent now and will drop to 20 percent over the next 25 years.
Middle-income earners were around 50 percent in the past, but have dropped to 40 percent and will continue to drop to around 30 percent.
Meanwhile, low-income earners previously made up around 20 percent of Australians now make up around 35 percent and will increase to around 50 percent.
Michael writes that 47 percent of existing jobs could be obsolete by 2030, and that demand for the remaining jobs will be halved over the next decade.
And most of the jobs affected will be in the middle and higher wage levels.
So what does this mean for the property market?
Where are property values going to increase at above average rates of return in the future?
It’s going to be in those locations where people’s wages are high and their disposable income is high.
There’s going to be very little impetus for people to buy more property or add to their homes in the outer suburbs and the lower income areas where people’s wages aren’t rising, which means properties in those areas aren’t going to go up much.
On the other hand, in municipalities where people’s wages are rising, they’ll have more disposable income.
They’ll buy more new houses and renovate more houses, increasing the property values.
So, the factors that are going to shape the property markets in the future are:
- The jobs people have
- The disposable income they have
- Their ability to pay to live in the locations where they want to live.
The State of our apartment markets
They’re happy to live in apartments trading space for place – they want to live where the action is. In fact, the wave of apartment construction has changed the shape of our cities.
Not only in the CBD and near CBD suburbs, but new apartment blocks have spread to the middle and even outer suburbs. Some say Sydney and Melbourne have Manhattanised.
Have we been building too many apartments?
Are we building the wrong type of dwelling?
Is the oversupply causing a crash like many predicted?
And what’s ahead for our apartment markets?
That’s what I discuss today with Dr Andrew Wilson in this week’s Property Insiders chat.
Listen as we discuss:
- The unprecedented apartment boom of the past 5 years in most capitals which has now clearly ended. This has implications for undersupply in the coming years.
- Although record levels of apartments have been built in recent years, the unit market continues to outperform houses.
- Doomsayer predictions of oversupply and sharply falling prices have unsurprisingly proven to be false – in particular, Brisbane where apartment prices and rents are rising and vacancy rates continue to fall.
- The sharp decline in unit construction has significant consequences for the economy which has benefitted from the recent boom that has offset the end of the mining boom and the depletion of the manufacturing sector.
- Demand for units is set to accelerate from a more diverse buyer profile as apartment living emerges as a preferred lifestyle for many
- The peak of the supply cycle has now been reached in Melbourne and Sydney and predictably sales are relatively scarce exacerbated by misguided lending policies to investors, restrictions on Chinese buyers and general fragile sentiment
- Tighter planning restrictions for apartments, particularly in suburban areas will exacerbate the emerging undersupply
- NIMBYS and NOTES
- Missing middle
- Latest approvals data shows some early signs of a revival in unit buildings
Links and Resources:
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Some of our favourite quotes from the show:
“Don’t blame big brother, and don’t blame the government, a lot of this has to do with artificial intelligence coming, a lot of this has to do with offshoring of manufacturing and other jobs, but it’s all changing.” –Michael Yardney
“The lesson for you and me is: you don’t always win. But every time you lose you get stronger.” –Michael Yardney
“Nothing is as painful as staying stuck where you don’t belong.” –Michael Yardney
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