Rich Suburbs, Poor Suburbs. Where would you invest?

Our segregated cities keep rich and poor as far apart as possible according to demographer Bernard Salt.

Writing in The Australian a number of years ago, Salt examined the richest and the poorest suburbs in Australia and concluded the poor are being flung to the city’s edges and the bigger the city, the farther the poor are from the rich.

Salt explained:

There are rich suburbs and there are poor suburbs scattered across metropolitan Australia, and each kind represents different tribes.

Source: The Australian

Salt continues: 

"Median personal income typically rises in the well-to-do yuppie suburbs of the inner city.

Lots of double-income-no-kids and professional-type households have the effect of injecting buckets of disposable income into a local area.

This is a different world to what are effectively welfare suburbs.

My point is that Australia’s Goldilocks suburbs — places where income levels are astronomically high — are located close to the city centre.

The rich do not commute.

The poor, on the other hand, have no choice in the matter and are flung out to the city’s edge as if propelled by some centrifugal force to the margins of civilisation."

While Salt is talking about social demography his message should not be lost on property investors.

The rich keep getting richer all around the world and, in general, the rich live close to the economic centres and the CBD or close to the water.

Why?

Because they can afford to and this is where, in general, there will be above-average capital growth because of affordability.

Not that property values are cheap there, but because people living there can afford to pay more and will compete to secure the best locations.

And it's more than just property owners that you should be thinking about.

In the future, your income will be dependent upon your tenants' ability to pay their rent and pay increasing rents over time.

That's why only invest in areas with a wealthy demographic where, in general, tenants live not because they can't afford to buy a property, but because they rent in these locations for lifestyle reasons.

While in the outer, poorer suburbs many tenants rent because they're really only one or two weeks away from being broke.

Salt continues: 

"By the middle of the 21st century it is likely that Sydney and Melbourne will be approaching the eight million mark.

Based on the figures and the ratios cited above, I am pretty sure that Point Piper and Cremorne and Teneriffe and even Battery Point still will be locations prized by the city’s rich.

But it is the poor who’ll move during the 2020s and the 2030s. Perhaps farther upstream from Gagebrook, perhaps farther north from Meadow Heights and perhaps farther west from Yennora. And if this is the case then the chances of inspiring social mobility will drop as each of the city’s bubbles tightens around its kin.

And of course between these hot spots of prosperity and despair there lie broad stretches of middle Australia blossoming on our great suburban savanna."

Read more: The Australian

Editor's note: this article was originally published a number of years ago, but it is still very relevant today, I have re-published it for the benefit of any new subscribers.

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.