By Michael Yardney March 11, 2026

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The one thing that really drives property prices (and why most commentators miss it)

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The one thing that really drives property prices (and why most commentators miss it)

Key takeaways

Jobs drive property prices more than any other factor over the medium term. Secure, well-paid work creates confidence and borrowing power.

Population growth isn’t the same as housing demand. What matters is household formation, not headcount.

Infrastructure only boosts prices when it connects people to jobs or creates new employment. A train line without an economic engine won’t deliver sustained capital growth.

Not all jobs growth is equal. Diverse, productive private-sector economies tend to create more resilient, higher-quality housing demand.

Narratives distort decisions, but fundamentals win over time. Follow long-term job engines and buy properties that affluent households will keep competing for.

If you listened to the typical real estate commentary, you’d think property prices are basically driven by interest rates, immigration and whatever the Reserve Bank might do next month.

But when you strip away the noise and look at what actually moves property values over the medium term, one factor quietly dominates everything.

It’s jobs.

Not “jobs” as a vague headline number either. I’m talking about what type of jobs, where they’re located, how secure they are, and who they attract.

Because property values are ultimately powered by pay packets, and pay packets come from the local economy.

Once you see that clearly, a lot of the confusion many people have about the property markets suddenly makes sense.

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Why jobs beat interest rates most of the time

Of course interest rates matter. They influence borrowing capacity and short-term sentiment.

People feel a little braver when rates are falling, and a bit more cautious when they’re rising.

But rates don’t create prosperity. They don’t create income.

And they don’t create the kind of deep, durable demand that pushes prices higher for years.

Simon Kuestenmacher explained it neatly in our latest episode of Demographics Decoded podcast:

"Employment impacts your general confidence - not just the amount of money that you have available, and people make decisions based on that first, then take interest rates into account."

That’s the key distinction most commentators miss.

Tip: Interest rates can change the temperature of the market. Jobs change the climate.

Jobs influence whether households feel safe enough to upgrade, buy their first home, invest, or relocate.

And when enough households with stable incomes compete for scarce, well-located housing, prices rise because buyers simply have to pay more.

The property market isn’t driven by people. It’s driven by households

Now, here's another blind spot.

Sure, “people live in houses.” But population growth doesn’t automatically translate into capital growth.

Simon made the point with a simple example. He and his wife had children, which increased the population, but it didn’t increase housing demand because they “just squeezed them into the same house.”

That’s why the more meaningful question isn’t “How many people are coming?” It’s “How many households are forming?”

In Simon’s words: “It’s the number of households that drives the demand for property.”

And once you understand this, you start to see why some areas with strong population growth can still deliver underwhelming price performance.

If household formation is slower than population growth (more sharing, more multigenerational living, more adult kids staying home longer), then housing demand doesn’t rise as fast as the headline population numbers suggest.

That’s one reason “migration is booming” doesn’t always translate into “prices will soar everywhere.”

Clearly, the story is more nuanced, and investors need to be more selective.

Not all demand is equal (and neither are the people creating it)

Even when population growth does create more households, the quality of demand matters.

An area can add population that’s lower income, transient, or not employed locally, and it won’t necessarily create meaningful upward pressure on property prices.

On the other hand, when an area attracts skilled, high-income households, often because of the jobs created there, property demand becomes stronger.

Buyers have greater capacity, greater confidence, and greater willingness to compete.

Renters also have more ability to pay higher rents, which matters enormously for investors who want rising income over time

This is why I keep coming back to the local economy. It’s the engine.

Note: And it’s why the best investment-grade locations tend to be those with a concentration of high-participation employment and higher wage roles, often linked to “knowledge industries,” health, education, resources, advanced manufacturing, logistics, and now increasingly AI-related work.

Household structure changed the game… and most people don’t notice

There’s an even deeper layer here that rarely gets discussed properly: household structure and workforce participation.

When Australia shifted from more single-income to more dual-income households, it dramatically changed the amount of money households could allocate to housing.

Simon pointed out that dual-income households gained “more access to more capital,” and then naturally started buying “a nicer thing."

In the early days, it felt like a lifestyle upgrade. Now, for many households, it’s a necessity.

This matters for investors because it explains why housing can feel “unaffordable” and yet prices keep rising: households tend to max out what they can spend on housing, partly because it’s a consumer preference and partly because it’s the economic reality of living near jobs and amenities.

In other words, when incomes rise, people don’t bank the difference. They compete for better housing.

And competition is what moves prices.

The big trap: thinking infrastructure alone creates booms

You’ve heard it: “Build it and they will come.”

Sometimes that’s true. But on its own, it’s incomplete, and that’s what makes it dangerous for investors to think this way.

Simon’s view was clear: infrastructure can be overrated if it’s not linked to employment. You still need to “provide the jobs."

A rail line to nowhere doesn’t create a thriving property market.

It creates a faster commute… to somewhere else.

If the area doesn’t build a productive employment base, then what you often end up with is a dormitory suburb, lots of housing supply, lots of competition among sellers, and not enough local wage growth to drive strong capital growth.

Tip: If you want to use infrastructure as an investor, use it the right way: as a supporting signal, not the main reason.

Ask what industries it will enable, what employers it will attract, and what kind of income growth it can support.

Another trap: confusing “jobs growth” with “productive jobs growth”

Here’s another contrarian point Simon raised...He argued that we’ve relied too much on public jobs to boost employment growth rather than private jobs, and that it can distort how we think about productivity and even GDP.

Now, I’m not anti-public sector; Australia needs great public services.

But as a property investor, you should care about the resilience of the local economy and the durability of pay packets.

What you really want is economically productive activity that creates sustainable demand: businesses selling goods and services, exporting, innovating, expanding, and paying rising wages.

That’s the kind of jobs story that tends to persist through cycles.

Melbourne’s “weak performance” is a lesson in supply mix and narrative

Melbourne is a fascinating case study because it has had strong population growth but weaker property price performance than other capitals in recent times.

What went “wrong”? Simon’s explanation simple...

Melbourne added a lot of its new population into cheaper housing stock by building outwards: more sprawl, more house-and-land packages, which increases the supply of lower-priced dwellings and can pull down the “average."

He contrasted this with Sydney, where geographic constraints push more buildings up, and higher-density building costs more per square metre.

But there’s a second lesson here that’s just as important: narratives can mess with decision-making.

Simon warned against falling into the trap of negative city-wide stories, how Melbourne went from being portrayed as the “most liveable” to the “lockdown capital,” and how people then treat it as if it’s somehow permanently broken.

His view was basically: don’t buy the drama.

Cities reinvent themselves, and the underlying attractiveness and cultural clustering don’t vanish overnight.

That’s a good reminder: sentiment lags fundamentals and overshoots in both directions.

Note: Investors who learn to separate “media mood” from “economic reality” tend to make better decisions.

AI and hybrid work may actually strengthen the big employment hubs

For a while, we were told that remote work would let people live anywhere, and therefore, big cities would lose their magnetism.

But the reality has been hybrid. People still go to the office once or twice a week, which keeps them anchored within a commutable radius of the CBD.

Then Simon made a counterintuitive argument: AI could make proximity to job centres even more important.

His thinking is that AI speeds up the technical tasks: writing, coding, and reading reports, so the technical share of work shrinks, and the interpersonal and creative share grows.

And those human-heavy parts of work benefit from being in person.

If that plays out, it’s quietly bullish for major employment hubs and the established residential areas around them.

It doesn’t mean every inner suburb will outperform, but it does suggest the “death of the CBD” storyline was always overcooked.

Where the next property winners may emerge: follow the long-term job engines

When you view property through the “jobs lens,” you naturally start thinking in longer timeframes.

Simon’s outlook is that Australia’s core business model doesn’t change dramatically: mining, agriculture (with fewer workers), tourism, and international education remain strong.

He also put a big marker on defence spending escalating and staying elevated for a long time.

Note: The deeper point is this: big, sticky government and industry spending creates employment ecosystems: suppliers, contractors, services, training, logistics. That creates pay packets, and pay packets create housing demand.

These are long-term trends, not “next quarter” stories.

The bottom line: property markets don’t move because of headlines

The conclusion is that property markets don’t rise because commentators are excited.

They rise because households have secure incomes, rising wages, and the confidence to compete.

So yes, interest rates matter. Population growth matters. Infrastructure matters. Credit matters.

But over the medium term, none of them does the heavy lifting without a strong and resilient local economy underneath it all.

Note: Jobs create income. Income creates confidence. Confidence creates competition. And competition is what pushes property values higher.

And that’s why, when someone tells you “this area will boom because demand is strong,” the better follow-up question is: Who’s earning the money? How much are they earning? Where are those jobs? And how secure are they likely to be?

Because if you follow the jobs, the property market usually follows too.