What drives property price growth?

Two minute read

Much, these days, is written about price growth, and to some extent, about rents.  

A lot of it looks backwards, telling us about past performance.

Most of it is nonsense.

Less is said about future trends.

And if the future is promoted, it is almost always thrown out there with little or no reasoning as to why.

A few mention supply.

Almost no one (present company excepted) talks about sales volumes.

So what drives price growth?

Dwelling prices are driven on three levels – macro; regional and local. 

On the macro level, price is influenced by the wider things – interest rates; liquidity; the economy; wages; confidence; government policy; exchange rates and overseas events.

Regionally, dwelling prices are influenced by employment; wages, again, and the broader demand/supply balance.  We reluctantly include ‘infrastructure’, as our work has found that unless these new structures create long lasting jobs, set enduring higher wages and really increase convenience, then it’s a real hit and miss when it comes to an enduring impact on local property values.

And locally – where it really matters – it is all about supply for sale versus demand i.e. sales. 

Many spend way too much time on the macro stuff; others wallow around – aimlessly sometimes, I must add – at the regional level and too few get down and dirty, visiting the local scene and making sure the data/results pass the ‘pub test’.

Supply in months

How we measure supply and demand at a local level is to count the amount of stock currently for sale against the number of sales made over the last twelve months.  

We express this as the ‘supply in months’.

And no surprise there, but the supply is often much more and the demand a lot less, than the empty vessels would have you believe.

In short, an area with, say, 100 properties listed for sale, but only achieving 20 sales per annum, is in a slump.

If we exchange the numbers, then it’s thriving.

As one would expect, when supply is tight, dwelling prices and rents lift.

The opposite applies, almost always, when supply is high in relation to demand.

About Michael Matusik 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