Property spruikers are at pains to outline that because one area is cheaper than another, it must be a better buy.
Take Sydney versus SEQld, for example.
Some folks have been calling for – and still are – a SEQld real estate “boom”.
Yet, the latest figures show that dwelling values have risen by about 14% across Sydney and Melbourne over the last 12 months and, despite “boom” calls over several years now, SEQld’s annual growth rate remains at about half the rate being experienced in our two largest cities.
It's true that much of SEQld is between 6 and 12 on the property clock.
So things should continue improving.
It is also true that SEQld typically follows the Sydney/Melbourne cycle and receives buyer interest from down south, due to price and rental yield differential.
But is it realistic to label SEQld as Australia’s next "boom" area?
Let’s look at a few of the things that we think need to be happening before a place "booms".
First of all, the "boom" area has to be expanding.
More people should want to live there.
Population growth should be increasing.
But SEQld’s annual population growth is slowing.
Net interstate migration to Qld is at near record lows and whilst it should improve in coming years, it is very unlikely to bounce back to the levels seen during the late 1990s-early 2000s.
Why not? Because Queensland, and many parts of SEQld, are not creating enough new jobs.
The second thing that needs to happen for a place to be labelled a "boom" town is that jobs, and lots of them, are being created.
Yet the baton change from mining to non-resource based employment is having a negative impact on Queensland’s economy.
Sydney and Melbourne are creating, and are projected to continue creating more new jobs than SEQld.
Sydney and Melbourne's continued residential performance is being helped by these new jobs.
Resource-based jobs – in fact, lots of them – were being created in the early to mid-2000s, which was the last time the Queensland residential market went through a residential "boom".
Also, housing supply – both existing and new stock – needs to be in tight supply before a residential market can "boom".
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Whilst undersupplied a few years back, some parts of SEQld are already struggling with its level of new and resale residential supplies.
The region’s vacancy rate is increasing; rental growth is now flat and the amount of stock for resale is on the rise.
This is especially the case for inner Brisbane apartments.
In simple terms, an increase in supply does place a cap on potential price growth, plus how far rents can increase.
Our experience is that housing needs to be a "steal" at the start of a potential "boom".
Whilst SEQld values are less than Sydney’s and Melbourne’s, housing isn’t cheap in SEQld when measured against local metrics – housing costs are far from a "steal".
It was much cheaper to buy or rent in SEQld in the late 1990s/early 2000s – the last time this area experienced "boom"– like conditions.
Finally, an area needs the right demographic mix in order to help fuel a "boom".
SEQld is facing a large demographic shift over the next decade or so.
In short, this shift involves an increase in the size of the downsizing and early retirement markets, with a contraction in the number of households upgrading their housing.
Also, fewer young people are moving to; or staying in; Queensland in general.
As people age, they spend less, not more, on housing.
Fewer upgraders in the demographic mix places a natural break on generic dwelling price growth.
The SEQld demographics were quite different 15-odd years ago – i.e. the start of SEQld’s last “boom”.
Households upgrading were a dominant market segment back then, helping to drive home prices higher, as this buyer group spent money in anticipation of future earnings; and as they tried to outdo "the Joneses" next door.
This was pre-GFC. Post that event, quite a few older SEQld households are still licking their financial wounds; most remain cautious and are reluctant to start a house price bidding war.
There is always something more – beyond the short list above – that drives a market to "boom".
In Sydney and Melbourne, whilst many still want to deny such, this X Factor has been overseas buying, much of which is indirect, via friends and relatives already living in Australia.
In SEQld’s past, the X Factor was high paying Queensland resource-based jobs.
Editors Note: This article has been republished for the benefit of our new readers. It was originally written by Michael Matusik in June 2016