Buyers determine House Prices. Some Buyers look for specific characteristics in a suburb – and they’re willing to pay premium prices.
The above graph shows the biggest industries of employment in Melbourne. Some industries are spread throughout the city: Retail can be found in virtually every suburb; tradies in the Construction industry go wherever the work is; Accommodation and Restaurants can typically be found within a 2km of wherever you are now.
The ‘precinct’ nature of Health and Education sectors make them unique from many others.
Universities and Hospitals (for example) are large employment centres – they’re not localised in a single specific area (e.g. the CBD) but neither are they dotted sporadically across every suburb. About 22% of our population work in the Health or Education sectors. Many are employed through the government; their work is stable, and their long-term career prospects are good.
Many of these workers make it a priority to live close to work, and this goes a long ways to explaining House Prices trends in suburbs with a high proportion of Health and/or Education workers.
The below graph shows that House Prices are higher in these areas, and capital growth tends to be stronger.
COVID-19 has changed the way many of us work. Many employers have been happy with productivity from those working from home – but many surely have not been. Some commentators are predicting a hollowing out of CBD office spaces, whereas others are predicting increased demand due to social distancing requirements in open plan work environments. The eventual impact of COVID-19 on CBD employment is probably in the middle of these two theories, meaning that many professionals will still commute to the city for work.
Public transport to and from the CBD will continue to be an important consideration for many property purchasers.
The below graph shows that House Prices are higher, and tend to grow stronger, in suburbs where a high proportion of the population take public transport to work.
The answer to achieving strong capital growth is not as simple as ‘buy close to a hospital’ or ‘buy close to a university’ or ‘buy close to a train station’. There are plenty of areas in Melbourne that host all three but have experienced strong historic capital growth.
Choosing where to purchase an investment property is a multi-variate challenge. There are many variables to weigh up.
The Property Data section of our website speaks to a number of other variables that drive capital growth. The performance of local schools is a priority for many purchasers. The age of those who already live in a suburb can prove very important as well. And, obviously, the affluence of a population (e.g. education levels, income, car ownership, etc) can have a huge impact on house prices.
One other demographic type that has driven house price growth in certain Melbourne suburbs is Ethnicity.
Australia – and Melbourne in particular – has a long and proud history of welcoming migrants. Approximately 1 in 3 of us who live in Melbourne’s suburbs were born overseas (me included). New arrivals tend to cluster together, naturally drawn to suburbs where friends and families are, and where local shops, restaurants and community groups are familiar. Recent migrants from NE Asia are no different to other arrivals in this regard.
The below graph demonstrates that during the last growth cycle, House Price increases were significantly higher in areas with a growing population of people with NE Asian ethnicity.
There are many other variables to look at when examining the future growth prospects of a neighbourhood, suburb, or region. The above analysis demonstrates that people are drawn to areas for particular reasons. Another way to think about it: the characteristics of an area determine who wants to live there, and how badly.
