Home' API Magazine : October 2014 Contents OCTOBER 2014 n APIMAGAZINE.COM.AU n 17
EVERY TIME I OPEN THE WEEKEND PAPERS IT’S THE SAME STORY.
There’s an oversupply of apartments and there’s a property bubble,
which means that some property investors will get caught with over-
priced product. However I must say that I haven’t read the detail of
these reports predicting doom and gloom for a while.
I used to read them word for word and follow the logic and
the argument. Then I lost interest. And the reason is that the
world continues on. Australia continues to grow; the demand for
property isn’t waning; people still have to live somewhere; and
most compelling of all I’ve noted that such sentiment has surfaced
at regular intervals over the past decade. It’s especially prevalent in
some cities, some suburbs and with apartment rather than housing
product. And in fairness to the predictors of gloom, I think there was
a write-down in property values after the global financial crisis.
As indeed there was a wholesale write-down in the value of the
share market at that time.
Sometimes there’s a downturn.
Sorry. It happens. Life isn’t
always an upward trajectory.
This isn’t to say that investors
shouldn’t be cautious about the
future or the product they’re
investing in, rather it’s to say
that the media loves nothing
better than to run a doom and
gloom story. Someone coming
out with “we’re all doomed”
is good fodder. No media outlet can resist that sort of comment.
But apart from the Prime Minister – who’s actually subjected to fact
checking at a later date?
Trawl through the property pages of newspapers and see whether
what was being projected in 2006 came to fruition. Within a month
of publication, no one recalls who said what and the person quoted
floats off into oblivion, never really being called to account for
what was predicted.
I’m sceptical of analyses that show the shift in housing prices as
multiples of household income. Typically Australian cities rank
poorly by this measure. Houston in the US, I understand, rates well.
However I question the data and the methodology to this analysis.
It’s perfectly acceptable for a property to be several times household
income if that household’s income is progressively expanded by
one partner, typically the female, working part-time or fulltime.
Over time as women remain in or increasingly participate fully in
corporate life the spending capacity of the household rises; that will
be translated into property values.
And here’s the rub, not all cities across different countries have the
same social values and gender culture that supports two partners
working. Australian culture, and Sydney and Melbourne in particular,
are quite advanced in regard to this lifestyle.
So naturally the price-to-income multiple will be higher in these
cities than in some other cities where women are less inclined to
pursue corporate careers.
The second issue I have with popular reporting of doom and gloom
in the property industry is the disdain heaped upon apartment living
and investing. Here’s how I see the world. Australian capital cities
will progressively incorporate an apartment overlay that will spread
out from the CBD along transport corridors. I call it the ‘starfish
syndrome’ which is where housing is densed-up in a starfish pattern
radiating out from the Sydney CBD to say Chatswood, Parramatta
and Bankstown, and out from the Melbourne CBD to say Essendon,
Box Hill and Moorabbin.
Beyond the apartment overlay there lies and extends traditional
suburbia to the metropolitan edge. And the reason why starfish
syndrome might bring more apartments to a whole geography
within capital cites is because generation Y and others are
increasingly determined to maintain access to the jobs and culture
on offer in the city centre.
It’s still possible to get access to the city centre by investing
in a one-bedroom apartment for less than $500,000 in Sydney
and Melbourne. How good is that? I also see this as a long-term
structural change to Australian society and to our capital cities.
Sure there will be ups and downs and there will be doom and gloom
predictions, but I say that the flat suburbia that was capital city
Australia for much of the 20th Century is being transformed. That
transformation structurally lifts the demand for apartments and
those who don’t see the truly big picture see this as an aberration
that will surely fail.
Not only is generation Y drawn to the inner city in order to access
hip and groovy cafes and bars but the type of work on offer is more
likely to be city-centre driven. Knowledge work and workers are tied
to CBD institutions, corporations and economic infrastructure like
the stock exchange, the courts, the banks as well as the thousands of
consultancies and support agencies that cluster nearby.
The future of Sydney and Melbourne isn’t necessarily in a new
manufacturing plant being added to the suburban edge; it’s more
likely tied to established business centres that will attract workers
with the capacity to pay for the high-rise lifestyle. Do your own due
diligence but I’m suggesting rather boldly that perhaps the doom and
gloom merchants aren’t always right. API
“Australian capital cities will progressively
incorporate an apartment overlay that will
spread out from the CBD along transport
corridors. I call it the ‘starfish syndrome’.”
n BERNARD SALT is the founder and head of KPMG Demographics;
Bernard Salt n DASH OF SALT
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