July 15, 2024


The Intersection of Information and Insight

Here’s the type of property that will outperform in the long term

5 min read

I’ll get straight to the point…

I believe the inner and middle-ring suburbs of our big capital cities will be the best medium to long-term investment locations.

Here’s my logic…

The latest government forecasts suggest that Australia’s population will increase from 26 million to 30 million by 2032.

And then reach 40 million people by 2060 or thereabouts.

Thing about that – another 15 million people will be living in this beautiful country and our five big capital cities are likely to accommodate around three-quarters of this population growth.

In other words, Sydney, Melbourne, Brisbane, Perth and Adelaide could double in population over the next 50 years, with Melbourne likely to do a bit better than the others and Adelaide will do a bit worse.

So where will this substantial growth occur?

All our capital cities have their town planners working furiously on future plans and what is well recognised is that the future growth won’t be spread evenly across the metropolitan areas.

Our CBDs will Manhattanise with more of us living in these central hubs and the many high-density developments that will ooze out into the inner suburbs.

Sure this trend may slow a little after some of us changed our preferences following the coronavirus pandemic, but over the long term, this trend will continue.

Town planners are also envisaging less intensive medium and high-density apartment development spreading out like tentacles, primarily along the main roads and along railway lines and along transportation arteries.

Their logic is to deliver this type of higher-density apartment product within a relatively small area along main roads and in and around established commercial districts

But I’m sure you realise that this “investment stock” product is very different from “investment grade” family-friendly apartments that make good long-term investments.

That’s because these developments offer little if any scarcity value or owner-occupier appeal and with so many new apartment developments on the drawing board, investors have no control over the number, location, style or price points of the many new apartment projects coming out of the ground.

Row Of Houses And Apartments And SkyWhile these developments serve a purpose in providing accommodation for many students and first-time renters, I feel many of these high-rise monoliths will become the slums of the future, especially as they have very few owner occupiers and many have a large proportion of overseas investor owners who can’t even make it to the Owner’s Corporation meetings.

Then there are all the construction issues that are just starting to emerge – watch this space more shoddy building practices will come to light creating substantial losses for the purchasers in many high-rise buildings.

Sure there are some exceptions that are well located and well configured for owner occupiers, but in general, the typical off-the-plan or new apartment does not make a good investment.

Demand for new housing won’t stop

Much of it will be soaked up in these new apartments in the inner ring and then there will be all the new houses built in the new estates in the outer ring.

While these will provide accommodation for those who need them, neither of these types of dwellings makes good investments.

Happy Family With Two Kids Moving Into Their New Home SittingSo what’s the answer?

We need more medium-rise family-size apartments and townhouses in the established middle-ring suburbs of our capital cities.

We will need more housing that fits between the small apartments that are currently being built (usually downtown and in large, soulless complexes) and traditional detached homes.

This housing is often, these days, described as the “missing middle”.

The following schematic from Michael Matusik explains this concept well.

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