Are the property prices going to go up? Are they going to come down? Is it affordable? What about that grand Australian dream of everyone owning a property? Today we talk with Michael Yardney from Metropole Property Strategists.
Kevin: There’s so much talk about what is happening with property prices? Are they going to go up? Are they going to come down? Is it affordable? Michael Yardney has actually made the statement that he believes Australian property prices will remain where they are, if not climb even further.
He joins me. Michael, what are the reasons behind that statement?
Michael: Kevin, I think it’s the way we live and the way we’re going to live. Property prices keep going up for two main reasons: supply and demand – in other words, our population is going to keep growing – and also affordability. By that, I don’t mean cheap properties, but the fact that Australia is becoming and will remain a wealthy nation, and we’re prepared to pay a premium to live there.
Kevin: We’re living largely in several major capital cities. Do you see that changing much?
Michael: Kevin, that’s one of the reasons prices are high. No, I don’t see it changing much, and I can’t see it decentralizing. One of the reason house prices are high in Australia is that, in general, we live in six major capital centers, and each of those other than Hobart actually boasts in excess of a million residents.
It’s surprising. If you actually look at other countries, other than Japan and Hong Kong in the sample, there’s no other country as urbanized as us. The fact that we’re dense and urbanized but in cities that are quite wide and big – big, big cities – spacious and expanding is another reason our property values are high.
Kevin: That expansion is really what the government has been trying to do – isn’t it – trying to regionalize us by bringing in major infrastructure. Is that the answer?
Michael: Kevin, what’s happening is most people still want to live close to where the action is, close to the CBD. Interestingly, most of the economy in our country is now very much a knowledge-based and service, and IT industry. We’re no longer a manufacturing country. We no longer live off the regional and rural Australia and the sheep’s back. Our economy comes from the big capital cities.
Most of the jobs are close to the CBD. Most people don’t want to commute that far, and so many of us are prepared to pay a premium to live close to where all the action is, where the jobs are, where the entertainment is, where the universities are, where lifestyle is.
Kevin: Given that’s the case, are we better off looking at smaller houses and having more infill?
Michael: More and more of us are swapping backyards for balconies, and not necessarily smaller houses – maybe smaller lots. In Melbourne and Sydney, there are more townhouses being built.
It’s happening a bit in Brisbane and Perth, as well, where the old houses are now past their use-by date. You pull them down and build two, three, or four townhouses where you have a modern spacious home on a compact lot. That’s the way of living for a larger percentage of our people in the future, Kevin.
Kevin: We’re all getting richer, though, too. I’ve heard you say that, as well, Michael.
Michael: Well, the rich are getting richer, but in fact, all of Australia is getting richer. We’re a wealthy nation, and every year when the World Wealth Report comes out, we come amongst the top. This year, again, we topped the world, and because of that, we can afford to pay a premium to live in these bigger properties – and Kevin, we have big homes, don’t we?
Kevin: We do, indeed. Well on that point, aren’t we better off regionalizing more because we have so much land?
Michael: That’s what the government has been attempting to do: paying incentives for people to move there, moving industries – including their tax departments – out of various regional locations, but most of us don’t want to live that way.
As our city matures, more and more of us want to live where the hustle and bustle is. We’re not as much a country of living in big open spaces like we were before. We want to be where the action is.
Kevin: What about that grand Australian dream of everyone owning a property? There are some great tax incentives offered now.
Michael: All of us aspire to own a home, and in Australia the homeownership rates have really remained much the same. I remember when I first started investing, it was just over 70% about 40 years ago. People said by the turn of the decade, which was 15 years ago, ownership would drop to 50% because our kids would never be able to afford a home.
Interestingly, ownership rates have remained very much the same – just under 70%. If you look at property ownership rather than home ownership, a lot of young people are investors but still rent. It’s in our blood, and the tax system encourages us. That’s another reason why it’s working so well and house prices are going to remain high, Kevin.
Kevin: Compelling reasons there, Michael. Thank you so much for your time.
Michael Yardney from Metropole Property Strategists. Thanks, mate.
Michael: My pleasure, Kevin.