Australia is an enormous country. When we look at it from space, especially at night, the image can tell us a lot about the local property market and gives us an insight into why it has been reasonably solid compared to some other countries. In today’s show Mark Armstrong from iPropertyPlan explains.
Kevin: It’s interesting. If you’re able to get up into one of those satellites that cruises around the world, have a look at the world by night. You’re going to learn a lot about population densities. I know that Mark Armstrong from iProperty Plan wrote an interesting article recently where he drew some observations about density and where people live, especially in Australia and how that relates to property prices. He joins me.
Mark, it was an interesting article. Just tell us roughly what you gleaned from that.
Mark: What it means is that you can see from space that Australia has a very centralized property market, which means that the vast majority – around about 70% to 80% – of our population lives in the ten biggest cities around the country. If we compare that to the United States, around about 10% to 15% of their population lives in the 50 biggest cities across the country, so they have a very decentralized property market.
Kevin: I’m reminded of a comment by Harry Dent about 18 months ago, maybe even two years ago, how the Australian market was going to fall by 40% or 50%. He wouldn’t accept that argument, saying that the Australian and American markets are very similar. What you’re saying is there are huge differences.
Mark: I think it’s an enormous distinction – the fact that the American population or the American people have a very well-developed small town community set-up and there is nowhere near as much pressure on land value in many parts of the United States. But when you come into Australia, we don’t have a housing shortage; we really have a shortage of housing in areas that people want to live, and they tend to be in the big cities around the country.
Kevin: That doesn’t make a housing shortage, you don’t think, Mark? Do you think our problem here is that we are landlocked, a shortage of land?
Mark: Our big cities are enormous, urban sprawls, and they’re getting to the point now where they’re so big that where new land is coming online, you’re pushing out 30, 40, 50, 60 kilometers from the CBDs. There is not a shortage of land a long way from the CBDs, but there’s a shortage of land, obviously, very close to the CBDs, and this is where the bulk of our population really want to live – not everyone, but the vast majority of our population.
Kevin: Is that the reason, do you think, why in some countries overseas, particularly America, housing is more affordable – because they will actually get people into these smaller towns?
Mark: Absolutely. When you have more land and less pressure for that land, it means the value of that land will be less. You can go into regional areas of Australia and you can find a house on a nice, big block of land and you can pay around $100,000 or $150,000 for it. But the unfortunate reality is there are no jobs there, there is very little infrastructure there, and people don’t want to live there.
Kevin: That could be another reason why that American market when it goes into the doldrums, takes a long time to come back out of it?
Mark: Absolutely. It takes a long time for it to come back out, because again, it takes a long time for the pressure of demand to exceed supply, and in many cases, it never exceeds supply.
Obviously, the low-interest rate environment is really enticing investors. Particularly, we’re seeing the strongest sector of the market is the 30 to 40 year olds who are upgrading their family homes. They may have lived in an apartment or a smaller house but because of family requirements, because they’re having children or their children are getting older, we’re seeing a real pressure in demand for those people who are looking to take that next step in their home-buying lifecycle. Then the low interest rates are really enticing them to do that.
My feeling on rates is it’s a great time to lock in debt, and I think that people should seriously look at locking in debt for three to five years. It gives them that certainty. Whether interest rates go up or down, the fact remains that there are great fixed rates at the moment. They may get a little bit better. I doubt it, but they may. But we shouldn’t escape the fact there are very good deals on offer right now.
Kevin: Mark Armstrong, thank you very much for your time.