Property values double every 8 years : fact or myth?
Kevin: It’s often said that property doubles in value every eight years. Where did it come from anyway?
John: I think it came from the ’70s and ’80s when property prices actually did do that.
But I’ve studied the movement of housing prices from 1901 all the way through to the present time, and it just doesn’t do that.
It moves very regularly.
Sometimes there are periods of high growth and sometimes very low growth.
Kevin: What sort of annual growth rate would you need to achieve for it to double every eight years, say?
John: You’d need about 9% growth annually. We don’t get that.
In fact, when I looked at the stats, what I discovered was that the average rate of growth is doubling in price in about every 12 years, but it doesn’t occur every 12 years.
The problem with the exponents of the property market cycle is you don’t know what’s about to come; all you can see is where you’ve come from.
Kevin: Some of these generalisations really do make it complicated for people who want to invest in the market and that’s highlighted by the fact that there are different growth rates all around Australia really with property, aren’t there?
Within capital cities, each suburb can perform very differently, and certainly, in regional areas, some will go up and others won’t.
We’ve had huge growth in the Sydney property market, there have been huge growth,and that’s likely to flow into the regional areas around Sydney.
Kevin: Housing growth doesn’t necessarily depend on past performance, does it? What are some of the indicators that you look for?
I guess it would be true to say, too, that there are some markets that will never, ever improve again.
John: There are, unfortunately, quite a few of them.
The main indicators are what the demand for housing is.
If you can measure the demand, that is the number of people who want to move into an area, then you can estimate how it’s going to affect housing prices.
Let’s look, say, at the infrastructure boom that’s appearing in New South Wales and the Pacific Highway.
What that’s doing, the duplication of that highway, which is over 1000 kilometers long, is generating thousands of jobs.
These people are now renting in areas like Taree, Kempsey, Port Macquarie, Ballina, and so on.
The number of people who are doing that is enough to increase the asking rents dramatically.
Then what happens, of course, is investors move in and say, “We’ll get some of the largess.”
After that — and this is what happened in towns like Moranbah — there was no residual demand.
Once the mining boom was over, it was finished.
But what we have here is that these areas will then become more attractive to tourists or retirees because they’re easier to access.
I can see long-term growth in areas north, west, and south of Sydney as a result of this huge expenditure of the highways duplications.
Kevin: Would it be fair to say that there are some areas where growth will always be dominant?
That is, if you can identify those areas where there is that very strong balance between supply and demand, is that one of the key indicators for you?
As long as the demand keeps rising, then, of course, prices or rents will rise accordingly.
Kevin: In closing, what lessons have you learned recently from looking at the cycles?
John: What it’s taught me is that it’s easy to see where you’ve come from but it’s really hard to know where you’re going.
An example of that is the mining towns in Queensland — Moranbah, Dysart, and Emerald — which were at the start of the decline when people were predicting that they were at the bottom and about to recover.
A lot of investors hung on expecting the rising market to start occurring, but in fact, that was just the start of the huge, enormous, horrible slide.
I think that’s the lesson about the cycle: you don’t really know what’s around the corner.