Why Affordable And Expensive Property Markets Differ
“Hello and welcome back to weekly buying tips, I’m Dean Berman from Berman Buys.
Today I’m trying to work out why a property market is affordable or expensive?
Is it just one certain point or multiple reasons.
To best start I think it’s important to answer what is a property market?
I think property has something to do with the answer.
However, I think fundamentally a property market is its people?
Property is a by-product of this.
Almost an afterthought.
Without residents, you don’t have a market.
Wouldn’t you agree?
For example in an extreme case.
A town with the nicest houses in the world sounds great.
But what happens if no one lives there.
Maybe there’s something stopping people living there.
Maybe an environmental incident or some phenomena.
Whatever the case, there’s no demand.
You would achieve a great ‘bargain’ i.e. free, as there’s no competition and ample supply.
But, you would be living by yourself in isolation.
I would think this is the foundation of our question.
Understand the people and you can understand the market.
To get a clearer understanding I analysed only property markets with over 2,000 residents or more in them.
I did this as the statistics could be easily manipulated by small fluctuations in a small populated area.
Which we don’t want.
I looked at the most affordable and expensive property markets in NSW, VIC and QLD.
I looked at all 3 states to try and get a clearer picture of any results that seem to replicate.
From my analysis of over 20 potential reasons.
I found 5 which stood out above all else.
As a youngster you’re generally told to study hard.
Many families buy property near schools with great reputations for this reason.
They want their children to have a great education.
After they have attended primary and secondary school, they can land up at University.
Well based on my analysis this is actually a driver of what differentiates an affordable and expensive property market.
The percentage of the population who have completed a Bachelor degree in the affordable markets are about 10% and just under 50% in the expensive markets.
This is about 5 times more.
Implying there is a higher number of residents in the expensive market with a higher education level.
We could then hypothesise due to this higher education level residents can then achieve greater heights in their career.
This actually seems to be the case.
About 30% of residents in the affordable markets were in professional or management positions compared to 60% in the expensive markets.
Implying a higher proportion of residents are using their education levels and skillsets.
Interestingly leading to higher incomes which is a key point on the topic.
You would think higher incomes would lead to higher property prices as you can afford to save a higher deposit, borrow more, repay more and invest more in the local market.
Based on my research this is actually true.
As residents have nice degrees and are working in positions of power, they tend to earn more.
Median household incomes in the affordable markets were about half of what they were in the expensive property markets.
With these greater incomes residents seem like they want to live nearer to where the action is.
i.e. near the city or where the greater job opportunities may present themselves.
This results in population density increasing dramatically.
Another pivotal point in the research.
In affordable property markets they were below 200 residents per km2 compared to over 3,000 residents per km2 in the expensive markets.
Further implying residents are living closer to each other and in more built up conditions.
Land starts becoming scarcer and the number of houses generally decline.
Resulting in higher levels of apartments compared to houses.
In affordable markets the percentage of houses in the market tends to be above 80% whilst in expensive markets this drops to under 30%.
Implying greater levels of apartments or townhouses or villas in expensive markets.
Leading to higher house prices in the expensive markets due to scarcity.
I found things like median age and unemployment rates did not paint a clear picture of which market was more expensive.
I would have thought a market with a growing population would potentially be more expensive due to more demand on limited properties, whilst a shrinking population would have the opposite effect.
This didn’t seem to be the case, possibly because supply was growing in line with the demand.
I also found vacancy rates and long-term price growth rates didn’t show anything significant relating to whether the area was affordable or expensive.
There are also other points I haven’t touched on such as a suburbs reputation, proximity to amenities, crime rates etc…
In summary the residents are the ones which dictate whether a property market will be affordable or expensive.
The underlying answer seems to stem from the education, jobs and incomes of its residents.”