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The Big 2.5

The Big 2.5
August 25, 2020 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

Whether you are someone with an interest in buying real estate from time to time, a business owner (big or small), a representative of the media, a policy writer or a politician, here’s a free kick to improve your plot in life.

Spend less time focusing on what you think you know about the Big 2.5 and more time learning what you don’t know about the rest of Australia. I guarantee that it will open up a world of pleasant surprises and opportunities for you.

It is impossible to have optimal diversity of opinions (and therefore optimum outcomes) when such a high concentration of people come from a miniscule representation of locations.

Among the 10 million people who live in Sydney and Melbourne are the bulk of Australia’s CEOs and board members, the heads of umpteen industry bodies, most of our federal politicians, and almost the entire national media workforce.

What these 10 million people are exposed to on a daily basis from within these two cities is what constitutes their ‘normal’.

Consequently, the commentary produced, and the policies created for the rest of the nation are made without having much real-life exposure to a wide variety of locations.

Society is poorer from this unhealthy lack of diversity. Unhelpful generalisations and stereotypes are formed, inaccurate perceptions are created, poor decisions are made, problems are compounded, potential is unrealised, and opportunities are foregone.

Yes, Sydney and Melbourne are big and important cities, but they are different in so many ways to Australia’s other 200 or so towns and cities across the most diverse country on the planet. The general knowledge which Australians have of their own country is appalling and the perceptions that people have of most of it are grossly inaccurate.

This ignorance is an unintended consequence from 90 percent of the people who have the most influence on Australia’s 25.6 million population living in our two biggest, most congested and most expensive cities.

My full-time profession requires me to have a good understanding of the lifestyle, the quality of amenities and attractions, the local economic drivers, employment opportunities and property market conditions of every location in Australia.

In addition to spending each day researching these locations to the nth degree, there are very few that I haven’t personally spent time there (living, working, holidaying, and / or investing).

In my experience, whether in real estate or life in general, whatever is getting reported as the ‘norm-of-the-nation’ is often the opposite to what is really happening in all bar two cities.

Let me demonstrate.

A few years ago, while property markets across most of the country were either flat or declining but Sydney and Melbourne were booming, the national dialogue was ‘Australia was booming’. Go Figure.

The emotion among Sydney and Melbourne residents then led to a national debate about a so-called ‘Australian housing affordability crisis’ and two federal elections which centred on negative gearing. Once again, tunnel vision prevented people with influence from educating society about the median house price in an overwhelming majority of Australian locations being between $350,000 and $450,000.

Fast forward a couple of years, Sydney and Melbourne then felt the brunt of an overzealous construction sector which drove their property markets into a significant downturn. Even though conditions everywhere else in Australia were largely normal, the national dialogue was that ‘Australian property is plummeting.’ Insane!

Now those same two cities have quite high vacancy rates while the rest of Australia has a significant rental under-supply. I’ll give you two guesses what the national dialogue says.

The ‘point-five’ in ‘the Big 2.5’ is Brisbane. While it is Australia’s third largest city, it has a population which is only half that of Sydney and Melbourne and the cost of real estate is a fraction of their price.

The inclusion of Brisbane in topics of national interest is often only done as a token gesture.

One can therefore totally empathise with why the residents of Western Australia and South Australia often feel completely left out of the discussion and why Tasmanians aren’t even on the map.

 

Related article: 41 major projects to drive Tasmanian housing demand

 

And is it any wonder that no bugger has the slightest clue what life, lifestyles and real estate conditions are really like anywhere outside of capital cities? Crickets!

From firsthand experience, I can absolutely guarantee anyone who cares to learn that you’ll be pleasantly surprised by the quality of amenity, the employment opportunities, the lifestyle and the performance of property markets.

As a proud Australian who wants to be part of the solution, as opposed to part of the problem, I’ve parcelled up some general information below.

 

Real Estate Capital Growth

Sydney (fifth), Melbourne (second), and Brisbane (fourth) were ranked behind Hobart (first) for average annual increase in median house price over the 20-years ending 2019.

Shellharbour’s median house price increased at a greater rate than Melbourne while Sydney’s median apartment price increased at a lower average annual rate than houses in Maitland, Launceston, Kempsey, Bendigo and umpteen others over the last 20-years.

In fact, the ‘norm’ of the last 5-years is that property markets in a multitude of regional locations consistently perform better than most capital cities. Check out the evidence in the chart below.

Job Growth

Don’t allow anyone tell you that there’s limited employment opportunities outside of capital cities. Using official ABS data, the graphic below shows exactly what transpired over the 2-years directly before COVID-19.

As for Australia’s economic rebound from the coronavirus, this next graphic contains some further pleasant surprises within the change in job advertisements from January to June 2020.

Housing Affordability

While I appreciate that this is not what people want to hear, there is nothing which will ever make Sydney real estate affordable.

But Melbourne does have options for those who are prepared to compromise, and Brisbane certainly has options for the genuinely motivated.

As an owner-occupier, rentvestor or a property investor in general, there are good quality, affordable houses all over Australia. Here’s a handful of real property examples from Propertyology’s buyer’s agents.

Public Popularity

Sydney and Melbourne are genuine global cities. But they aren’t the bee’s knees to everyone. The most recent population data confirms that lots of locations are proving more popular to Australian residents than the Big 2.5.

In fact, over the 3-years ending June 2019, the population of Australia’s eight capital cities declined (yes, declined) by 52,650 people to internal migration. I expect this trend to now gain even more momentum.

Housing Demand

Housing affordability plus employment opportunities are common drivers for rental accommodation demand that isn’t being matched by supply in large parts of Australia. Once again, the conditions experienced recently in Sydney and Melbourne are very different to the rest of Australia.

Do yourself a serious favour and read the data in this chart.

Rent Growth

The sustained demand for housing across Australia is reflected in the changes to median rents over the last 5-years, refer below.

Hopefully the official information in this report serves as a very important reminder to those reading it to never fall for the trap of confusing the latest trend or news topic within Sydney and Melbourne as the status quo of the nation.

Take it from me, our two biggest cities are almost always the odd ones out!

One’s home city is one’s bubble, it’s not an entire country.

One likes what one likes, and that’s how it should be. But the specific city and the individual property that one likes to live in as subjective as steak, seafood and seaweed. There is no ‘normal’ or ‘right and wrong.’

One can choose a path of ignorance and believe whatever they wish to believe. Some choose to believe that ‘big’ means better and everything else is second-rate – that’s outright arrogance.

The smart ones are those who understand that different folks like different strokes. They also recognise that we are arguably the most diverse country on the planet. Economically, socially, and geographically, there’s much to enjoy.

Mark my words, there’s a heck of a lot more opportunities in a plethora of locations outside of the Big 2.5 than within them.

Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

We walk-the-walk. Here’s a recent example of our work for a client.

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