Home buyers head for the hills, and the outer suburbs

The government has offered many half-hearted incentives to encourage purchasers to choose regional towns over the more “desired” inner-city locations for their property purchases. Much of this encouragement has been via grants such as the first-home owners’ boost, which enabled some buyers to claim in excess of $30,000 if building or purchasing off the plan in an outer-suburban zone.

However the “fixes” have only been temporary and commonly when the incentive finished, overall turnover dropped along with the median house price. Calls for more permanent solutions such as heavy investment into infrastructure and the decentralisation of jobs have barely been heeded and consequently growth has been lacking.

However it now seems the government has unwittingly stumbled across its greatest and most successful incentive yet. The consistent squeeze and shuffling of cards in the inner- and middle-ring locations, causing median prices to rise disproportionably compared to over all affordability, alongside vain attempts to address shortages for renters and home buyers with mass approvals of high-rise accommodation or poorly facilitated new estates, is starting to force a dramatic shift in the way regional towns are viewed by our home buyer market.

You may remember the furore that was invoked early last year by Prosper Australia’s call for a “first-home buyer strike”.  At the time many in the industry viewed it as a joke, it was based on a preconceived idea that Australia was on the brink of a housing crash.  “Price falls are imminent – protect yourself. Don’t buy now!” was the slogan.  However as of writing, it’s yet another doomsayer prediction that has failed to eventuate with an upward turn in median prices already evidenced in various pockets of the country.

However, if you didn’t know any better, you could look back in retrospect and herald it a success, because over all turnover throughout the course of 2011 – according to data thus far released by the Valuer General – is more than 20% lower than can be recalled for over a decade. Due to our low unemployment rates and relatively healthy economic prospectus, the effect on prices wasn’t quite the demise Prosper Australia manager David Collyer desired. Prosper Australia had its sights set on a crash to make US vendors suffering a 40% drop in the value of their properties look like a walk in the park – thankfully we have better fundamentals.

However, while a drop in median house price won’t cripple a real estate agency – especially as on a national scale it was less than 5%  (Dec 2010 – Dec 2011) –  significantly lower turnover will. Throughout the year, larger real estate franchises shed staff and many smaller companies shut up shop. Those that held on survived only with the support of their rent roll which grew from the flood of first-ome buyers unable – or unwilling – to take a step onto the first rung of the property ladder.  Therefore, whether it was down to Prosper Australia’s’ campaign or not, buyers did indeed “strike” for want of a better word.

Of course, it wasn’t just first-home buyers who decided to abstain from the market in 2011; upgraders, downsizers and investors all kept their cards close to their chest either unwilling or unable to make a housing commitment.  However, we live in a welfare state and have a political and social responsibility to help those most in need. When it comes to purchasing property, there is only one demographic that fits this agenda and thus captures the media headlines – first-home buyers.

Not purchasing property in 2011 didn’t really help the first-home buyer cause.  Like it or not, “opting out” of the housing market just isn’t an option. We all require shelter and if we’re not buying, we’re living with family, renting, or one of the 105,000 nationwide with no permanent abode to call home. Inflation throughout the course of 2011 was roughly 3.1%, however due to the consequence of more than 20% lower turnover and the ensuing pressure on the rental market, yields in areas of high demand increased some 13% (according to research done by RUN property). Therefore even though median house prices have dwindled, which according to the HIA Commonwealth Bank Housing Affordability Index has improved housing affordability by 8.3% in December 2011 compared with December 2010 (something worthy of celebration), the impact certainly hasn’t assisted first-home buyers, who are struggling to save while paying exorbitant weekly rents.

Since the GFC banks have tightened their lending criteria falling hardest on the first-time buyer demographic. It’s now essential to show evidence of “genuine savings”, which should make up at least 5% of the deposit. Gifted, borrowed or inherited one- off lumps of cash don’t always fit the bill. According to Loan Market, 77% of the first-home buyers surveyed found themselves unable to meet the “genuine savings” criteria. It’s also evidenced in various other surveys, including one from ING that found only 21% of first-home buyers approached felt they’d be able to raise the required amount.

This should come as no surprise to those of us who have, at some point in our lives, had to work our way from the rental ladder to ownership.  However saving under the added pressures of a 21^st-century “rich” lifestyle, which often requires possession of various big-ticket’’ items such as a car, computer, smartphone and so forth, upon commencement of employment, not to mention the pressures of population growth pushing house prices ever northwards, makes saving the required deposit harder now than ever before. This is one of the reasons I have greatly favoured encouragement of the first-home buyer’s savings account, which so far has had a relatively small take-up.

Due to the interest rate drop late last year and boost in consumer confidence, there has been a marked increase in buyer activity in the beginning of 2012 – most noticeably in the first home buyer sector.

What’s interesting however is where this activity has centralised. Since mid-2011 there’s been an increasing trend towards regional locations, which could have us changing the term “buyer strike” to “buyer vacation”. It seems a growing proportion of this demographic have finally decided to satisfy their need for ownership through a surge towards the substantially more affordable rural or outer-suburban zones. Last year, some of the biggest quarterly and yearly jumps in median value were experienced in regional locations.  Areas such as Ballarat, Bendigo, and Shepparton in Victoria showed rises in excess of 5%, while prices in more popular (and consequently over-populated) suburbs in the inner city dropped some 20% in certain pockets.  Meanwhile in Sydney, suburbs situated some 30 kilometres west of the city, which have historically suffered from low demand, are now showing signs of being future hotspots set for a potential boom in growth.  Of course, any location close to a mining town – such as Rockhampton and Toowoomba in Queensland for example – has also attracted healthy interest and consequent rises in their population and median value.

Recently, realestate.com.au conducted a “mood of the meeting” survey on its Facebook page asking first time buyers if they were interested in purchasing rural’ to gain entry into the property market.  The survey attracted an overwhelmingly positive response, with most replying either “yes, considering” or “already done”.

For example, in Melbourne, the population in outer-suburban Wyndham increased by 12,600 (8.8%) in 2010, which was both the largest and fastest increase of all Victorian local government areas. Strong growth was also experienced in Whittlesea (up 8,900 people or 6.1%) and Casey (8,100 people or 3.3%). The rises in median give weight to the assumption that they are gaining popularity with an increasing number of home buyers.

In New South Wales areas such as Blacktown (up 8,300 people), The Hills Shire, and Liverpool (both up by 3,400 people). In Western Australia, strong population growth has boomed in the outer-suburban fringes. The five local government areas of Wanneroo, Rockingham, Stirling, Swan and Armadale) accounted for more than one-third of the growth across the state in the year to June 2010.

The change is a positive move from a social and political perspective, and it’s vital we not only encourage it, but also prevent a reversal by following the population surge with significant investment in infrastructure and industry. Anyone who has experienced rural living or small-town society will vouch for the strength of community that often emanates from the resident population in these towns.  It’s highlighted best when there’s a disaster such as the recent floods. 

The neighbourly spirit, camaraderie and social blossoming that results as cleanup and support systems kick into action bring out the true Australian spirit – the same spirit that was witnessed during the early settlement period and which often lacks in inner urban vicinities where people have little connection with those who live in nearby surrounds.  Although some will vacate a town after a national disaster of significant proportions – such as the recent earthquakes in Christchurch NZ – many will develop a deeper connection and respect for the land and the community strengthens.  As a lifestyle option living regional has riches to offer, and yet continually plays the poor sibling to our more populated capitals.

In urban zones, initiatives such as “neighbour day” have highlighted how little we know about those who live around us.  In short, the best asset you can have as a vendor is contained in the community that surrounds your home.  A flourishing community encourages extended periods of residency resulting in a happier and healthier population, lower crime rates, and subsequently helps underpin house prices.

Previously the overwhelming trend for buyers has been to invest in city suburbs with vibrant night life and abundance of well established infrastructure.  However, while regional locations can’t always compete on the same level, they do offer a viable option to secure cheaper housing and a quality of lifestyle which is often more suited to raising a family. It won’t please David Collyer – who wants home buyers to abstain all together, but calling for a ‘home buyer ‘rural vacation’ for those who are willing and able, rather than a ‘home buyer strike’ should have overwhelming support from all of us who hold Australia’s future interests to heart. 

For years, state governments have been trying to improve affordability and address population growth somewhat unsuccessfully. However a gradual boost in the regional populous in small satellite towns with already well developed facilities, will hopefully encourage greater investment leading the way for larger institutions to take up shop and thus create opportunities for employment.  Other initiatives already underway, such as the National Broadband Network, will also have a positive influence. 

As for investors, the party line has always been to invest as close to the city as possible in order to gain the greatest capital returns, however our cities are now so well populated, it’s clearly not going to always be a desirable prospect for home buyers – particularly families - who are essentially the demographic which fuel capital growth.  Towering high rise developments and crowded polluted roads and transport systems, along with ever decreasing blocks of land, are limiting the larger proportion of our buyer market in inner-urban zones. Instead a view to investment in well established regional towns could be a step in the right direction for those who want to take advantage of what seems to be the start of  a mini boom.

All in all, instead of praying for a monumental bubble burst to improve options for home buyers, the call should be going out from organisations such as Prosper Australia to promote the regional agenda.

Catherine Cashmore is an experienced buyer advocate, property investor and market analyst.  She regularly appears as Channel Ten’s property expert on The Circle.

Photographs by Scott Davies and Mike Moody, courtesy of Flickr.