The three key factors behind Sydney's price boom

The three key factors behind Sydney's price boom
The three key factors behind Sydney's price boom

Many factors play a part in growth property markets, but the biggest single element is infrastructure.

Good places to invest are places with excellent infrastructure, including the nuts-and-bolts elements such as schools, shops and public transport.

And the markets most likely to grow in future are those where there’s big spending on new infrastructure - with transport facilities the most influential (although medical and educational infrastructure are also big).

Sydney’s recent price boom was created by three key factors - the strongest economy in the nation, pent-up demand after a decade of under-performance, and big, big spending on infrastructure, especially road and rail links.

Sydney’s economy and its property markets turned around when there was a change of state government in 2011.

After more than a decade of stagnation, with little spent on infrastructure, improved governance caused an upturn in the economy and big spending on new projects. Currently there are facilities worth tens of billions of dollars being built, including massive road and rail ventures.

Projects like these create economic activity and jobs, as well as improving accessibility.

One of the factors underpinning the revival in the Tasmanian economy and the rise of the Hobart property market has been a significant rise in spending on infrastructure.

Similar to the NSW experience, the turnaround in Tasmania has evolved from a change in state government, with an emphasis on infrastructure improvements and encouragement of construction projects.

Prices and rents have grown in Hobart on the back of these changes and the Tasmanian capital is expected to be a price growth leader among the capital cities in 2017, boosted by its low prices, tight vacancies and relatively high rental yields.

Against that background it’s good news that road infrastructure, according to a new study, is forecast to be the No.1 growth industry sector in Australia this year.

Research firm IBISWorld sees road infrastructure building as the fastest-growing industry this year, with revenue growth tipped to rise 27.2% to a tick over $20 billion in FY2017 - ahead of the sugar manufacturing and oil/gas extraction sectors.

Several giant transport infrastructure projects are currently driving accelerated expansion in the road & bridge construction industry. “Much of the current robust growth has been due to the early construction phases of the NorthConnex M1 to M2 link and WestConnex projects in Sydney,” it says. “These private-public funded projects are set to dominate the road construction landscape for several years.”

Meanwhile, a report from commercial real estate consultancy Savills says that Australian cities which provide the most efficient transport infrastructure, on top of essential social infrastructure, will place themselves in the best position to deliver sound economic performance.

They will become the preferred home for the best and most skilled workers and the hi-tech industries that employ them over the next decade.

“And those cities will be at the centre of property development and investment opportunities as they grow to accommodate vastly increased populations”, it says.

Savills Australian Head of Research, Tony Crabb, says many academic studies have pointed to the preference among skilled workers for ‘liveability’ over financial rewards including a 2016 Savills UK study What Workers Want, which found workers wanted their life contained within a half-hour radius.

“We expect skilled or knowledge workers to be doubly attracted to places where they can achieve both a high degree of liveability and financial rewards, but transport infrastructure is the critical element with work, rest and play accessible in 30 minutes by car, public transport, walking, or cycling, the key determinant,” he says.

“Major transport infrastructure provides the backbone of investment opportunities and it is generally around such infrastructure that industries agglomerate, but light rail, tram, bus, cycling and street networks are equally important in delivering liveability.”

Other facilities such as medical and educational infrastructure are also vitally important.

Crabb says that while Melbourne and Sydney are likely to attract a growing number of skilled workers with population forecasts of up to 10 million by 2050, two other cities - Adelaide and Perth – were nominated (along with Melbourne) by the London based Economist Intelligence Unit  among the world’s Top 10 most liveable.

Melbourne ranked No.1 on this list ahead of Vienna and Vancouver, with Adelaide No.6 and Perth No.7.

Melbourne and Victoria continue to lead the nation on population growth, with a 2.07% increase in FY2016, ahead of New South Wales with 1.39% and Queensland with 1.35%.

But Melbourne has not delivered house price growth as high as Sydney’s over the past 3-4 years because it has not matched Sydney’s infrastructure spend or its overall economic performance.

Melbourne does, however, have some big-ticket projects in planning, including the Melbourne metro Rail Project and the North East link road project. Both are expected to cost over $10 billion.

Brisbane has many factors in its favour but spending on infrastructure has largely ground to a halt and economic performance has been lukewarm.

Part of the problem is a state government suffering from paralysis by analysis. It was reported recently that the Queensland Government has initiated 120 reviews and inquiries since winning office in January 2015, with the under Anna Palaszczuk dubbed the “do-nothing Premier”.

What is starkly absent is clear decision-making and, in particular, much-needed spending on infrastructure.

This is hope that this will change. Brisbane is awaiting a start on eight significant projects, which entail investment totalling over $12 billion. They include inner-city rail projects, highway upgrades, big spending at Brisbane Airport and major tourism-focused inner-city developments such as the $3 billion Queens Wharf Casino and the $800 million Brisbane Quarter project.

 Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.

Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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Infrastructure Development Residential Pricing

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