Wealthier locations grow better?
The instinctive response would be “yes”.
But is it so? As a buyer’s agency dedicated to helping you grow your wealth through property investment, we feel it is our responsibility to clarify what really matters to property value growth and what doesn’t. Therefore, we have decided to do some digging into this matter.
When we talk about Bluechip regions, usually we mean areas with high personal incomes and low unemployment rate. So, let’s dive into data and see whether these factors are important for house price growth.
Income Level vs. Price Growth
ABS has provided the average personal income of each Sa3 ofAustralia in 2012*. Let’s check how much each income group has grown in one year (2012-13), five years (2012-17), and nine years (2012-21).
We do not see any linear relationship between income levels and house price growth in the above charts. Over the nine years to 2021, the $90k-95k group has performed worse than almost every group with a lower average income than it.
And if we examine the individual regions, you’ll find outstanding and poor performers in each income level group. Below are some examples.
In fact, the income level is associated with house prices, but only price levels instead not its growth potential. We have drawn the below chart with the 2012 average income data and the median house price that year.It shows that the higher the average income, the higher the house price. As we earn more we spend more, however, the cost of something does not dictate its growth ahead, its higher cost is factored in relatively to that income increase.
Unemployment Rate vs. Price Growth
Now let’s look at the unemployment rate. It is admittedly an effective indicator of the local economy. A low or lowering unemployment rate usually indicates a thriving local economy, which means that the housing market is likely growing.
However, the unemployment rate can’t be the only criterium when examining a property market. Data has shown that neither a low nor a lowering unemployment rate guarantees growth. Let’s have a look at the four capital cities below.
A. Low unemployment rate ≠ Strong price growth
From 2002 to 2008, the four cities’ average unemployment and house price growth are listed as below.
It seems that Sydney, with the lowest average unemployment rate, didn’t achieve good growth, while Adelaide, with the highest figure, performed exceptionally well. So, a low unemployment rate can’t assure you strong growth.
B. Lowering unemployment rate ≠ Rising house price
How about the trend then? The 2002-2008 period shows that house prices grow when the unemployment rate is declining.
Can we rely on that correlation? Unfortunately, no.
If we look closely at the four cities’ 20-year journey, there are few periods where house prices and the unemployment rates move in the same direction. I have listed these periods below.
These seemingly against-common-sense times show that the house market is not influenced solely by the local economy.
– In 2017 and 2018, the house prices in Sydney and Melbourne started to drop respectively, entering the slump phase of their market cycles. The declining unemployment rates could not defy market rules.
– In 2020, the unemployment rates surged dramatically across the country because of COVID-19. Yet, we witnessed an unprecedented property boom at the same time thanks to the historically low cash rates, eased lending rules, government and bank incentives, higher household savings and more.
What we really want to say here is that the unemployment rate trend alone cannot determine the house price trend. It is just one of the factors affecting the property market.
Data has proven that the income level and the unemployment rate are nothing but two of the many factors associated with the property market. They are not more important than the others. It is simply arbitrary to say that wealthier blue chip locations grow better.
Price growth happens wherever people are attracted to. The attraction may be affordability, sought-after lifestyle, new job opportunities, and more. Sometimes there is no clear perceived attraction to an area, however, due its reduced supply housing demand outweighs it anyway. It’s essential for an investor to consider all the associated factors in decision making, instead of focusing on just one or two.
As an experienced buyer’s agency, InvestorKit analyses factors on both macro and micro levels. Factors we usually look at include but are not limited to:
*We have also discussed the market indicators in other blogs. Check them out!
Are you finding it tedious collecting data to locate your next investment property all by yourself? With up-to-date economic and market data across the country at hand, we are ready to help! Why not give us a shout and see how we can work together? Why not get in touch and book a FREE 45-minutes consultation!