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This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. G'day everyone and welcome to another episode of the Property Nerds podcast.
I'm your host, Arjun Paliwal from InvestorKit Buyers Agency. And I'm pumped for today's show because we're going to be busting some myths. There's a lot out there in the property world. Information overload is what we often hear. And there's the good old term, right?
Paralysis analysis. It's one of the biggest killers of property investing and wealth dreams or wealth building dreams in Australia. And so when we're busting these myths, all I want to make sure is that at the end of this podcast, you can leave feeling like there's a little bit less weight on your shoulders to get everything perfect with your analysis or to feel swayed in a way that just isn't data driven. And that's what this podcast is all about. If we really bring it to its core, it's unpacking data, trends, hot and cold markets, headlines, and really just getting down to what the data shows.
So yeah, we're going to do that. So please stick in towards the end of the show because I'm going to reveal the third of the myth busting that we're going to do. And in that third one, we're talking about recessions and how that impacts markets. And with the economy the way it is, there's a lot of talks on that. The dirty R word.
We're going to be going through that towards the end of the show. And so I can't wait to unpack that a little bit more. So stay tuned towards the end. Now, when it comes to myths, I selected these ones just based on what I'm often seeing out there. And this is really relevant to today.
And speaking of today, it's the start of spring, the time of this recording. So really, really excited. I'm in the GC, by the way, right now. I'm not in my usual place in Sydney. Here for a real estate conference.
And yeah, looking forward to learning from some great minds in the world of real estate and unpacking and learning more. There's a saying, ABL, always be learning. Never stop that learning. No matter how deep in the data I go, I've got to pop the head up out of the spreadsheets, out of the screen, get out and about and realize there's lots to learn. Also, I mean, quick tip for anyone.
I find sometimes when you have relationships with mentors, it can be very, very difficult to actually catch up with them because usually you're trying to catch up with someone at a very much a different level of success. And as a result, you're reaching up, right? You're reaching up towards that person. And they're busy people. Their time's difficult.
And so a quick tip to anyone is that, you know, just if you can't quite get that time or you feel guilty of getting that time, asking them or doing all that sort of stuff, just go to where they are. So a big part of this real estate event wasn't just learning, but I knew my mentor would be here. He's presenting for many. And so as a result, I thought, hey, how can I be in his presence more often so I can keep learning? And I just decided to book the trip.
I extend my trip because we were here for our end of financial year investigate event, which is awesome. Awesome. Having the whole team here. But we had an opportunity to extend the trip, know that he was presenting, know that he'd be present here, know that he didn't have time away from his business being there. And I could grab him there to have a chat with.
So I share that tip because I know how important leveling up is for everyone who's tuning in. And sometimes we can feel guilt when asking people for help or we can feel a bit nervous or sometimes we can feel like they're too busy. We don't want to disrupt them. We want to be the nice person. Sometimes you have to just do the opposite and just go out there and get it right.
Go out there and get that help that you want. And that help will help you help many, including yourself, your family, loved ones, company, whoever else, your customers. So I just wanted to share that quick tip before I get into the episode because it was relevant to where I am today. So the first myth, the myth busting I want to do to begin with is this belief that our biggest, baddest, best cities in the country, biggest incomes, biggest buildings, some may even argue and say biggest egos, but I hope not because I'm a Sydneysider. But Sydney is the city I'm talking about today.
And so people might tune into this part of what I'm about to mention on the city of Sydney and go, Arjun, you're a hater of Sydney. I just want you to know, no, I'm not. Firstly, I live in Sydney. Secondly, I've been living in Sydney my whole time in Australia since I moved from New Zealand over, which is now 14 years. And third, every time I travel, guess what I miss?
I miss home. I miss Sydney. And I think it's the best city in the world. Biased opinion, but that's what my thoughts are. So stating all of that, I just wanted to make that clear that if you see me or feel me like I'm hating on the city of Sydney today, please don't because it's not biased.
It's purely just me sharing the data. And why I wanted to share the city of Sydney is that there's this belief that the biggest cities, the most high income earning cities or the greatest cities from some people's thoughts is that these cities are therefore the best. And there's also this thought that cities that have a great track record in recent times are top producers. So let me help you by going into the data and we're going to go deep. We're going to go from 1980 all the way to 2023.
Right. 24 is not done yet. So we're going to 2023. So firstly, what's made people really believe that Sydney is this better market? Because, you know, I've seen people going, hey, why would you go buy in that market, say Perth or Townsville or regional Queensland, like anywhere in these markets where they haven't performed so well over a 10 year period?
And there's this thought that why go there chasing hotspots or why go to these areas? Well, because they're data driven property investors who are going to areas that are seeing growth. That's why they're not relying on the most recent past to make a decision for the future. Or maybe they are, but they're looking at the data the other way. And it's because we've got this recency effect that's kicked in where we think that the most recent growth that's happened is what's going to happen ahead.
So let me take you to 2013. 2013 or 2012 to 2016 even. The Real Estate Institute of Australia showcased Sydney having 14% per annum growth during those four or five years. Massive, massive growth. Who would not want 14% per annum for that long?
Unreal. Unreal. Check this out though. Between 2017 and 2020, another three years. It's actually a little bit longer if you take the whole 17, 18, 19, 20s, four years if you take the whole year inclusive.
Sydney only grew by 1% per annum on average. Horrible. Horrible growth. Then if you take 2021 to 2023, hello Sydney, 9. 6% per annum.
Another stellar period. Although not as good as some other cities, stellar nonetheless. Now, it's important to look at that because do you really want to lose four years of your investing life if you bought a place in Sydney in 2017 and then see it not grow for those four years? Because when you're looking at the last 10 year data, firstly, what people are seeing is that great period between 2013 and 16 and 2021 to 2023. Which is also a little bit of an up and down.
It just had a great 2021. But in that period, it can make us think that we look back at the last 10 years and this market's performing really well. Therefore, back areas with consistency. No, that's not what you shouldn't do. That's not what you should do.
What you should do is be there before all of that happens or be there as it's happening. Not wait for it to happen and then go, ah, brilliant, consistent market. We should go and invest there. It reminds me of the yield and growth discussion. So, for example, there were markets in Sydney in about 2008 and 2009 that had rental yields of 4.
5% to 5%, which in Sydney is hella good. All of a sudden, those same suburbs more than double in value, 2. 5 times in value. And all of a sudden in 2017, their rental yields come down to a measly 2. 6%.
And then now people look at that 2. 6 and go, this is a growth market. You should invest in a great growth market because low yields equal great growth. Well, no, Dumbo, you should have been investing in 2008 when the yields were great. And guess what?
It was that great yield market that just became a low one because of its growth. It's not a great growth market after the yield is already now low, right? So that's important to remember that it was a growth market when yields were high. So that was still great, right? But people always want to look at it once it's done its thing and then use the past data to say that this happened.
So let's look at other parts of Sydney and You know, we actually even regressed that data down to about 1,057 suburbs, so that way we had valid house price data when we're looking at this. And we looked at those periods, and there just was no significant impact with one-year price growth, as an example, versus crime rate when we considered the data that we had. We actually, for those who are nerdy like me, we got a correlation coefficient of minus 0. 05, meaning that a 1% increase in crime rate would actually, on average, only lead to a 0. 05% decrease, a 0.
05, right, of 1%, so decrease in one-year house price growth, which is quite negligible to us. And so, in other words, it's actually not statistically significant. We have a look at the New South Wales crime rate versus the five-year house price growth, same story. And the New South Wales crime rate for all the suburbs there in 2014, it looked at a 10-year house price growth. We just couldn't get something that really said there was this huge impact on price growth from crime rates.
Then we had a look at it from the rental data, one-year price growth versus crime rates, no statistical significant correlation. Then on the five-year growth, we had some start showing, but surprisingly, it was a different correlation. We were thinking, hey, maybe this is going to decrease the rents, right? But it actually led to a positive correlation with higher crime rates seeing greater rental growth in those suburbs with higher crime rates. But again, we didn't want to take that smaller correlation and just stick to it with a few samples.
The main thing is there just wasn't this huge negative impact that was seen with crime. So where does crime actually make a difference? It could make a difference in some of your insurance premiums. It could make a difference on maybe how the property is kept, but it doesn't impact your rental and price growth. Now, if for any reason it does impact, say, how the property is kept or maybe the area that you're in, usually the price that's there factors it in.
So for example, one suburb with a higher crime rate, one suburb with a lower crime rate, the higher crime rate would actually end up, in many cases, not all, but in many cases, being cheaper. And so you're factoring it in in the way in, allowing you to get into a market that maybe your budget's more suitable to, and maybe the rental yield's higher in. But the downside is those factors of upkeep or potentially insurance costs and things. And so the main thing here to look into is that our deep dive of correlation to growth from a New South Wales analysis against crime rate over a one, five, and 10-year period, we just couldn't see a major factor. And so crime rates can also change over time, right?
They don't have to be the same, and you think that this is a bad suburb forever. So for example, there's a suburb in Sydney called Sydenham, and in 2014, the crime rate was 95%. That was a huge, huge amount. There was a high percentage of crime based on that metric that we created. That's how we got that 95% off the back of the crime from data.
id. Now, when we look at that, the residents in that suburb were professionals with 22%, clerical and admin workers at 16%, and technicians and trade workers at 13% of the makeup. But then you go 10 years later, and the actual wage growth there in the suburb from firstly the income has had a much higher increase than Greater Sydney's average growth. So it had 58% increase in income in that suburb, whereas Greater Sydney had an average of 44% in that 10-year period. And now the top three resident occupations are different.
They're professionals, yes, the same, but at a greater portion at 31% versus the 22%. Managers at 16%, not clerical admin workers at 16%. And then our technician and trade workers are still in there, but a little bit lower at 11%. And so the crime rate has also halved. Still a little bit high, but has halved since then.
And so you can just see suburbs also gentrify over time. So it doesn't mean that that negative crime suburb is going to stay like that forever, even if you did decide to pursue it. So the key thing is, yes, there'll be some impact from upkeep or maybe tenant quality or other things that you may consider. But the truth is, if you're looking at value growth and rental growth, crime rates, unfortunately, those who were thinking that they did, just don't have a huge correlation with value growth or value declines and rental growth, rental declines. And I often find it's because the prices have been factored into it.
And so that's something to consider there. Now, the last thing I want to go into is recessions and recession-proof properties. Because of the talk about recessions, it's obviously scared many people, right? And then what you're seeing out there is, hey, why not buy this property? It's recession-proof.
And it's really making me laugh, just seeing people put out recession-proof properties as a method of analysis to say, this is a great market, it's recession-proof. It just doesn't make sense to me. And so with the fear of recession spreading across Australia, I guess I want to ask firstly to myself and the data I'll unpack, is there actually such thing as a recession-proof property? Okay, so that's the first thing we should ask ourselves. But really, if you're new to what a recession is, let's break it down.
It can be multiple definitions out there, by the way. It could be a sustained period of weak or negative GDP growth accompanied by significant rises in the unemployment rate. Sometimes people measure it as a real GDP per capita having a period of negative growth or negative results in two consecutive quarters. Others suggest that it's when unemployment increases more than a certain pre-specified amount. And then others even think of it as a period between a peak and a trough in the business cycle where there is significant decline in economic activity spread across the economy that can last from a few months to a year.
And that's a resource from the National Bureau of Economic Research in the USA. So four different definitions there of what people are putting out there, but let's just simplicity call it slowdowns in the economy, weak GDP growth. Let's just call that. So when did recessions lastly occur? So firstly, 1982 to 83 recession, unemployment rate surged massively, but then recovered really quickly.
The early 90s recession, again, unemployment went up really heavily, but it took a long time for that to come around in terms of unemployment rates. And then we had the COVID-19 recession where businesses shut during that period. And so, you know, beside those particular periods, there was also a few like what we call technical recessions, or maybe we call them, you know, GDP per capita declines for now. 2000 GDP per capita declined in Q3 and Q4 with a little bit of an unemployment rise. Then it was 2006 GDP per capita declined in Q1 and Q2, but the unemployment didn't do much of that period.
Then it was 2008 GFC time. Unemployment rate increased a fair bit from under 4% to 6% in about, what, seven months? Then it was 2018 GDP per capita declined in Q3 and Q4, but again, unemployment rate didn't move much. So these are just some examples, and there's the COVID-19 one obviously as well. But these are just different examples, firstly, of what they mean and what people technically break them down as.
Now, here's what's really interesting. If you look at the 1982 and 83 recession, there were underperformers, average performers, and outperformers. And this is the key to think of. In 1982 to 83 recession, underperformers, Sydney, Brisbane, Perth. They had about 8.
2% capital growth, 6. 9%, and minus 0. 1%. So a bit of underperformance just during those recession periods. The average performer, which wasn't too bad, had 11% in the total growth, by the way.
And then we had the outperformers, Melbourne, 39% growth, 42. 9% for Adelaide, and 42. 7% for Canberra. So can you notice that a recession's happened? This huge, scary time, the word is thrown out, news must be going crazy, and you get divergence in performance.
And that's the key theme here. Sydney, Brisbane, Perth, underperformer, average performer, Hobart, and outperformers, Melbourne, Adelaide, Canberra. And I'm sticking with the capitals, just so it's easy for people to get a grasp on this. Then we go to the 1990s recession. 1992, underperformers, Sydney declined a little, 5.
5%, Melbourne declined 4. 6%, Perth went up 1. 4%. Adelaide, average performer, up 11. 4%, and then the outperformers, a little bit more, with 14.
2% in Brisbane, 16. 9% in Hobart, 24. 3% in Darwin, and 28. 6% in Canberra. Then you go to the COVID-19 recession.
So, underperformers, 2019 to 2020, right on that mark of the shutdowns and that year just before, Sydney, Melbourne, Brisbane. Average performers, Adelaide, Canberra, and then Perth, Hobart, Darwin doing a little bit better. That's just that 2019-20.
