In the past year or so, Australia has undergone a property boom where double-digit annual growth is seen as average, demonstrating the very prosperous time we are in for property Investors. Regional Australia has been the out-performer with very impressive performance in this boom, as more and more home buyers and investors chose to buy in regional areas.
Many believe that this go-regional trend is just a temporary phenomenon caused by COVID – People move to regional cities just because the low density of residences makes them feel safer, and only when they have the flexibility to work from home during the pandemic. It has created this thought that as people are more and more comfortable living with the virus, life will be back to “normal” soon, and the heat of regional cities will come to an end.
However, this statement seems doubtable. If you really think about it, is there a normality to return to?
There is no such thing as normal.
Data shows that people have been moving from metro cities to regional areas since long before the pandemic, especially in NSW andVictoria, and the trend only became stronger since the pandemic started.
Now let’s have a look at some charts.
If we only examine internal migration, Sydney has always been losing its residents to other regions in the past decade, both interstate and intrastate. In the meantime, Regional NSW has been gaining people from other regions. In Victoria, Melbourne started losing people internally since2017, while the population moving into regional Victoria has been growing since around 2014.
It is obvious that in these two states with the highest living costs, the trend of go-regional has been there for years.
Who typically moves?
Research by the Centre of Population advises that young adults are the most active internal migrants due to education, entry of labour force, and start of families. People around the retirement age form another main group of internal migrants who are after healthcare facilities and lifestyle.
And why do people move to other cities?
According to the Centre of Population, long-distance (esp. interstate) migration is mainly driven by family needs, employment opportunities, local economic activeness (unemployment rate) and living costs(relative property prices). If a city has thriving local economy, providing plenty of jobs and affordable life, it would most likely attract people to move there.
Factors that lead people to move away from a location
Whilst that report demonstrated some interesting trends, it was completed some time ago. In this case during the pandemic, the flexibility of work combined with the desire to improve ones lifestyle has become the super charger of these migration trends.
An ABS report shows that 40.6% Australians were working from home (reported as "regularly worked from home in job or business" *not a "hard" only work from home) in August 2021, 8% higher than the figure (32%) 2 years ago. and among the WFH population, professional workers and managers, who usually enjoy higher income, were working from home the most, at 65%, compared to other occupations where just 25% of employees worked remotely.
The long hours spent at home have turned people’s attention to the importance of a comfy home and lifestyle. And the flexibility of work location has allowed us to achieve that by moving to more affordable/lifestyle-driven locations, most of which are regional. This is evidenced by the surging house prices in regional cities, especially the coastal towns since the beginning of2021. Home renovations have been another way to see the importance of lifestyle and how that has been prioritised during the pandemic.
Will this internal migration trend end when the pandemic is gone?
In our opinion peak movement trends would have occurred during the heights of the pandemic (Melbourne’s exodus as an example). However, we don’t see this trend disappearing and returning to “normal”. Besides the fact that the trend has been there for years, two other contributors to the trend are not to be overlooked: WFH will not go back to pre-COVID level, new floors have/will be created, and the Australian population is ageing with the chase for lifestyle expected to grow in this demographic.
First, it’s unlikely that Australia will return to pre-COVID level of working from home. Research conducted by the ProductivityCommission of the federal government has revealed the reasons:
· Multiple surveys showed that most people who worked from home had a positive experience and were keen to continue working from home.
· The pandemic WFH experiments provided both employers and employees the knowledge and technology to be more productive working from home which will be helpful even after COVID.
· Many people have reported that they are more productive working from home and work even longer than in the office.
· The flexibility of WFH is highly valued. Surveys found that many employees are willing to change job or accept lower wages to keep working from home.
The Productivity Commission report presents the result of an employer survey which was conducted in Apr 2021 (see below charts). Around 60% of the surveyed employers are expecting to keep the same work location arrangement as of now, and just less than 20% of the employers are not willing to continue WFH or not sure.
Employers Expect WFH to Continue
On the other hand, the Australian population is ageing. According to an Australian Institute of Health and Welfare report, approximately 16% of Australia’s population were aged 65 and over as at 30th June 2020. The percentage is set to increase to circa 20.7% in 2066, with particular growth between 2009-2029, which is now. It's important to understand that those entering this age group or currently in it are also likely to be some of the biggest recipients of capital growth through a combination of matured careers, time in the housing market witnessing two very large national property booms (2000-2005 / 2019-Present) and time in market to reduce debts. This is a recipe for large wealth transfers across families or across cities as they prioritise lifestyle and/or retirement. Many lifestyle locations across the coastline have a relatively higher median age, so it's expected this shift continues. For example, Port Macquarie population’s median age is 47, Ballina 49, Batemans Bay 53, compared to NSW’s median age of 38.
By indicating that more and more people are likely to migrate to our regions, we are not saying that all the people who can work from home or all the retirees will move. However, a small percentage of these groups moving from capital cities to regions will make a big difference to regional cities. Based on the 2016 Census, Greater Sydney has 2.43m people in workforce, and 673k people aged over 65 (assuming they aren’t working). Even if only 0.5% of this combined group moves to regional cities with greater confidence today than in the past, that is 15.5k, which is more than doubling Port Stephens’ total population. Imagine the impact it can have as this spread continues.
Internal people movement has flow on impacts to consumption, improved infrastructure focus and private investment, creating the potential for further strengthening in regional jobs, which are already thriving.
Localised analysis will be key
As capital city investors start to realise the importance of removing the blinkers as they invest for their future and not soul search for the “return to normal”. Those that understand localisation of trends will truly appreciate the opportunities right across Australia.
A common question we hear as investors are slowly spreading their wings is“what about the jobs”, assuming that these smaller cities don’t have strong local economies. A myth like this can be busted and visualised. Using a few examples to demonstrate localisation of trends, is deep diving into this myth using a few key regional cities. Job markets in these locations have never been so active in the past decade, the number of job ads have all doubled their 10-year average. This does not just happen to these specific regions, but it is occurring across a lot of Australia. The abundance of employment opportunities makes sure that people don’t just move to a region and work remotely. Instead, they can also make a living locally.
These areas’ strong unemployment rates tell the same story (see below charts). All indicators are showing that regional job markets and economy have been recovering strongly.
Internal migration and the thriving job market of regional cities are also closely related to the states’ governments investment in regions. Population growth drives up regional needs for infrastructure, and the infrastructure projects, in return, have created jobs and attract more people to the regions.
The NSW State Government established the Restart NSW Fund since 2011 to enable the funding and delivery of high-priority infrastructure projects. 30% of this fund is committed to regional areas outside of the metropolitan areas of Sydney, Newcastle, and Wollongong over its life. Up until the release of the 2021-22 State Budget, $10.2 billion from Restart NSW has been committed and reserved for programs and projects in regional NSW. This comprises $8.8 billion in commitments and $1.5 billion in reservations for future projects.
The Victorian Government has also been investing heavily in rural and regional Victoria, especially in healthcare, education, and transport infrastructures. Other than that, the government has also been dedicated to increasing regional job opportunities by cutting payroll tax, helping local businesses, boosting regional tourism, etc.
In Queensland’s 2021-2022 Budget, the state government has planned a $52 billion investment in infrastructure over the next 4 years, making their total infrastructure investment during the decade 2015-2025 an impressive $110b. Renewable energy has been stressed in recent years as we have seen more and more solar/wind farms and battery facilities being built across regional Queensland. The heavy investment in infrastructure has not only created tens of thousands of jobs all over the state but also improved the connection between regional areas and metropolitan areas.
With the economy of regional Australia thriving, we have every reason to believe that more and more people will be calling the regions home, and consequently underpin the growth of regional property market. The below three cities have given us some good examples with their last 10-year performance and demonstrate the importance of getting local with your analysis.
As a buyers’ agency who lead the way with property market research, the InvestorKit Team is always digging through data with boots on the ground too, challenging theories, and busting myths to help people in making unbiased and thoroughly analysed investing decisions. We hope this blog has given you context as to why we don’t see a “return to normal” instead we see the growth of trends that have always existed in Australia simply supercharged by the pandemic carry on indefinitely (however not at the same peak of earlier stages of the COVID pandemic).
To truly capitalise on these trends for your financial future, it is not simply about trend catching and jumping on the regional bandwagon. It is about using these trends and events to shift the way you analyse property markets. Giving yourself as many options by giving all ofAustralia a chance and truly understanding local drivers/trends will help you make decisions that are right for you. Rather than being forced into a corner with limited options and taking the easier road, which may hold you back. We are not here to say that every regional city will be growing fast in the coming years, as they are not sitting in the same stage of the growth cycle. a market analysis is important before putting your money anywhere.
If you are seeking industry leading research, and the support to help you get out of the investing comforts zone simply book a FREE no-obligation 45-minutes consultation now and let’s see what we can do for you!