Episode Overview:

In this insightful episode of the Hotspotting podcast, Tim Graham sits down with Ben Kingsley, the Chair of the Property Investors Council of Australia (PICA), to discuss the vital role that property investors play in shaping the future of Australia's real estate market. Ben provides an in-depth look at the importance of the PIPA Annual Investor Sentiment Survey and how it captures the pulse of the property investment community.

Key Discussion Points:

Importance of the PIPA Survey: Ben highlights why the PIPA Annual Investor Sentiment Survey is a critical tool for understanding the mood, confidence, and key trends in the Australian property market. He explains how the survey data influences media and policymakers and why it’s crucial for all property investors to participate.

Advocacy through PICA:

Tim and Ben delve into the advocacy work that PICA does on behalf of property investors. Ben shares how PICA ensures that investors' voices are heard in important policy discussions and how membership in PICA can help protect and advance investors' interests in the face of changing regulations.

Membership Benefits: Ben outlines the many benefits of joining PICA, from staying informed about the latest changes in property law to networking with other like-minded investors. He also discusses how PICA members can access exclusive resources and support to enhance their investment journey.

Current Market Challenges:

The conversation also touches on the current challenges facing property investors, including new rental regulations and tax laws. Ben offers practical advice on how PICA membership can help navigate these complexities and safeguard investments.

Why You Should Listen:

Whether you're a seasoned property investor or just starting out, this episode is packed with valuable insights that will help you better understand the landscape of property investment in Australia. Learn how your participation in the PIPA survey can make a difference, and discover how PICA can support your investment goals.

Don’t miss out on the opportunity to have your say in the PIPA Annual Investor Sentiment Survey and consider joining PICA to ensure your voice is heard in the property investment community.

Visit Hotspotting.com.au for more resources and insights.

Complete the survey here: https://www.surveymonkey.com/survey-taken?sm=PXT61WAC1xL5N1S9IJePE1hAn4c6_2BrMhKsShimHkkmEzip1e9oEIwz8mVtE4BUS48EmEeTvIueOcJ2V9C91IGMteQ6VUOkZjAoyRp6M3rtZL2jIJEdiWCxXHtoDzsPg3MiLuyrYFEEQtWCQHMn_2F1xw_3D_3D

Join Pica here: https://pica.asn.au/membership/why-join/

There are two opposing story lines circulating in news media about Australian real estate ownership.

One story line, repeated regularly by media, is that the Great Australian Dream is dead and that young Australian adults can no longer afford to buy homes.

The other one, revealed whenever the Australian Bureau of Statistics releases official data on real estate finance, tends to suggest that the dream is very much alive – and indeed thriving.

In fact, the latest lending figures show major increases in buying activity by all types of real estate consumers, including first-home buyers.

Media loves negative sensation about housing affordability and very often the truth is optional.

Some organisations who crave publicity to lift the profile of their businesses regularly feed this weakness in news media by creating bogus reports about Australian housing affordability.

They do this, usually, by applying a set of parameters that are irrelevant and unrealistic.

Here’s a typical example: a so-called research organisation will create a report which examines how long it takes a young couple to save a 20% deposit to buy a house at the median price in Sydney or Melbourne.

Or how much a person needs to earn to achieve a loan for this.

Now, there are multiple reasons why this is a nonsense designed to create a headline rather than inform the public. These reports are full of furphies.

Furphy No.1 – you don’t need a 20% deposit. You can get into real estate ownership with a 10% deposit or even a 5% deposit.

Furphy No.2 – first-home buyers don’t buy at the median price in Sydney or Melbourne or anywhere else. They buy in the lower price ranges. The city median is irrelevant to the circumstances of young buyers and the issue of affordability.

Furphy No.3 – these reports always overlook attached dwellings as an option for buyers seeking affordability. In many capital city suburbs, the median price for units is half the median price for houses. But these bogus reports never speak about this viable, popular and more affordable option.

Why are these so-called research reports full of irrelevant and misleading information? Because the goal is NOT to inform people, or help people, or improve the situation for the community. The goal is always self-serving and dishonest – to create free publicity by generating alarm in the community.

And journalists are happy to recycle this nonsense as factual news.

In Sydney, the median house price is close to $1.5 million (according to CoreLogic) but that is irrelevant to people seeking affordability in our most expensive capital city.

What is considerably MORE relevant is how much it costs to buy a unit in the Canterbury-Bankstown area of Sydney, where there are plenty of viable options in multiple suburbs in the price range from $400,000 to $600,000.

Or what it costs to buy a house in more affordable parts of Greater Sydney, like the local government areas of Liverpool, Parramatta and Blacktown.

And of course there is the reality that over 20 million Australians live in places other than Sydney and the median house price in our most expensive city is utterly irrelevant to them.

How about some focus on what it costs to buy a house in the affordable northern suburbs of Adelaide, or an apartment in the inner-city Brisbane suburb of Bowen Hills, or in the inner-city Perth suburb of Belmont or a house in outer-ring areas of Greater Melbourne.

And what about regional Australia, which is attracting growing numbers of new residents relocating from the biggest cities in search of a different lifestyle, empowered by technology that allows more and more people to work remotely.

So, let me tell you, the home ownership dream is very much alive right across Australia.

How can I be so sure? Because the official lending data confirms it.

The latest stats from the ABS – which is for the month of June - shows we are currently seeing growing numbers of people buying homes as first-home buyers, other types of owner-occupier buyers and investors.

Lending for the purchase of homes rose 19% in June, compared to a year earlier.

In June lending to owner-occupier buyers was up 13% compared to a year earlier, with an even larger increase in loans to investors. There was also a rise in lending to first-home buyers, though not as large an increase.

It should be fairly self-evident that lending levels would not be rising, including for first-home buyers, if it was true that no one can afford to buy any more.

We have highly active property markets in most parts of Australia and buyers of all kinds are active.

So, next time you see one of those shallow media headlines declaring that the dream is dead and that young Australians are priced out of the market, don’t believe it.

The markets currently attracting our focus at Hotspotting are the ones we call “the second wind markets”.

These are locations which experienced strong capital from 2020 to 2022, have been in the post-boom pause/correction phase for the past 18 months or so, and are now poised for another period of price growth.

There are few better places to find second-wind markets than Regional Victoria, as many of the key centres have exhibited that pattern over the past 3-4 years and are now showing the early signs of revival.

Many of the suburbs of Ballarat are classic examples. The median house price for Sebastopol rose from $330,000 in 2020 to $475,000 by the end of 2022. There has been a price correction in the past 18 months but market activity is rising again and another period of price growth is expected.

Eaglehawk in Ballarat rose from $325,000 in mid-2020 to $520,000 in early 2023, before the price graph evened out over the following 12-18 months.

Bendigo displays similar patterns. The suburb of California Gully had a median house price of $300,000 in 2020, rising to $465,000 late in 2022. The price graph has flatlined since then, before showing the first signs of new growth in mid-2024.

Similarly, Flora Hill lifted its median house price from $255,000 in 2020 to $450,000 in early 2023 – but the price graph has been flat over the past 12 months. Now sales activity is rising again, which is a forward indicator of impending price growth.

Other markets in Regional Victoria have this pattern, which is a common one in real estate cycles with a period of strong growth followed by a period of correction or no growth, before the market embarks on the next growth cycle.

Shepparton, Traralgon, Mildura, Wodonga, Warrnambool and many other Victoria regional centres have this pattern.

They’re all places with solid local economies and credentials for future growth.

Most of them commonly have houses in the $400,000s and $500,000s, with low vacancy rates, so they present attractive features for property investors.

You can be forgiven for being confused about the Melbourne market.

On the one hand, news media is full of stories about investors shunning Australia’s largest city because of draconian taxes and policies by the nation’s worst state government.

There are also frequent articles about the lack of price escalation in Melbourne markets, at a time when many other capital cities are delivering stellar capital growth.

But this is balanced by the analysis from those who believe Melbourne to be a prime opportunity for buyers to get in early in a growth cycle, with the city’s markets poised for revival.

A strong state economy, a big infrastructure program and some compelling population data support the view that Melbourne is overdue for a growth spurt.

The first thing to understand is why Melbourne has underachieved in the past couple of years while others have excelled.

The lingering impacts of the Covid period are considered at least partly responsible. Melbourne was locked down for longer than other Australian cities and was indeed dubbed by media as “the world’s most locked-down city”.

There’s no doubt the attitudes and policies of Dictator Dan (Andrews) deterred many. And subsequent state policies unfriendly to investors – including the reality that Victoria has the highest stamp duty and the highest land tax in the nation – have deterred buyers from investing in Victoria.

On the positive side, Melbourne is the nation’s biggest beneficiary of overseas migration, which made it a national leader on population growth last year. Australia experienced a record number of new additions to the national population in 2023, with 84% of it attributed to overseas migrants.

So Melbourne, despite losing residents to internal migration (people moving to other parts of the nation), grew its population by almost 3% last year. Only Western Australia had higher growth.

Victoria consistently ranks among the nation’s leading economies and ranked third in the July 2024 edition of the State of the States report by CommSec. The July report comments that Melbourne is consistently strong across all the metrics used to rank the states and territories, which include population growth, construction work, housing finance, retail spending and employment performance.

A strong economy underpins the residential real estate market, because it means there is busy economic activity creating jobs, and from that springs demand for homes.

A key factor keeping the Victorian economy vibrant is the big program of infrastructure development across Greater Melbourne. They include multi-billion-dollar developments now under construction like the Suburban Rail Loop, North East Link, Metro Tunnel and West Gate Tunnel – which combined are estimated to cost over $70 billion.

Those projects alone – and there many others impacting the city – are likely to energise the local economy in ways likely to lead to growth in demand for homes.

So there’s a plausible argument that now is an opportune time to be considering investment in Melbourne, rather than doing what many investors do, which is dive into markets when they read there’s a boom on.

Far smarter to buy before the boom starts.

The trend we have termed “The Rise and Rise of Apartments” continues to pick up pace. Across Australia, more and more buyers are opting for attached dwellings for lifestyle, for affordability, for convenience and for safety.

One of the features that draws growing numbers of buyers (and tenants) to apartments is location appeal. Not only do attached dwellings allow people to access property in good locations at cheaper prices than houses, but the average unit is better located than the average house.

A report titled “Measuring Home Price Differences” by Infrastructure Victoria has found that units consistently trump houses on proximity to desirable features.

“Units are located closer to selected infrastructure types, on average, than houses and townhouses,” the report says.

The report found that units were far more likely to be located close to train stations, tram stops, major activity centres and arterial roads than houses. “About 60% of units are within 1.6km of a tram stop, while this distance only includes about 20% of houses,” the report says.

This is one of multiple factors driving higher demand for units – challenging the dominant paradigm of real estate. That paradigm, still widely accepted in the real estate industry, states that houses always outperform units and townhouses on capital growth.

But that is undoubtedly changing.

We are seeing growing evidence that more and more buyers of various sorts are opting for attached dwellings. Buyer demand in locations where units dominate the dwelling mix - or are a significant part of the dwelling mix - has been rising notably for the past 12-18 months.

Suburbs where units prominent are now among the most powerful markets in Australia – which makes our Top 10 Apartment Hotspots report essential reading for investors seeking opportunities in 2024 and beyond.

Those seeking out well-located and affordable apartments include older people downsizing from a large family home.

They also include …

• young people seeking an affordable first step on the property ladder;

• lifestyle buyers seeking low-maintenance, lock-up-and-leave options in good locations;

• overseas migrants from countries where unit-style living is the norm;

• investors seeking affordability and higher rental yields in good locations; and

• buyers who seek the security and safety of an apartment above ground level.

In inner-city precincts in our biggest cities, houses can typically cost over $2 million, but apartments can be bought in the $600,000s and $700,000s in the same suburbs in many cases.

The rental yields are also significantly higher, a key consideration in times of higher interest rates – although it needs to be remembered that apartments do entail additional costs like body corporate fees.

But the most noteworthy data relates to capital growth. In a growing number of locations throughout Australia, apartments have recorded larger increases in median prices than houses, both in the past year and over the longer term.

At Surfers Paradise on the Gold Coast, apartments are considerably cheaper than houses, sell faster, have higher rental yields, have recorded bigger price growth in the past year – and the long-term capital growth rate also is superior.

There are many, many more examples like this across Australia.

New data from CoreLogic shows that apartment values are rising faster than those of houses in about six out of 10 suburbs.

This is also reflected in the general results for many of our major cities.

In the past three months, the median price for units in Brisbane rose 5.8 per cent, while houses increased 3.4 per cent.

Adelaide units outperformed houses by the same margin after increasing by 7.1 per cent during the same period.

Unit prices are also rising at a faster rate than houses across Sydney, Melbourne, Perth and Hobart, although they have fallen behind in Darwin and Canberra.

Across the combined capital cities, unit values rose faster than house values in 506 suburbs out of a total of 855 suburbs, with some unit markets gaining more than seven times more than houses.

There are many unhappy aspects of the rental shortage crisis that has afflicted Australia for several years and is likely to continue for many years into the future.

But the saddest thing of all about this unprecedented calamity is that Australia deserves the pain it’s experiencing on this issue.

Firstly, there’s the old adage that we get the politicians we deserve.

And the politicians we’ve elected – at both state and federal levels - have created the rental shortage through a series of bad policies.

They keep making it worse with further unhelpful decisions.

The problem has been exacerbated by news media and by the attitudes of many citizens.

It’s a sad truth in Australia that when a serious problem arises, it’s very rare that we find and implement solutions.

What we do, instead, to identify scapegoats - usually unfairly and inaccurately.

Then we demonize the people we have decided to blame for the problem.

But we don’t fix the problem. The demonizing of the wrong people usually makes it worse.

So it is with the rental shortage crisis.

The extreme under-supply has been created because fewer and fewer people want to be landlords.

And why would you?

You have to pay taxes no one else pays, like land tax and capital gains tax, you have to pay higher council rates, higher stamp duty, higher interest rates and higher insurance premiums.

Every time a state government changes the rental laws, they are grossly biased towards tenants and often completely disregard the rights and needs of the people who own the properties that people rent.

Meanwhile, investor owners are vilified and demonized by dishonest politicians and journalists for whom the truth is optional while they’re espousing their personal viewpoints dressed up as news.

And, on the sidelines, large sections of the media and small-minded citizens cheer enthusiastically, while complaining about the rental shortage.

One journalist who got it right recently was the personal finance writer for The Australian, Anthony Keane, who commented that owning an investment property in this country has now become a source of stigma and shame.

He wrote: “Buying an investment property used to make me feel proud, but now it borders on shame. Surely, that’s not how we want Australians to feel for trying to build financial security and reduce their reliance on welfare later in life.”

He also commented: “Chopping down tall poppies can be a national pastime, but ATO figures show that most of Australia’s rental property owners have just one property. Many are teachers, nurses, police officers and emergency service workers. Since when did they become tall poppies?” he said.

Some people try to be tall by cutting off the heads of others. In other words, as Anthony Keane pointed out, we’re talking about the tall poppy syndrome and the politics of envy.

For many Australians, if they observe others apparently doing better than they are, they will support policies to squash those people.

Apparently, they are unaware that this is what has created the rental shortage and the rising rents that everyone is complaining about.

Which I why I say that, sadly, Australia has got the housing crisis it deserves.

Until the nation changes its attitudes, this problem will not only continue, but get worse.

Sooner or later, Australia will have to acknowledge that investors are not the problem, they are the solution.

The reality of the nation’s serious under-supply of homes is made starkly obvious by the emergence of shortages in the location best known for bouts of major over-supply.

The Gold Coast, which traditionally has delivered weak capital growth because of regular periods of over-supply of high-rise apartments, these days has the opposite problem.

The Gold Coast has been trending towards under-supply for the past 2-3 years and it’s getting worse - and will continue to do so for the foreseeable future.

The Gold Coast has long been one of the nation’s most spectacular population growth venues and currently has a population of about 700,000 - making it the largest regional city in Australia.

It’s projected to reach a million residents within the next 20 years.

This notable history of population growth and the allowance of mega high-rise buildings has made the Gold Coast a prime target for big developers - and there have been many periods of massive construction of mega towers.

Often this has resulted in over-supply, which has taken the market years to absorb. Up until about three years ago, the median apartment price for Surfers Paradise was at the same level as a decade earlier - in other words, no capital growth for 10 years.

But that has all changed. The population growth has continued and in recent years demand has risen. The trend we call the Exodus to Affordable Lifestyle has increased demand for appealing coastal cities and the Covid lockdown period increased buyer demand for the Gold Coast.

In the meantime, the level of major new construction has declined dramatically.

Quite simply, many developers have done their sums and concluded that 40 and 50 storey apartment towers don’t stack up financially. The costs of building these structures have escalated to the point where the end price developers would have to charge to be profitable would be beyond the market’s capacity or willingness to pay.

One of Queensland’s biggest and most experienced developers told me recently they could not commit to a high-rise building unless they believed they could sell the apartments for a minimum of $1 million each.

Many big developers have decided that, with costs growing so fast, it’s difficult to budget for the cost of the development that takes years to plan and construct.

So big developers have cancelled or deferred projects.

According to a recent report by experienced Queensland property analyst Michael Matusik, for a number of years before 2021 the Gold Coast market was producing enough new dwellings to meet the demand from its rising population - indeed, a little above the required levels in some years.

But since 2021 that has changed dramatically. The line on the graph depicting supply has fallen more and more below the line representing underlying demand.

The Gold Coast market is now in severe under-supply and likely to get worse.

It’s a national problem with the Gold Coast providing a snapshot of a broader Australia-wide issue for which our elected representatives appear to have no solutions.