It seems like every morning when I open the paper there’s a story declaring a real estate ‘bubble’ in our capital cities. As a result, reading how the bubble will burst and bring ruin to our economy has become almost as much a part of my morning routine as toast, orange juice and a coffee. When I get into work though, this imminent doom hardly seems to have slowed down the phones and I don’t expect it to.
Claims that our capital cities are currently experiencing a bubble seem to rely solely on historical data for evidence. They fail to take into account our changing real estate industry, as inner-city apartments continue to experience unprecedented demand. As Warren Buffett has said repeatedly “If past history was all there was to the game, the richest people would be librarians.”
The fact is that for many, the Australian dream of living in a big house with a yard for barbecuing is dead. Instead there is a current and growing demand for higher density inner-city living.
This trend is partially fuelled by young Australians gravitating towards our capital cities in search of employment. What’s more, the average employment tenure of young adults is projected to decrease from four to three years by 2020, with annual voluntary turnover approaching 20%. While the typical progression of young adults in the past was to land a stable job and save for a house in the suburbs, this job-hopping tendency may force young Australians to stay close to the inner-city in order to capitalise on the numerous career opportunities for the long-term future.
Besides young adults, the other source for the current demand for high-rise living is Australia’s growing migrant population. Between 1996 and 2011 Australia’s overseas-born population increased by 41.6% to 6.0 million people. More recent Australian Bureau of Statistics (ABS) reports place our net overseas migration at 244,371 persons (or 60%) of our total population growth during the 2012-13 year alone.
The current increase in the cost of buying and renting inner-city properties is strongly correlative with this growth of our net overseas migration. Research shows that 85% of overseas-born Australians choose to settle in major urban areas such as Sydney and Melbourne.
The heat-map of Sydney below shows how this migration is continuing to drive demand for high-density living and fuel what many are calling a ‘bubble.’
Both young and overseas born Australians are drawn to the cities for similar reasons: employment, study and infrastructure. As long as our inner cities offer these advantages over the outer suburbs and regional real estate markets, relative scarcity of properties is likely to keep prices at a historically high level. Indeed, with youth unemployment approaching 13.2% and net overseas migration continuing to increase yearly, one of the only foreseeable outcomes of these market pressures will be to create a sustained demand for higher-density living in our capital cities and prolong the current boom in property and rental prices, even if affordability issues eventually cause this growth to slow.