Is one growth driver more important than others? | Michael Yardney [Podcast]

It’s often asked – “What is likely to drive future property price growth?”

Clearly, there are many different growth drivers, but is there one that stands out, one that’s probably more important than the rest.

On a recent Real Estate Talk show I spoke with Michael Yardney, from Metropole Properties, who gave us his thoughts on the matter.

HERE’S A TRANSCRIPT OF THE INTERVIEW

(Alternatively you can listen to the short podcast at the top)

Kevin:  Can you answer that question? 

Can you actually get it down to one factor?

Michael:  There is definitely one growth driver that’s more important than the rest. In my opinion, economic growth is what’s going to drive property price growth in the medium to long term

That’s because economic growth leads to jobs, jobs lead to wages growth, people come in and move to locations because of jobs, and when people move to an area that creates  rental demand initially and eventually house-buying demand.

So of all the factors that affect property values economic growth one of the most important ones.

Sure other things are important as well – consumer confidence, interest rates, business confidence, political certainty, the banking system – but all these tend to creates economic growth.

Kevin:  Are there some key employment statistics we should consider?

Michael:  It’s important to understand how we now create economic growth, because our capital cities are now attracting 80% of job creation.

Go back a decade; that was only 60%.

In other words, we are building things, making things, creating things differently, and the forecast is for more jobs to be created in our capital cities than elsewhere in the future.

That’s because we’re no longer manufacturing things, we’re no longer living off the land.

If you look at some statistics, last year, Melbourne created 72,786 jobs, Sydney created 54,000 jobs, and that made up a huge bulk of all the job creation in Australia.

But more importantly, they were full-time jobs.

If you look at hospitality or retail, a lot of those are part-time jobs – that’s not the same.

Kevin:  When you look at those numbers  they’re quite staggering figures.

It really is between Sydney and Melbourne.  

Would it be right then that investing outside of the major economic centers is fraught with risk?

Michael:  Job creation is increasingly important for future property performance.

Those areas with limited employment opportunities are likely to struggle with regard to future capital growth and rental returns.

And those areas where the jobs are being created is where more people are going to want to live.

The more highly skilled jobs are the ones that pay more, and they’re the people who have higher disposable incomes and who can afford to buy new houses or investment properties or new cars, and that creates more business in the local economy and the effect snowballs.

Kevin:  Economic growth hasn’t not always concentrated in our major capital cities – has it?

Michael:  No, it wasn’t.

Just go back a century ago, we were really dependent on the bush.

About four million Australians lived in rural properties or small towns of fewer than 3000 people.

Most were market towns. We lived on the land.

A century ago, only a third of Australians lived in cities even the size of Toowoomba, over 100,000 people.

It was mainly primary production. Mining also had a bit of a say in it.

Then post World War II, we became a manufacturing country and things changed.

We started to industrialize, and there was a big shift to urban living and into suburban homes.

Then go back to the mid-1960s, three out of five Australians lived in a major city and manufacturing was creating most of the jobs.

But that’s no longer what drives us now, so when we think about Australia’s economy and our exports, we tend to think about wool or sheep or iron ore or minerals, but in fact, interestingly a large part of our economy and exports today is services with health and education and tourism.

We are now a service-based economy.

Kevin:  What is the bottom line? 

Michael:  It appears safe to assume that service industries are really going to be our biggest source of employment and increasingly, the muscle behind economic growth in the future.

And most service-related jobs are going to be in our capital cities, but more than that, they’re going to be in the central areas of our capital cities, and that’s what’s going to create the ongoing jobs growth, the ongoing wages growth, the ongoing population growth.

So to invest outside the three or four big capital cities of Australia in my mind is foolish.

It doesn’t mean there aren’t opportunities elsewhere, but it’s just too hard to swim against that very strong tide of economic growth, Kevin.

Kevin:  Great talking to you, Michael.

Michael:  Thanks, Kevin.