Suburb names, price points, housing style and capital growth

[Peter Parker]

When stewing over the latest figures presented here several patterns have jumped out at me in relation to areas that have shown the highest capital growth in the last 10 years.

http://www.somersoft.com/forums/showthread.php?t=45620

These are as follows:

* CENTRE DOES BEST EVEN IF IT'S A DUMP

Some larger suburbs have been divided into north, south, east, or west etc. Or they might have 'Heights' or 'Gardens' attached. Eg Dandenong North, Chelsea Heights, Aspendale Gardens etc.

In many cases the centre suburb (eg Dandenong, Brunswick, Chelsea, Essendon, Aspendale, Eltham, Noble Park and Pascoe Vale) has appreciated better than the surrounding suburb-North, South, Heights, Gardens etc.

This is even though visually the -north, -heights, -gardens often 'look' quieter and nicer than the 'main' suburb. They look good places to bring up kids. Apendale Gardens looks cleaner than Aspendale; ditto for Chelsea Heights versus compared to Chelsea and even Dandenong North compared to Dandenong. The houses in the newer suburbs are more uniform in style and there's less derelict places than in the older central areas.

At one time the newer areas cost as much if not more than the main older suburbs (even if the latter were bayside) due to nicer newer bigger houses. But now it's realised that they don't have beaches, trains or as many shops their growth has been poorer.

Bottom line ;- if it's a -north -west -south -heights etc it probably hasn't done as well as the main suburb. Keilor aside (which I can't make sense of) there's one main exception, and this is the subject of the next point.

* CHEAPEST IN A GROUP OF SUBURBS

Consider a cluster of suburbs, especially ones that share a part of a name. Find the cheapest suburb in that cluster - it might have been ex-housing commission. Eg Frankston North and Heidelberg West. The cheapies seem to have done better on a percentage basis than others in the area, even if they lack the best shopping strips or a train and their character is 'worse' than (say) high status Heidelberg or Frankston South.

* FOLLOW THE HORDES

Some 'traditional' suburbs with extremely high proportion of Australian born, nuclear families with children, and few single parents, migrants or unit dwellers have delivered only fair growth (10% CG approx). Eg Eltham, Greensborough, Viewbank etc.

They're lovely leafy areas with almost no povery (high average incomes are because they don't have a bottom end) and Melbourne's best health and life expectancy outcomes.

But all the fastest growing demographic groups are shunning them and cheap suburbs full of Africans - the most recent and a fast growing migrant group - eg Noble Park and Sunshine have performed better.

* LOOKS ARE DECEIVING - NICE SUBURBS WITH NEWER HOUSING HAVEN'T DONE SO WELL

Related to the first point but an area that 'looks' nice doesn't necessarily display best capital growth. This is even if its housing is 30 years old if the adjoining 'main' suburbs has housing 50 - 100 years old or more with a heap of different styles. Trains, beach and shops trump housing uniformity or neatness when it comes to capital growth in a suburb.

(No warranty is given as to whether these trends will continue in the next 10 years - besides 10 years is a bit short to be thinking about long-term stats)

Peter

 

[Bill.L]

Hi all,

As per usual Peter, you are giving away all the good secrets. Well done.

I feel an underlying factor is the ratio of land value to dwelling on it. Your information tends to confirm this in general terms.

bye

 

[troyhunt]

Very insightful Peter, investors would do well to look beyond the "pleasant" suburbs and take a more pragmatic approach based on the fundamentals.

 

[Righteous Toss]

Its almost a bit of a cycle, older original areas that were good in the day now run down, new suburbs sprout up with no infastructure better houses then people start renovating and developing the places in the older established areas. I think it has to do with the streetscape....... mainly the trees

 

[Peter Parker]

I think it has to do with the streetscape....... mainly the trees

One might initially think so - in Melbourne the most desirable/dearest suburbs tend to be in the east which has more tree cover than the south east and especially the north and west.

But note that the leafy north-east is a nice area to live in but still did not appreciate as fast as some poorer less green areas.

Current prices are effectively a measure of very long-term capital growth (ie since settlement). However suburbs go through gentrification and degentrification and there may be smaller cycles of 20 or 30 years related to social trends, for instance the emptying of the inner city/growth of suburbs in the middle 20th century and the revival of the inner city towards the end. To this could be added other narratives, for instance suburbanisation of jobs and the value of bayside living (as a place to live, not only to go to on holiday). High prices reflect historic growth and current demand but not necessarily future growth.

 

[Righteous Toss]

Are these suburbs playing catch up to the East?
Maybe in another 10 + yrs the city will turn to ***** and the people living inner city will want to get away from the pollution, crime and violence and look for a green change in the suburbs. In Melbourne I can't see how you can go wrong buying Bayside or 15km out in nice suburbs with parkland and transport.

 

[our obsession]

Peter, just interesting to read all this, I have some older growth statistics, but only in paper/copy form, I can mail to you.

I started to compare those that had done well, basically, so far, (so many towns!) they keep doing okay, some ...(actually considerable) regional areas got stronger growth...

We are in interesting times, would you PM a place to mail you the other stats, I think you will find them all a bit of fun.

 

[Peter Parker]

Peter, just interesting to read all this, I have some older growth statistics, but only in paper/copy form, I can mail to you.

I started to compare those that had done well, basically, so far, (so many towns!) they keep doing okay, some ...(actually considerable) regional areas got stronger growth...

We are in interesting times, would you PM a place to mail you the other stats, I think you will find them all a bit of fun.

Stats received with thanks. They are for 1994 - 2004 and appeared in the Sunday Herald Sun Sept 18, 2005.

To analyse them I thought we'd test the 'neighbouring suburb' theory - ie the next suburb to an expensive (or fast appreciating one) will experience superior capital growth (or may be 'undervalued') if suburb characteristics are similar and/or the there is a big difference in prices.

I'll lay down some examples of clusters of adjacent suburbs; others can use more recent stats to see if the guesses made from the 2004 data have proved correct.

The first figures are median house price for 2004. The second figure is percentage gain since 1994. Suburbs are listed in outwards order from the CBD.


Example 1.

Bentleigh 458k (+162%)
Moorabbin 384k (+182%)
Highett 400k (+193%)

Comment: Moorabbin is surrounded by expensive suburbs to the north, west and south. Plus there is a big price gap with Bentleigh to the north. Part of this is justifiable by the presence of McKinnon Secondary College near Bentleigh, the train fare hike past Bentleigh and Moorabbin's low-grade shopping strip (compared to Bentleigh). However it is still underalued on the figures above and it should have appreciated faster than its two neighbours to be slightly dearer than Highett. (though my own preference as a 'nice place to live' is Highett over Moorabbin and Bentleigh over both).

TIP: MOORABBIN SHOULD HAVE OUTPERFORMED SINCE 2004

Example 2.

Mentone 462k (+185%)
Parkdale 424k (+183%)
Mordialloc 360k (+182%)
Aspendale 340k (+172%)
Edithvale 335k (+219%)
Chelsea 320k (+178%)
Bonbeach 340k (+217%)

All similar bayside suburbs. Mentone has the private schools, the bayside portion of Mentone being the area's 'dress circle' but inland parts of Mentone (old racecourse development) having only average amenity.

Most noticeable is the big drop between Parkdale and Mordialloc which are neighbouring suburbs. While Parkdale is like a mini-Mentone with a nicer shopping strip, Mordialloc, and to a lesser extent, Aspendale, appeared undervalued relative to Parkdale in 2004.

Because of its superior shopping and transport, slightly closer position to the CBD and lower growth rate compared to its two neighbours, Chelsea was undervalued relative to Bonbeach.

TIP: BOTH MORDIALLOC AND CHELSEA SHOULD HAVE DISPLAYED HIGHER GROWTH THAN THE OTHERS SINCE 2004.

Example 3: outer east

Ringwood 297k (+139%)

Bayswater 257k (+143%)
Boronia 259k (+136%)
Croydon 270k (+137%)
Mooroolbark 270k (+122%)
Lilydale 294k (+161%)

Of these Croydon is clearly the 'best' of the above five, although the difference to the next suburb closer in is less. Unless the figures are based on a different style of property (ie very large blocks), Lilydale was poor value compared to the rest. Hence its 161% to 2004 is unlikely to be sustained and it will underperform cheaper areas closer in.

TIP CROYDON SHOULD HAVE OUTPERFORMED OTHER SUBURBS EAST OF RINGWOOD SINCE 2004. LILYDALE SHOULD HAVE UNDERPERFORMED DUE TO ITS PREVIOUS HIGH PRICE AND GROWTH SPURT.

Testing the above claims with what has actually happened over the last 3 years may add or detract from the 'close by undervalued suburb theory'.

Peter

 

[our obsession]

Unpredictable, unpredictability?

or/

Unpredictable, almost predictability..

Unless I've grabbed the wrong cat by the tail, Morabbin made it by 1% point.

Edithvale, Chelsea and Bonbeach did super well.

Ringwood, Bayswater and Boronia did technically the best, but the others are fair pumping regardless..would be delighted to have any of them in the xmas stocking.

I think what I have come to realise is just how (broadly) good a vehicle property is for wealth creation..

That is all really interesting Peter!

Thanks so much.

 

[fernfurn]

Essendon/Niddrie is a case in point. Essendon/Strathmore used to flip every 4/5 years as to which was the most desirable/expensive, Niddrie was considered a very poor suburb with no desireability, then started to come up very fast with people priced out of Essendon and is now quite expensive. Airport West (jumping the freeway) was considered very non-u but has had huge increases in the past 5 years