Does anyone have any thoughts on good places to invest in Australia over the next few decades? I have a few themes that I plan to keep in mind when investing in property, it would be nice to hear others' opinions on this as well.
I'm not really a fan of finding the next "hotspot" as a way to invest in property because I see it as a very long term investment, as a result I prefer to concentrate on the slow-moving and reliable beasts of demographics and other long-term trends.
On the demand side of the equation, a couple of important things to consider (for me) are:
Population Growth
The population is increasing in Australia at the fastest rate in all OECD countries at 1.7% per annum, I think this will underpin property prices in Australia. The population has been growing at 300-400,000 per annum over the last few years, and is something that can be expected to continue.
The components of population growth are interesting to me: natural increase has been fairly steady at ~150,000 per annum, but net overseas migration (NOM) has been increasing rapidly and is forecast to continue - it reached ~225k last year.
Regarding NOM, the Government has been understating population growth for years: in the Intergenerational Report (IGR) released in 2002, NOM was forecast at ~90k; in 2007, this was revised up to ~110k - it is now being forecast at ~215k until 2019 (& for the next 30 years).
I believe this is understating the NOM figure materially, because as the IGR itself stated: "Lower NOM will lead to:
- lower economic growth
- an ageing population and
- lower participation rates and therefore a lower tax base."
Therefore, as the Government have stated themselves, it is in their interests to keep NOM high to guard against the wave of baby boomers entering retirement and straining the welfare system.
The structure of the Australian population receives a lot of attention but I don't understand why the size of the population doesn't receive more attention - because this will have huge impacts on society over the next few decades.
It seems that the above increase in NOM is politically unpalatable to the voting public, so the Government would prefer to sweep it under the rug for now and have someone else deal with the consequences.
Given these (fairly conservative) predictions, we can expect to have an additional 13 million people living in Australia in the next 30 years - a not insignificant amount when you sit down and think about it. The overwhelming majority of this 13 million will gravitate towards living in the capital cities of Australia.
Where are people living
The Australian economy has had three big themes over the last century:
- An economy dominated by agriculture in the early 1900s
- Manufacturing economy in the 1960s
- Knowledge economy of today
The cities of today are configured around the economies of yesteryear, where people lived and worked in the suburbs. In the 1960s 1 out of every 3 people worked in the manufacturing sector and the majority of manufacturing jobs were located in the suburbs because land was cheapest out there.
These days, however, the economy is becoming far more physically centralised, and access to the CBD will be paramount. The Grattan Institute have shown that CBDs are the hubs of employment growth in knowledge-based economies. The benefits come from:
- employers having a deeper pool of talent to access employees from
- employees having greater prospects of employment and finding a job that suits their skills more precisely.
This has created a symbiotic relationship and I see capital cities becoming self-sustaining employment hubs over the next decades. The RBA and the Grattan Institute have presented pretty compelling evidence that GDP per capita is strongest in the CBDs. This can be contrasted with working class suburbs where the population does not have access to a wide range of jobs; income can be expected to stagnate there as a result over the coming decades.
People have been theorising that more people will telecommute and live in a far more decentralised way, and have been investing in regional areas based on this premise. However the numbers and all research have shown that this is absolutely not the case and the vast majority of population growth is occurring in the capital cities.
This appears to be due to the fact that people want to live close to where they work, and the economy is increasing far more rapidly in the capital cities as opposed to regional areas. In turn, the economy is growing faster in the capital cities due to the complexity of the world we live in today - communicating with other workers is vital in the specialised jobs we have today.
Workers are able to express ideas much more clearly in person as opposed to email, teleconference, SMS etc. We are living in a complex world and jobs are becoming much more knowledge-based and specialised. It is becoming vital for workers to communicate their ideas with other specialised employees, share knowledge and build on others' ideas.
An important facet of communication is non-verbal: eye contact, body language, gauging peoples' reactions, interjecting to expand on someones' idea/take the conversation in a different direction - these are forms of communication that cannot be achieved effectively via distance, and they are becoming more and more vital in today's economy.
I won't go on into any further detail for now, but my view over the next few decades is that:
- Cities will become far more congested
- Majority of population growth will be within 5-10kms of the CBDs and fan out from there
- Population will increase greatly
- Wealthy people who have rising incomes and diverse sources of income (business, interest, dividends, rent etc.) will work in the CBD and live close to the CBD
I plan to invest on these expectations. This will mean investing in areas within an easily commutable distance to the CBD which will become highly sought after in the next few decades. It would be interesting to hear any other opinions on the topic and themes you expect to see in Australia over the next few decades.
Cheers
I'm not really a fan of finding the next "hotspot" as a way to invest in property because I see it as a very long term investment, as a result I prefer to concentrate on the slow-moving and reliable beasts of demographics and other long-term trends.
On the demand side of the equation, a couple of important things to consider (for me) are:
Population Growth
The population is increasing in Australia at the fastest rate in all OECD countries at 1.7% per annum, I think this will underpin property prices in Australia. The population has been growing at 300-400,000 per annum over the last few years, and is something that can be expected to continue.
The components of population growth are interesting to me: natural increase has been fairly steady at ~150,000 per annum, but net overseas migration (NOM) has been increasing rapidly and is forecast to continue - it reached ~225k last year.
Regarding NOM, the Government has been understating population growth for years: in the Intergenerational Report (IGR) released in 2002, NOM was forecast at ~90k; in 2007, this was revised up to ~110k - it is now being forecast at ~215k until 2019 (& for the next 30 years).
I believe this is understating the NOM figure materially, because as the IGR itself stated: "Lower NOM will lead to:
- lower economic growth
- an ageing population and
- lower participation rates and therefore a lower tax base."
Therefore, as the Government have stated themselves, it is in their interests to keep NOM high to guard against the wave of baby boomers entering retirement and straining the welfare system.
The structure of the Australian population receives a lot of attention but I don't understand why the size of the population doesn't receive more attention - because this will have huge impacts on society over the next few decades.
It seems that the above increase in NOM is politically unpalatable to the voting public, so the Government would prefer to sweep it under the rug for now and have someone else deal with the consequences.
Given these (fairly conservative) predictions, we can expect to have an additional 13 million people living in Australia in the next 30 years - a not insignificant amount when you sit down and think about it. The overwhelming majority of this 13 million will gravitate towards living in the capital cities of Australia.
Where are people living
The Australian economy has had three big themes over the last century:
- An economy dominated by agriculture in the early 1900s
- Manufacturing economy in the 1960s
- Knowledge economy of today
The cities of today are configured around the economies of yesteryear, where people lived and worked in the suburbs. In the 1960s 1 out of every 3 people worked in the manufacturing sector and the majority of manufacturing jobs were located in the suburbs because land was cheapest out there.
These days, however, the economy is becoming far more physically centralised, and access to the CBD will be paramount. The Grattan Institute have shown that CBDs are the hubs of employment growth in knowledge-based economies. The benefits come from:
- employers having a deeper pool of talent to access employees from
- employees having greater prospects of employment and finding a job that suits their skills more precisely.
This has created a symbiotic relationship and I see capital cities becoming self-sustaining employment hubs over the next decades. The RBA and the Grattan Institute have presented pretty compelling evidence that GDP per capita is strongest in the CBDs. This can be contrasted with working class suburbs where the population does not have access to a wide range of jobs; income can be expected to stagnate there as a result over the coming decades.
People have been theorising that more people will telecommute and live in a far more decentralised way, and have been investing in regional areas based on this premise. However the numbers and all research have shown that this is absolutely not the case and the vast majority of population growth is occurring in the capital cities.
This appears to be due to the fact that people want to live close to where they work, and the economy is increasing far more rapidly in the capital cities as opposed to regional areas. In turn, the economy is growing faster in the capital cities due to the complexity of the world we live in today - communicating with other workers is vital in the specialised jobs we have today.
Workers are able to express ideas much more clearly in person as opposed to email, teleconference, SMS etc. We are living in a complex world and jobs are becoming much more knowledge-based and specialised. It is becoming vital for workers to communicate their ideas with other specialised employees, share knowledge and build on others' ideas.
An important facet of communication is non-verbal: eye contact, body language, gauging peoples' reactions, interjecting to expand on someones' idea/take the conversation in a different direction - these are forms of communication that cannot be achieved effectively via distance, and they are becoming more and more vital in today's economy.
I won't go on into any further detail for now, but my view over the next few decades is that:
- Cities will become far more congested
- Majority of population growth will be within 5-10kms of the CBDs and fan out from there
- Population will increase greatly
- Wealthy people who have rising incomes and diverse sources of income (business, interest, dividends, rent etc.) will work in the CBD and live close to the CBD
I plan to invest on these expectations. This will mean investing in areas within an easily commutable distance to the CBD which will become highly sought after in the next few decades. It would be interesting to hear any other opinions on the topic and themes you expect to see in Australia over the next few decades.
Cheers