Themes for next few decades in Australia?

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
 
Great first post....


Do you have any views about where the baby boomer demographic will be heading ? Will they want to stay in these congested cities ?
 
great post and interesting as i had always thought the opposite when in comes to the knowledge economy. as a knowledge worker (i work in digital product development - web, apps, wearable apps, etc) i understand the importance of co-location, however am also learning that working remotely (with the right tools) can be just as effective. with the pace of development in technology such as VR my gut says we won't need to all work centrally.. just a thought on a very interesting topic.
 
Great first post....


Do you have any views about where the baby boomer demographic will be heading ? Will they want to stay in these congested cities ?

Cheers!

Regarding baby boomers, obviously it will be on a case by case basis but there might be a few themes that will emerge. It is fairly hard to find data to support this so it is just speculation, but I can see the majority of retiring baby boomers wanting to stay in the suburbs that they grew up in. They probably have lived there for a long time and have strong social reasons to stay where they are now (family, friends etc.).

They might have a house that doesn't suit their needs anymore so they will want to downsize - maybe exchange the house for a two-three bedroom unit in the same area?

Not really sure to be honest, I have a much stronger conviction around population growth and the location of population growth. These themes seem to me to be much easier to quantify and can be backed up by data and others' research.
 
Agree agree no more land available and there are always people with money that will be willing to pay premium for premium location.
 
great post and interesting as i had always thought the opposite when in comes to the knowledge economy. as a knowledge worker (i work in digital product development - web, apps, wearable apps, etc) i understand the importance of co-location, however am also learning that working remotely (with the right tools) can be just as effective. with the pace of development in technology such as VR my gut says we won't need to all work centrally.. just a thought on a very interesting topic.

I find it a fascinating subject too. If you are interested, I read a book called City Limits which goes into the topic further and has shaped a lot of my thinking.

In theory I agree that we should be able to work remotely, and it is a good theory that people will disperse and move away from the big cities over time due to quality of life/less congestion - but the numbers do not support this theory.

As I said above, the way we communicate has increasing importance. I read somewhere that 10% of communication is verbal and the rest is body language. It appears that, for the in-depth idea exchanges that need to take place in a specialised and knowledge-based economy, face-to-face communication is vital.

The effect that I can see this having on property is: high-level idea sharing taking place in the CBD -> (high-paying) jobs located in CBD -> high paid employees living close to CBD -> wealthy people live close to CBD -> increasing property prices close to CBD
 
Agree with the OP, remote working is effective for routine tasks where a person can work for long periods of time without needing regular interactions to proceed.

When a richer more iterative interaction is required nothing beats face to face. I love a quote I heard from Russel Brand when asked whether he preferred Television or Movie work. He said he preferred stand up live comedy as there is a direct connection to the audience and the information is immediate and there is little room for doubt or misunderstanding. In business direct face to face communication cuts through a lot of crap and in my experience leads to quicker more effective decision making.

In a previous career I managed teams in all states from Sydney and always found that when I was on the ground in those states I got honest direct information and good decisions could be made. I am well aware of the tools available for remote working as I am an IT veteran. Personally I only find videoconferencing et al useful for routine conversations or those conversations where there really is no practical alternative.

So I agree with the OP, even as the amount of information and communication we receive increases we still need face to face time. If it were all possible electronically why have SS meets?

Ultimately people want to live near employment nodes and services. This is not to say that suburban or regional areas won't deliver good growth or yield, but for my money I'm with the OP - long term position in areas that have good access to employment and services.

Trev
 
Does anyone have any thoughts on good places to invest in Australia over the next few decades?

First off, welcome to SS and thankyou for your very well thought out articulated first post.

In answer to your question, I believe good places to invest to be in or adjacent to mainland capital city metropolitan area "satellite cbd's".

You may like to research off the back of Australia's leading demographer Bernard Salt.

I hope this provides you some food for thought and once again welcome to the forum..
 
Great thread Impermanence and agree with your thesis and also comments from CosmicTrevor. Things are not turning out the way I thought they would 10 years ago. My view; SYD/MEL 10klm radius, house and land or stuff with high land content for the very long term. Land in the radius is irreplaceable whereas structures aren't. I am building up a cash war chest with this in mind.
 
First off, welcome to SS and thankyou for your very well thought out articulated first post.

In answer to your question, I believe good places to invest to be in or adjacent to mainland capital city metropolitan area "satellite cbd's".

You may like to research off the back of Australia's leading demographer Bernard Salt.

I hope this provides you some food for thought and once again welcome to the forum..

Thankyou :). I had planned to read up on Bernard Salt actually so I might go and check that out - thanks for the tip.

When you say "satellite CBDs" are you referring to places within cities such as Parramatta or cities just outside of the big cities?
 
Great thread Impermanence and agree with your thesis and also comments from CosmicTrevor. Things are not turning out the way I thought they would 10 years ago. My view; SYD/MEL 10klm radius, house and land or stuff with high land content for the very long term. Land in the radius is irreplaceable whereas structures aren't. I am building up a cash war chest with this in mind.

Yes I agree that Sydney and Melbourne will be the places to invest, although I am looking at Brisbane at the moment - partly because of affordability because I have just started looking at property investing and I don't have much equity or cash to put into it.

The supply side of the equation is an area where I need to do a bit of research. It seems as though land content is important, fixed supply is important and avoiding high rise, commodity-like apartments is something to steer clear of.

I plan to invest in a buyer's agent to minimise risk in this area - is this something that people would recommend? This seems like a good way to mitigate risk considering what a HUGE investment buying a property is. Spending 10k upfront would pay for itself many times over in my situation just because I don't have that knowledge/experience with negotiating and knowing what to look for.

It is good to hear that at least some people have similar views to mine!
 
Thankyou :). I had planned to read up on Bernard Salt actually so I might go and check that out - thanks for the tip.

When you say "satellite CBDs" are you referring to places within cities such as Parramatta or cities just outside of the big cities?

Yes, hubs within the metro areas...ie Parramatta being one as such.

Places with good infrastructure such as main arterial roads, public transport hubs in/out of the area, high employment , major shopping precincts, good educational medical & recreational facilities.

Land/water locked areas, not fringe area with non restrictive supply.

All things people want to be located closeby to or within easy commute of.. this induces demand and as you know when demand exceeds supply puts upward pressure on prices.

I hope this helps.
 
Great uni thesis, OP. Any real life experience?

No, I don't have any real life experience because I have just started out investing and don't have a great deal of cash or assets to my name.

However I have found with life in general it is better to do research and listen to what other people have to say and make considered moves based on your research. Seems to me like the last 20 years have been "the rising tide lifting all boats" with household debt going from 50 to 150% of DI, deregulation of financial markets, reduction in interest rates from nosebleed levels and increase in double income households.

I can see the next 20 years won't be so easy and asset selection will be crucial, therefore I am reading and researching all I can to prepare for this.

Not sure if you have any value to add/opinions to share here, or just patronising comments?
 
Seems to me like the last 20 years have been "the rising tide lifting all boats" with household debt going from 50 to 150% of DI, deregulation of financial markets, reduction in interest rates from nosebleed levels and increase in double income households.

My experience? Poeple who walk around with uni assignments about the property market sit around waiting for the market to make sense. They do nothing and loose out.

Things are never 'easy'. Wasn't easy 30 years ago when i started out.
 
Cheers!

Regarding baby boomers, obviously it will be on a case by case basis but there might be a few themes that will emerge. It is fairly hard to find data to support this so it is just speculation, but I can see the majority of retiring baby boomers wanting to stay in the suburbs that they grew up in. They probably have lived there for a long time and have strong social reasons to stay where they are now (family, friends etc.).

They might have a house that doesn't suit their needs anymore so they will want to downsize - maybe exchange the house for a two-three bedroom unit in the same area?

Not really sure to be honest, I have a much stronger conviction around population growth and the location of population growth. These themes seem to me to be much easier to quantify and can be backed up by data and others' research.

If you perform even some elementary socio-cultural research you may discover the following:

1. Given the choice, Australians will still choose to reside in locations that offer key lifestyle and environmental benefits-as opposed to the congested CBD's of capital cities.
2. Bay Boomers often choose to retire in lifestyles towns rather than remain in the cities within which they spent their working lives.

Furthermore, you discuss the notion of the fastest growing locations. You may find, however, that in percentage terms, the fastest growing locations are regional cities and towns not capital cities.

Cheers
 
Does anyone have any thoughts on good places to invest in Australia over the next few decades?

Regarding baby boomers, any land that can be turned into a caravan park or similar at a great location anywhere around Australia.;)


AND this from Delta??..

Australian agriculture will revert to being a major pillar in this country.

And the resource sector will come again dont you worry about that Perth/Bris!
 
Big themes?

* Housing retirees. The whole spectrum from independent to low care to high care. All income levels. Will there be an need (possibly forced through economics) for intermediate style accommodation (As America does with its trailer parks)?

* Housing service industry workers. Eg the coffee servers, aged care workers, cleaners, security guards, retail workers that a CBD area needs to run. Need to be within commuting distances of the big cities as these people can't telecommute.

* Age care, health, tax and immigration. Ageing of the population will cause increased demand which will need to be paid for (large parts through taxing others). Ways of doing it cheaper will be sought by governments. Labour costs is a large component of that and if there are immigrants who are willing to work for less it will be difficult to resist bringing in 'guest workers' (ie 457s but for a wider range of jobs). Immigrants will thus be looking after some who have opposed immigration for most of their lives. Trade unions will continue their decline.

* Managing social diversity - the disappearing middle. The population that supports libertarian attitudes on matters like gender, race, sexuality is increasing. So is the population who support conservative, often religiously-based attitudes (the latter due to immigration from some areas). Can we all get along and how?

* Resources, including infrastructure and energy.

* Reduced productivity of land, including that caused by salinity and climate change.

* Urban settlement. If adding a few people each year the cheapest way to do it is add people on the fringes of existing cities. Medium density development is stymied by existing residents of 'blue chip suburbs' resisting change, pushing developers to build high-rises near the CBD or houses on the fringes.

But cities have diseconomies of scale. Eg a small city needs no freeways nor railways. Larger cities have freeways and (mostly surface) suburban railways. Both the latter become inefficient for megacities and expensive tunnelling will be required. Either for metros within cities or bullet trains for interurban travel.

But longer term we are perhaps better to have 10 cities of 3 million than 3 cities of 10 million. Successful decentralisation though is rare - Gold Coast and Canberra have overtaken Hobart but none of the five mainland capitals.

The problem is what's most expedient for the shorter term and what's best for the longer term is different and most of the future is spent unpicking the errors of the former.
 
Regarding baby boomers, any land that can be turned into a caravan park or similar at a great location anywhere around Australia.;)

* Housing retirees. The whole spectrum from independent to low care to high care. All income levels. Will there be an need (possibly forced through economics) for intermediate style accommodation (As America does with its trailer parks)?

INA.AX is a vehicle for this theme.

Disclosure, long INA.AX (I am a property investor after all :))
 
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