Will the budget’s infrastructure spending help our property markets?
Friday, May 18, 2018/
A lot has been made of the federal government’s 10-year national infrastructure plan announced last week in the 2018 budget.
And as usual the hotspotters have been out saying: chase the infrastructure spending and you’ll find the next growth area.
Well, they’re not necessarily right.
In the last week I’ve heard commentators say things like, “the infrastructure spending surely has to be good for property”, or, “the new transport upgrades will open up access to outer lying areas where housing is cheaper”.
And while this sounds logical, the arguments are not necessarily correct.
In my mind too much emphasis is put on infrastructure upgrades by property pundits.
You’d think they would have learned from the past because experience has shown that this year’s infrastructure hotspot becomes next year’s not spot.
Now don’t get me wrong …
I’m pleased the government is spending on infrastructure.
The Coalition government will invest more than $75 billion in nationally significant transport infrastructure projects over the next 10 years with the aim of “busting congestion, connecting our regions, improving safety and creating jobs.”
Of course, good infrastructure is critical to the liveability of our big cities, which are straining under the burden of strong population growth (another goal of the budget).
This means we need better motorways and freeways, and improved public transport.
And building these projects will use local resources, create local jobs and leave a legacy for future generations.
That’s the good news.
But these types of infrastructure upgrades don’t really do much for property values, especially in the short term, other than engendering a little confidence.
Transport infrastructure takes a long time to complete; and while in the long term better transport helps liveability in our burgeoning cities, it doesn’t always boost local property markets.
Not all infrastructure boosts property values
For example, don’t be tempted to buy a property on a main road — in my mind it’s a real estate no-no.
Even if you wouldn’t mind living on a main road, most people would.
During good times, even secondary properties on main roads sell quickly, but when the market quietens down it’s harder to find tenants for main road properties and even harder to find buyers.
Sure, properties on main roads are cheaper, but you make your money when you buy real estate by buying a great property — not a cheap property.
A few years ago the Value Creation report also indicated Sydney homes located within 100 metres of main roads suffer up to 7.6% loss of land value, while those situated between 100 and 200 metres may only face a 0.6% reduction.
Just look what’s happened to Sydney’s light rail project
While it sounded like a good idea at the time, the lengthy delays and significant cost overruns of Sydney’s troubled light rail project to the eastern suburbs demonstrates how even the seemingly best infrastructure ideas can implode.
In the end, this project has created more headaches for government, local residents and retailers than it has solved.
On the other hand …
There’s no doubt that improvements to local infrastructure do make a difference to surrounding property values.
The quality of public amenities, recreational facilities, parks and roads can greatly influence local property values, as does proximity to a railway station.
A couple of years ago the Transit and Urban Renewal Value Creation report by Luti Consulting and Mecone Planning demonstrated that proximity to public transport enhances demand and therefore likely capital growth for residential properties, as long as you weren’t too close (800 metres) to the station.
And research showed that much the same happens in London, where properties close to Tube stations increase in value significantly.
Another benefit is that train stations and transport nodes usually have retail shops around them, increasing local amenity.
So, the lesson is to buy close to transport and train lines, but just don’t get too close!
The bottom line
The good news for property in this year’s budget is that there was no bad news.
Rather than focusing on the infrastructure spending, take heart in the positive economic forecasts for strong immigration (which will lead to demand for housing) and robust economic and jobs growth (which lead to the ability to pay for housing).