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Ben Kingsley Blog post by Ben Kingsley

Will House Prices Slow Over the Longer Term?

I read with interest an article relating to a study by the Switzerland Bank for International Settlements, which indicated that house price growth may slow by up to 30% over the next 40 years due to Australia’s ageing population.  The study highlighted that demographics factors resulting from the baby boomers pushed up Australian House Prices by about 33% from 1979 until last year, stating that when baby boomers reached working age they increase demand drivers and push up prices over this period.

The study believes that baby boomers will reduce their stock levels of housing as they head into retirement and this will have an impact on demand and therefore prices, which on a large scale across Australia I believe may actually have a price impact, but once again don’t believe this will be the case in all areas.  (More about this shortly).

However, the study noted it does not project a house price crash due to demographic factors alone, which I too support.  Interesting when they related similar demographic factors in old markets such as the UK, house prices have actually risen strongly despite the lack of such demographic support……..interesting, and supports my view that it’s not just demographics that solely drives values.

As a property advisor, I often get asked about sea change and tree change areas.  The logic of these questions are based around the idea that retirees will drive demand in these locations.  This will be true for about the next 20 years, but after that it’s unsure of what will be the demand drivers, and hence in a very general sense I’m not a big believer in most locations that are retirement centres.

Furthermore the idea of buying in these locations are based more on the romance of having an investment for now and a holiday house for those future tomorrows.  In short, this types of decisions are driven by lifestyle and not investment performance, so if that’s what you want to do, great – if not, I steer my clients more towards large employment centres – i.e. Cities.

As cities expand the value drivers are focused on available or lack of it, re: land.  The closer you get to a major city the higher the land value is as time poor, high income earning people seek out lifestyle locations that will accommodate them and as the trend is a global one, they will pay a premium to live in these locations, given the limited supply for all those people looking to get into this market. So I’m not too concerned about well located property and its performance over the next 40 years as it provides for my retirement income and wealth.

Finally, in support of my theory and beliefs, most retirees are most likely also keen to have a city base so they can come be close to the grandchildren as well.

Remember, knowledge is empowering!

 

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