Welcome to Finance and Fury, 

Back from Holidays – spent some time in the USA –

Got me thinking about differences in property and their pricing – seeing property prices vary differently state to state – city to city – want to do a Series on property and its prices – Today – How can you tell that property prices will be high in a city?

What are the measurements/characteristics on a country/city can be used to determine if property prices in cities are going to be high?

This topic will take a few episodes to tackle properly – but in a quick summary

  1. Tell tale characteristic to be able to tell if property prices are high –
    1. Urbanisation levels versus available credit (cash people have access to from savings or lending/mortgages of the population) –
      1. Concentration of people (higher demand with population levels) and the limited supply available when people are concentrated in living space
      2. In Aus – we will go state by state – state pop, compared to largest city – we are fairly urbanised
      3. But more importantly – it is the Borrowed funds by the population – household debt to GDP
        1. In conjunction with the urbanised population – higher the amount people can borrow or put towards property – higher the prices will be
    2. Regulations – aims which increases the incentive for higher urbanisation
      1. How – Town planning – the restriction of supply of available developments
      2. Another Monday ep – Why – the wealth effect and easy to enforce regulations – why planners like concentration of property – for higher price growth over time as population grows and supply doesn’t meet it

 

What is urbanisation – method of measurement?

Urbanisation – Could also say demographic trends of living

  1. Urbanisation is the increase in the proportion of people living in cities
    1. Historically – come from rural migration
    2. Urbanisation occurs because people move from rural areas (countryside) to urban areas (towns and cities) – Often a stage/occurrence of a country that is still developing
    3. However – in developed countries, it is reflected in the breakdown of population living in cities versus rural growing
  2. Urbanisation rapidly spread across the Western world from the turn of the century – peaked in the 1950s and hasn’t gone back –
    1. But now it has begun to take hold in the developing world as well
    2. turn of the 20th century, just 15% of the world population lived in cities –
    3. But in 2007 – was the turning point when more than 50% of the world population were living in cities
      1. the first time in human history this has occurred – and with-it growing property prices
    4. Australia – in the early 1900s – around 40% lived in cities – Today – about 75% – almost doubled
  3. Causes – Cover further in next episode
    1. Urbanisation occurs either organically or planned as a result of individual, collective and state action. Living in a city can be culturally and economically beneficial since it can provide greater opportunities for access to the labour market, better education, housing, and safety conditions, and reduce the time and expense of commuting and transportation.
    2. However, there are also negative social phenomena that arise, alienation, stress, increased cost of living, and mass marginalization that are connected to an urban way of living.

Global Trend –

  1. Where available housing is allowed
  2. Where available work is
  3. Specifically – Developed Nations – Where immigration occurs from Overseas
    1. Sydney, California, Vancouver – high levels of demand
  4. Thanks to regulations and town planning – limits infrastructure and sprawl of the population
    1. No incentive for companies to go to rural areas – no incentive for developers to develop rurally
  5. For property prices – number of cities available to live in – the demand versus populations ability to borrow funds to throw more money at a property – these two factors then increase the competition and with it, property price growth

 

Measurements of Urbanisation –

  1. Number of people living in cities versus rural areas
    1. Shift over time – more people moving into the cities for opportunities

Australian cities and states

– Urbanisation levels of just the major cities versus the whole state

  1. NSW to Sydney – 7.5m to Syd is 5.23m – 70%
  2. VIC to Melb – 6.4m to Melb 5m – 78%
  3. QLD to Bris – 5m to Bris 2.3m – 46%
  4. WA to Perth – 2.6m to Perth 2m – 77%
  5. Tas to Hobart – 550k to 200k – 36%
  6. NT and Darwin – 210k to 130k – 61%

Whist Travelling in the USA

Was in NY – Colorado (Denver and Steamboat) – San Fran/California

  1. LA County – 10.2m, San Fran bay area – 7.5m – the whole CA pop is about 40m people – 45% of whole state lives in two cities –
    1. LA county is 12,305km2 – Sydney is the same area size but accounts for 70% of the state’s population –
    2. Average price is about $630k USD – Convert to AUD and it is $920k – pretty much exactly what Sydney’s prices are
  2. New York
  3. Steamboat – shows a good example of legislation
    1. Small ski town – 12,000 people in around 30km squared
    2. The median price of homes currently listed in Steamboat Springs is $749,750
    3. Costs of living scale – Aspen, Vail, then Steamboat – all small ski towns – but have highest property prices in the state of Colorado – why? Regulations/town planning limit number of properties
    4. Plus – Demand from wealthy –
  4. The amount of money the population has (from borrowed or not) will increase the property prices

In summary –

  1. Urbanisation limits the available supply of property –
  2. Amount people can borrow
  3. But also – regulations – what policies

Cover these in detail over the next few Monday episodes. Next ep – tie it into looking at “will property prices keep growing”

Thanks for listening today, if you want to get in contact you can here: http://financeandfury.com.au/contact/

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