Insights on House Value Growth
1. Is Your Intuition Correct?
Price Growth and Affordability
- Affordability Drives Demand: You're correct that more people can afford homes in the $800k range compared to $1.2M. This broader pool of potential buyers can increase competition for lower-priced homes, particularly in growing areas with expanding infrastructure or improving amenities.
- Historical Data Trends: Historically, properties in up-and-coming or suburban areas (like Ipswich) often experience higher percentage growth compared to more established and already expensive areas (like Southbank). This is because lower-priced areas have more room for price increases driven by demand, population growth, and urban sprawl.
Recent Market Dynamics
However, the doubling of house prices across the board over the past 5 years (as you mentioned) highlights:
- Broad Market Drivers: Factors like low interest rates, pandemic-driven demand, and government incentives fueled demand for properties across all price ranges.
- Expensive Areas Still Grow: While cheaper areas might grow faster in percentage terms, more expensive properties often grow substantially in absolute dollar terms. For example:
- A 25% growth on an $800k Ipswich home = $200k increase.
- A 16% growth on a $1.2M Southbank home = $192k increase.
2. Why Might Your Intuition Be Incorrect?
- Market Cycles Differ: Different areas respond differently to market cycles. Inner-city areas like Southbank might grow faster during economic booms due to demand for convenience and lifestyle, while suburban areas like Ipswich often benefit during affordability crises or periods of urban expansion.
- Supply Constraints in Expensive Areas: Established areas like Southbank often have limited supply, which can drive up prices even when affordability is lower.
- Infrastructure Development: Areas like Ipswich might not always outperform. Growth depends on how much infrastructure (e.g., transportation, schools, amenities) is planned or developed.
3. Multiple Cheaper Properties vs. One Expensive Property
Advantages of Cheaper Properties
- Higher Percentage Growth Potential: As noted, cheaper properties in growing areas often see higher percentage growth.
- Diversification: Multiple properties spread risk. If one area stagnates, others might perform well.
- Rental Yield: Cheaper properties typically have higher rental yields, which can help with cash flow.
Advantages of Expensive Properties
- Absolute Dollar Growth: Even with slower percentage growth, expensive properties may still yield significant dollar-value increases.
- Lower Maintenance Stress: Managing one property is simpler than juggling multiple.
- Prestige Locations: Properties in prime locations may hold value better during market downturns.
Other Considerations
- Loan-to-Value Ratio (LVR): Multiple properties might mean higher leverage, which could amplify gains (and losses).
- Transaction Costs: Stamp duty, legal fees, and selling costs can eat into profits when managing multiple properties.
- Taxation: Depreciation benefits and capital gains tax implications vary based on property type and strategy.
4. Where to Find Data?
To back-test your hypothesis and analyze property trends:
- CoreLogic: Offers suburb-level property price data.
- Domain and RealEstate.com.au: Provide insights into historical sales and market trends for specific areas.
- Australian Bureau of Statistics (ABS): Data on population growth and urban development.
- Local Council Plans: Look into infrastructure and rezoning developments.
Conclusion
Your intuition has merit, especially in markets driven by affordability. However, generalizing growth trends is tricky as both cheaper and more expensive properties can perform well under different market conditions. A balanced portfolio strategy—combining affordable growth areas with prime-location properties—can optimize both cash flow and capital growth potential.