What makes Australia’s regional markets the most affordable?

Metropolitan Australia, particularly Sydney and Melbourne, and regional Australia have seen tremendous growth over the past two years, leaving many Australians looking for affordable alternatives.

PRD Chief Economist Dr Diaswati Madiarsmo joined SPI Editor-in-Chief Grace Ormsby on a recent episode of the Smart Property Investment Show to discuss the Top 10 Major Affordable Regions report produced by the PRD.

The detailed report focuses heavily on properties on the East Coast of Australia due to increased pressure on affordability in this region, particularly in Queensland, NSW and Victoria, where property prices, and subsequently mortgages, have exploded in recent years.

PRD considers a region affordable if it meets five affordability parameters described and defined in the report. Rather than simply listing the local government areas (LGAs) with the cheapest housing prices in the report, the company pointed out that affordability is not only centered on price, but also on the attractiveness of housing. an LGA to live and work.

The first guideline that PRD uses to judge affordability is price. The company takes the average home loan for each state and adds a 20% down payment to that figure, with regions deemed “affordable” having to have a lower median value than their state’s average home price.

In addition, Dr. Madiarsmo highlighted the need for “affordable” regions to present strong opportunities for investors, especially as regional investor participation increases.

“We [PRD] makes sure there is positive price growth over the last 12 months, and that’s between 2020 and 2021,” she said.

Dr Madiarsmo said another key factor in deeming an area affordable was whether the selected Local Government Areas (LGAs) had a higher rental yield and lower vacancy rate than their capital city. She pointed out that an LGA in the NSW region is expected to have a higher rental yield and lower vacancy rate compared to Sydney, a scenario she described as “an investor’s dream”.

“You are able to buy something for less than the capital price, but you get a higher rental yield and also a lower vacancy rate, which is a bit like an investor’s dream, n ‘is this not ?” she says.

“You want to be able to get in at a lower price, get a higher return. And we all know that when it comes to lower vacancy rates, that means the chances of your property being rented are faster, you therefore have a much better cash flow.

Additionally, the unemployment rate of each specific LGA is an important factor used by the company to define its affordability – ensuring that the unemployment rate in the included LGAs is at or below the respective state average.

Indeed, as Dr. Madiarsmo asserts, “every time we say ‘somewhere is affordable, go there’, people say ‘well, is there a job? Will I be able to go there and live?

“That’s why the unemployment rate is so important to us because we want to promote, or we want to identify places where yes, there are jobs,” she said.

And the final metric that PRD uses to dictate the affordability of LGAs is the amount of project development, whether industrial, commercial, residential or other infrastructure, that is happening or expected to happen in those LGAs. Commercial and infrastructural developments are particularly important as they are drivers of economic growth in regional LGAs.

Summarizing the importance of unemployment and project development to the PRD, Dr Madiarsmo said that “it’s so important because it might be a coincidence that a particular suburb or council has seen double-digit growth this year, but can they start again, or will there be more growth to come?”

“That’s the part where the development of the project is so essential to tie the whole methodology together because we want to recommend, or we want to identify places where people can go, ‘Well, it’s not just a marvel at once'”, she mentioned.

The PRD’s top 10 affordable regional areas include three in Queensland: Ipswich, Toowoomba and Mackay; four in New South Wales: Tamworth, MaitlandMaitland, SA Maitland, NSW, Wagga Wagga and Shoalhaven; and three in Victoria: Ballarat, Greater Bendigo and Shepparton.

A brilliant feature of these 10 regions, Dr. Madiarsmo said, is that while they still harbor the strong sense of community that regional locations are known for, they still offer a range of services similar to metropolitan areas.

“The definition of regional is something that has really changed. Regional is more of a kind of demographic mapping term. It is a regional area. It’s not in the capital,” she said.

“It doesn’t necessarily determine what you see in those areas or what you experience, or the community you experience in those areas. If we look at Whitsunday we look at Mackay, Toowoomba, Bendigo, Wagga, there are no places you haven’t heard of before.

“To me, they’re only regional because of their geographic location, but what you actually find in those places isn’t what you’d expect regional.”

While they may be more affordable, “you are also reassured by all the restaurants, cafes, theaters, exhibition centers, entertainment centers, sports centers, all the infrastructure is there too”, a she concluded.

Listen to the full conversation with Dr Diaswati Madiarsmo here.

What makes Australia’s regional markets the most affordable?

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Last update: May 11, 2022

Posted: May 12, 2022