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Sunday, 4 December 2016



I've noted on this blog before that when I first came to Sydney before the Olympics, I worked as a courier and delivery driver near the airport in Mascot.

It was a great job for me at the time, not least because it partly involved the delivery of wine, with many of the premium vino subscribers being European itinerants on 12-month holiday visas (alas, they often had to fly home leaving no time to consume their final case). I'd never have classified myself as a wine connoisseur...and yet! 

Back then, Sydney felt much smaller and quieter - contrasting with today, the centre of the city itself was practically dead at weekends - and suburban Mascot was mostly just a commercial area with relatively little traffic during the working week, comprising warehouses for cargo and storage, a few pie/chook/cake shops and carwash cafes, Clancy's (now an IGA), a few pubs and hotels. 

In short, quite a relaxed and cruisy place to be a delivery driver, and a huge disparity with the areas surrounding London's hectic airports. 

There was some residential living in the suburb. In fact, a few of the other warehouse casuals were packed into the more dated homes with front verandas in Mascot, Kiwis and Irish mainly. 

Some of the older housing has been replaced by apartments (it wouldn't be a surprise if a few of those dated houses had burned down, a number of them were practically being used as 'hotboxes'), and swathes of the old industrial space has also been rezoned for apartment blocks.

The drive from the airport at O'Riordan Street/Botany Road towards the City is virtually unrecognisable today, such has been the extent of the redevelopment. Entire new suburbs with train stations have sprung up out of the industrial wastelands.

Inner suburbs outperform

If you're a long term investor in property over a horizon of, say, 20 years plus - and the high transaction costs often determine that you should be - then you can only have very limited control over the vagaries of the construction cycle through investing in landlocked and supply-constrained suburbs.

The preceding residential construction boom in Sydney finally peaked in 2004. This construction cycle gradually began to ramp up from a nadir for dwelling starts in Q1 2012, with apartment commencements rising virtually ever since.

At this stage in the cycle people love to talk about greedy investors pushing up prices, yet if you buy counter-cyclically vendors are practically trying to ram sales down your throat, so keen are they to get out of the market. Ups and downs, peaks and troughs. 

My basic thesis when it comes to Australian property has always been that there are certain desirable inner capital city areas, close to the beaches, employment, the city, and transport nodes, that will outperform the averages through the inevitable ups and downs of the cycles.

The specifics of those locations and property types do change a bit over time, but the principle of where pressures on land values are greatest are fairly constant. While affordability will always be a constraint to some extent, as the population grows there will be a greater demand for the geographically limited supply of desirable land close to the city. 

That's not to say outer suburbs can't do well at various points in the cycle - outer Western Sydney has seen some outlandish price gains over the past 4.5 years, for example - but the growth won't be sustainable.

Population density

The population growth in Australia has been heavily focused on four capital cities plus parts of coastal south-east Queensland, and is projected to become even more so over the coming decades.

There have always been some congested roads in Sydney (the Grand Parade has long been a shocker, for example) but only really in the last year or two that the traffic has become so much noticeably worse, with the population of the harbour city now moving beyond 5 million. 

Because I spend so much more time interstate these days, my initial experience of Sydney is often the airport and suburban Mascot - on one trip this year the taxi took more than half an hour to even escape the airport!

Experiences globally have shown that once a city reaches a population of around 5 million, logistical and liveability challenges become just that much greater. 

None of us likes sitting in traffic, of course. But the reality is with a global population of 7.5 billion rising towards an estimated 10 billion before over the next four decades, the aim in our cities should be fewer automobiles on the road, not more. China alone is now poised to surpass 300 million motorists as its urban population expands relentlessly towards 1 billion

Public transport use soars in 2015-16

The use of public transport in New South Wales as measured by passenger trips soared by a thunderous 72 million or 12 per cent over the last year to 678 million trips.

Trips by rail transport increased by 10.7 per cent to an unprecedented 363 million. Bus trips increased by 12.8 per cent to 290 million. Light rail is still in its relative infancy, but the number of trips increased by 66.7 per cent year-on-year.

Ferry trips, unsurprisingly, were unchanged, and I wouldn't expect them to increase much in future either, unless capacity is increased. 

The increased popularity of Opal Cards - which now appear to be actually working properly according to the data! - was cited by the audit office as one of the drivers of the surge of activity on public transport. 

While the incentive of more free trips is no doubt a factor, alone it clearly can't explain an extra 72 million trips on public transport! 

Obviously the real reason is that driving in Sydney is becoming less attractive over time as the city matures and becomes more densely populated, in line with other world cities.

The wrap

Studies by Grattan and others have shown that outer suburban areas struggle with access to employment within a 45 minute drive, and as such public transport hubs are growing in importance, especially rail links.

Domain recently reported that home values had doubled or almost doubled over the past decade in a number of Brisbane suburbs, most of which were within a few kilometres of the CBD, such as South Brisbane, Newmarket, Cannon Hill, Camp Hill, Balmoral, and Wilston (while large price gains in Sunnybank were obviously driven by the vast influx of Chinese capital and immigrants).

That's no surprise, as it's where desirable land is at its most scarce, and demand is highest.

Over the past year Pyrmont in Sydney has delivered another ripping 22 per cent capital growth. Surry Hills is another suburb I expect to see continuing to benefit from a combination of Chinese investment and the CBD & SE light rail project.

Prices in the eastern suburbs such as Bondi have delivered stunning returns, although Bondi Road has morphed into something akin to a car park over the last year or three, so I expect strong price pressures will steadily shift shift closer to the Junction at BJ, and later towards towards Randwick, Coogee and Maroubra as the light rail comes online.

Public transport links, particularly train and light rail links, are gradually morphing from a 'nice to have' to becoming an essential.