When Mike Baird announced he was resigning as Premier of New South Wales in January there was a lot of commentary around his legacy. Most of this focused on infrastructure in the state.
Contrary to his predecessor, Bob Carr, who once said Sydney was full and couldn’t cater for any more growth. Baird believed building was very important for NSW to forge ahead. He knew it was the key to facilitating further growth.
In fact, one of the reasons the former investment banker entered politics was to remedy how far the state has fallen behind in infrastructure, making it a less attractive place to live.
He says infrastructure investment is a crucial way in which state governments can not only create better services, but drive economic growth.
So after years of inaction Baird took action, funding many projects through public asset sales. Now, NSW has plenty of infrastructure both under way and planned.
Upon announcing his resignation, Baird himself said he had “unleashed an infrastructure boom in Sydney and the regions”.
Infrastructure in the pipeline
Infrastructure basically refers to the structures enabling the effective operation of a society. This includes transport and communications systems, water supply, sewers and power plants. It also includes services such as schools and hospitals, and facilities including public parks.
When it comes to property, one of the most important types of infrastructure is transport. The majority of projects in the NSW pipeline fit into this category.
While more are mooted, here’s a quick rundown of some of the projects in the current infrastructure pipeline for NSW:
- WestConnex – A 33-kilometre motorway linking Western Sydney to the airport and Port Botany.
- NorthConnex – A 9-kilometre tunnel linking the M1 Pacific Motorway at Wahroonga to the Hills M2 Motorway at West Pennant Hills.
- Sydney Metro Northwest – This is Australia’s largest public transport project. It will provide an automated rapid transit system running from Bankstown in Sydney’s southwest to Rouse Hill in the northwest.
- Light rail – Sydney’s tram network is being extended with the CBD and South East Light Rail project. There’s also a light rail project for Newcastle and a proposal for more light rail in Parramatta.
- Badgerys Creek Airport – This is a second airport for Sydney. It will be built at Badgerys Creek in the city’s west.
- Parramatta Square – An urban renewal project designed to transform Parramatta into a vibrant mixed-use hub.
- Barangaroo – A waterfront redevelopment project on the western edge of the Sydney CBD. This includes James Packer’s new Crown Casino.
Why is infrastructure needed?
Building enables cities to cope with population growth. It’s needed for citizens to have access to services and amenities, and employment.
If there isn’t adequate provision of building there can be major disruptions affecting productivity and day-to-day life, such as traffic gridlock. People will flock to areas with infrastructure, choking them up and putting pressure on existing services and amenities, while shying away from other areas.
Sydney has already experienced strong growth in population. It surpassed 5 million people last year, and there’s no sign of growth slowing. Recent projections show 6.42 million people are expected to call Sydney home in 20 years. And the NSW population is expected to hit nearly 10 million by 2036.
Infrastructure is needed to cater for this growth to prevent putting further pressure on already-stretched resources.
Since Baird left the Premier’s office and the new Premier Gladys Berejiklian has been installed there have been calls for the focus on infrastructure to continue to provide adequately for future growth.
Chris Johnson, chief executive officer of the Urban Taskforce, said: “Sydney is Australia’s global city, and as a result, it must develop into a well-connected metropolis, with additional density, housing and services located around a metro rail network. It is crucial the new Premier continue this approach to ensure Sydney’s continued success as a growing, prosperous global city with a high standard of living.”
The Urban Taskforce also stressed the importance of providing infrastructure in growing regional areas of NSW, in addition to Sydney.
Infrastructure provision isn’t just something NSW should be concerned with. All state and territory governments – and the Federal Government – should be looking to provide both new infrastructure and update existing infrastructure to ‘future proof’ their cities.
Unfortunately though, many governments – especially in the modern day, where they seem to turn over so quickly – focus only on the short term rather than looking to provide long-term infrastructure solutions.
Australia’s population is set to rise from 24 million to 30 million in 2031. So if governments are not planning for this growth now they are going to run into significant problems down the track.
How does infrastructure impact upon property?
Building is a key growth driver of property, and specifically prices and rents.
As an investor you want your property to be in close proximity to existing infrastructure so people want to live there. People want to be close to schools, major public transport routes and other amenity.
If it’s not close to existing infrastructure, you want your investment property to be in an area where major building projects are underway. That is, you buy in an area knowing there’ll be growth when the planned infrastructure is completed. This is because there will be higher demand to live in the area from both buyers and renters.
In these areas growth can actually explode, along with property prices and rents, meaning you have a great investment on your hands.
New transport projects in particular can have a huge impact on the appeal of a location.
While upgraded or new infrastructure is a great indicator of capital growth. On the other hand a lack of infrastructure can prevent an area from reaching its full potential.
Will you strike property gold after the Olympics by investing in the cities?
WITH the Rio 2016 Olympic Games having recently come to a close, it’s the perfect time to talk about whether there are opportunities for property investors in the host cities of sporting events such as the Olympics and Commonwealth Games.
On face value it seems as if the answer would absolutely be ‘yes’. Surely the high of such an event would last well into the future, spurring on the city and its economy, and in turn, pushing up housing prices?
The reality isn’t as clear-cut though. There are a multitude of factors determining whether there’s an increase in housing prices in the host city after – or perhaps even before – such an event.
What does history tell us?
It’s difficult to measure the impact of the Olympics or Commonwealth Games on a property market. While in some cases there has been a boost after the event, it’s hard to qualify what this is due to – is it a flow on from the sporting event or the result of something else?
There has been some research on what’s happened to property prices in host cities in the past, but the results aren’t exactly conclusive.
According to Goldman Sachs there’s evidence to suggest hosting the Olympics can push up local house prices. Their analysis only looked at two Summer Olympics (Los Angeles in 1984 and Atlanta in 1996) and found that the impact was felt in the few years after the event, rather than immediately.
Since their analysis was restricted to only two cities, Goldman Sachs stress it may not apply to all host cities or Olympic events as there are country and city-specific factors to take into account.
They argue that theoretically house prices should rise due to the host city experiencing a high, with optimism flowing through to the economy. It can also be due to the greater profile enjoyed by the city, with a boost to tourism and the economy, but the other major factor is the inevitable improvement in infrastructure in the host city.
Indeed, some studies suggest the biggest impact on the real estate market is felt in the host cities that are smaller and less developed, such as Athens and Barcelona. The 1992 Barcelona Olympics led to a complete revitalisation of the city, along with significantly improved transport infrastructure, which is believed to have had a direct positive impact on property prices.
In contrast, it’s argued a bigger and more developed host city, such as Sydney, which held the Olympics in 2000, is less likely to experience a boost to its property market. Outside of the gentrification of Homebush, in the vicinity of Sydney Olympic Park, the consensus is that the sporting event had little direct impact on Sydney’s real estate market, with any price rises likely due to other market factors.
Likewise, while there was a rise in Melbourne’s property prices in the two years after the city hosted the Commonwealth Games in 2006, it’s not attributed directly to the event.
As seasoned property investors know, a whole host of factors can determine whether a property market experiences a boom, and while an event like the Olympics or Commonwealth Games can have an impact, it can be overshadowed by wider economic conditions or housing supply.
Other factors such as the stability of the country can also have an impact by either encouraging or deterring investment, particularly from foreigners.
Olympic Games certainly aren’t always good news for host cities – in Montreal, for instance, things went pear-shaped in 1976, with the event costing more to run than it made and taxpayers were stuck with a bill that wasn’t paid back until 2006!
Are there opportunities on the Gold Coast?
With all this in mind, investors might be wondering whether they should consider buying on the Gold Coast ahead of the 2018 Commonwealth Games.
While research indicates that the impact on house prices seems to be evident after the event rather than in the lead up, many property professionals are claiming that the Gold Coast market is already experiencing a boom in anticipation of the Games.
It makes sense that the region will experience a boost from the event, especially since there’s an estimated $950 million in development underway to provide the necessary infrastructure and a likely $2 billion injection into the local economy.
The profile of the city has already been lifted and will continue to be in the lead up and during the event, with confidence also having been boosted.
Recent figures from PRDnationwide indicate values in suburbs around the Commonwealth Games venues already significantly rising, by an average of almost 10 per cent over 2015.
But is growth being witnessed on the Gold Coast actually due to the Games or is it simply part of the natural property cycle, with the city now bouncing back after suffering in the aftermath of the Global Financial Crisis?
We won’t know the impact until a few years after the Games of course, but investors considering buying in the region now should do their due diligence and ensure there are plenty of drivers pushing ahead growth in their chosen suburb over the long term, rather than the short term.
Certainly it’s clear the Gold Coast is growing, with predictions it will double its population to 1.2 million people by 2050, and there are a few major projects such as the light rail, providing a boost.
The city’s affordability also being a drawcard for buyers, along with an improvement in the economy, which has created jobs.
Some experts, however, believe the market will abruptly slow post the Commonwealth Games, with less activity and weaker price growth due to a desertion by investors after the event.
To buy or not to buy?
If you’re a property investor trying to capitalise on the potential in the host cities of major sporting events you’ll need to do thorough research before you buy, as with any purchase.
While it’s true that there can be a boost to real estate markets after the Games are held, there’s no guarantee, so investors should always ensure there are long-term drivers for growth in the area in which they’re purchasing.
The fundamentals need to be right – it should have a diverse and strong economy, employment, population growth (permanent, not just short-term) and infrastructure, including transport links.
While an event such as the Olympic or Commonwealth Games can provide extra incentive for purchasing in a particular city, all of the fundamentals – or most – should be there to safeguard your investment and ensure growth.