Why median house prices could be well over one million dollars by the end of this decade

The latest forecasts from Metropole Property Investment Strategists Research suggest to me that median house prices will be well over $1 million in every capital city at the end of this new decade, and in many cases they will be considerably more.

Now, I know this is a bold forecast but a lot can happen in 10 years. Let’s look at what happened to property values over the last 10 years:

I clearly remember the year 2000, the beginning of the last decade. While some were celebrating a new millennium, others had concerns that property values could not increase any further. At the time we were paying less than $300,000 for an average house in Sydney, $230,000 in Melbourne, $145,000 in Brisbane, $149,300 in Perth, $188,000 in Darwin, $134,000 in Adelaide, $160,000 in Canberra and $112,500 in Hobart.

Fast-forward 10 years to today and look at what we paying for the average house.

Median house prices have more than doubled in every capital city and property values have gone up more than 200% in a number of our cities. These increases have occurred despite a recession in 2001, a change in government, periods of high interest rates and the GFC.

I’m sure more Australians would have bought properties back in 2000 if they knew what would happen to values over the next 10 years.

The good news is that the fundamentals suggest the next 10 years are going to be just as good, if not better for property as the last 10 years were. We are moving into a new economic cycle with record population growth, fuelled by rising immigration and a baby boom. At the same time we need more dwellings for the same number of people because we live in smaller households. However, we have a shortage of housing, vacancy rates are low, rents are rising and the cost of new construction is escalating.

Putting all this together means that property values are once again likely to rise significantly over the next decade.

To safely steer through the next decade to the point where property values will have once again doubled, successful investors will need to disregard the “market noise” and not be intimidated by the small stuff, like interest rate increases, tax issues and the negative news in the media.

The key drivers of how our property markets are going to change will be population growth and the change in our lifestyle and housing preferences, so it’s really by analysing demographics, the study of populations, that we will understand what the future of the property markets hold for us.

These issues are going to be far more important to the “big picture” than the changes in the interest rates or the cyclical economic fluctuations that we will endure, because these relatively secondary influences won’t change the momentum of our population that is growing with its very definite housing requirements.

Our major cities of Melbourne, Sydney and Brisbane are growing at an enormous pace and are bursting at the seams. Some forecasts are suggesting that the population of Melbourne, Sydney and south east Queensland could each grow by close to 700,000 people over the next 10 years.

This will create a building boom and economic prosperity that should give investors the confidence to invest in property when they realise that we will need to build around 170,000 new dwellings each year, with a larger proportion of them being townhouses and apartments.

At the same time there will be billions of dollars worth of activity in extensions and alterations. We will also require more shopping centers, nursing homes and hospitals, as well as schools and petrol stations.

We can take the reassurance from these figures that over the next 10 years conditions in our capital cities are likely to be even better than we experienced over the last 10 years, and overall properties will increase in value by billions of dollars a year.

It becomes even more fascinating when you consider that Melbourne and Sydney will each require around 50,000 new apartments over the next 10 years. This is equivalent to 250 high-rise buildings, each accommodating 200 apartments.

Here’s a startling, yet true fact: State Planning for south east Queensland stipulates that up to 60 20-storey towers need to be built every year in Brisbane alone to accommodate the 1.5 million people projected to move to the booming region over the next 20 years.

Things will get interesting because while our community requests less urban sprawl, they also want less high rise living, so the idealistic preferences will have to give way to reality.

What this means is that it is likely we will have more decentralised development in the future with the emergence of medium to high rise residential buildings in the suburbs rather than just in the inner suburban areas. These will occur around public transport terminals, railway stations and possibly conjunction with large shopping centers.

All this sets us up for the “mother of all property booms” – where property values will keep rising until median values reach well over $1 million. But it won’t be all smooth sailing. If history repeats itself, and it surely will, during that time we will have another property boom, a further property slump and most likely another recession. That’s just the way property and economic cycles work.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.

Look out for the newly updated 3rd edition of his best selling book How to Grow a Multi-Million Dollar Property Portfolio – in your spare time.