Infrastructure Influence on Property Markets

‘Infrastructure’ and ‘population’ have always been the two biggest jazz words in property market parlance. Both are on the demand side of the real estate value equation.

In certain situations, both factors can become game-changers for the property market of select locations although, generally speaking, the influence of population growth and infrastructure projects are grossly misunderstood.

Over the years, I have produced an abundance of evidence that proves the overstated influence of population growth on real estate performance.

The enormous national property boom during the pandemic years, at a time when national population growth was non-existent and our biggest cities were in decline, is another piece of compelling proof that ‘housing demand’ and ‘capital growth’ is only marginally influenced by population growth.

The influence of infrastructure projects is also often overstated by property investors and real estate commentators. That’s not to say that investment into infrastructure is not important.

While shopping centres, road upgrades and investment into public transport are important for growing communities, the influence which infrastructure projects like these has on property market performance is akin to a drop of beer on a brewery floor.

In isolation, and contrary to what some people believe, individual suburbs do not experience property booms. A suburb is just a small collection of properties within an imaginary line on a map.

Related article: How to unblock Australian housing

It is true that select pockets within individual cities perform a little better (or worse) than the city ‘average’, but every pocket is directly linked to the property market performance of the city broadly.

And, while the numerous factors which influence property markets is like a big jigsaw puzzle, the single most important factor for real estate performance of an individual city / town is its local economy.

The significance of an infrastructure project to a property market is determined by its impact on the city’s local economy.

Each city/town has infrastructure projects under construction every single year, but it is rare for any city to experience any more than one property boom per decade.

The contribution which an infrastructure project makes to an individual city/town’s economy can be measured in four (4) key areas:

Volume of jobs created from constructing the project, relative to the broader city’s total jobs:

• There are many cases when a large portion of construction jobs from one project are merely ‘recycled’ workers from another recently completed project,
• A $280 million project to develop a world-class university in a regional township with a population of 70,000 people will generally have a significantly bigger impact on its economy than a $5 billion rail project in a city with 5 million people.

Jobs created post-construction:

• There are negligible jobs once the construction of a $1.5 billion road infrastructure project is completed, whereas completion of a $550 million hospital project may create 300 new jobs for doctors, nurses and administration staff.

The extra revenue filtering through the local economy as a result of the completed infrastructure investment:

• Infrastructure projects which significantly improve access (such as airport infrastructure projects) and projects that are likely to attract a consistent inflow of visitors (such as the world class MONA in Hobart) can be serious game-changers.

How an infrastructure project affects local sentiment and community connections:

• While they tend to only be developed within individual townships once every (say) 20-years, major investments into sporting infrastructure and stadiums possibly have the biggest impact of all infrastructure projects. The numerous direct and indirect benefits to communities along with a national list of major sport projects is contained here.

Propertyology’s daily activities for researching property investment opportunities in every location across Australia includes, but is not limited to, scrutinising infrastructure projects.

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Australia’s federal and state governments have consistently invested a combined $30 billion per year on infrastructure projects, while the private sector typically spends between $45 and $100 billion per year.

Transport and energy-related projects consistently receive the biggest piece of the infrastructure purse. Health and recreation are also major beneficiaries.

With close to 2 million extra people expected to be added to Australia’s population over the next 5-years, the nation depends heavily on infrastructure investment.

Some state governments are managing their finances better than others in this regard.

There are literally hundreds of infrastructure projects slated for development across Australia.

For their medium-term impact on local conditions, below are eight (8) infrastructure projects that I believe will have a significant influence on their respective property markets.

1. Inland Rail Project across pockets of regional Victoria, New South Wales and Victoria ($30 billion),
2. Townsville’s Copper String energy project ($5 billion),
3. Hobart’s Macquarie Point stadium ($0.8 billion),
4. Brisbane’s Queens Wharf Entertainment Precinct ($3.6 billion),
5. Adelaide’s Lot 14 innovation precinct for a national space agency, technology and research hub ($2 billion),
6. Kingscliff’s hospital ($0.7 billion),
7. Western Sydney’s airport ($5.3 billion),
8. Albury-Wodonga’s hospital ($0.6 billion)

Australia is such a large and diverse country consisting of just 8 capital cities and 400 regional cities/towns. Below is a small sample of locations to whet the appetite of property investors.

Bendigo VIC property market

Bundaberg QLD property market

Busselton WA property market

Darwin NT property market

Geelong VIC property market

Gold Coast QLD property market

Launceston TAS property market

Mildura VIC property market

Melbourne VIC property market

Northern Rivers NSW property market

Orange NSW property market

Perth WA property market

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