Good Schools and Amenities DON’T Create Capital Growth! SHOCKING RESULT!

We are so often told that if we want the best capital growth our property needs to be close to amenities. Good school, train stations and shopping centers or other public transport are often touted as key indicators of future growth.

But what does the data actually say about the affect of amenities on the capital growth of a suburb? The results from this one are extremely surprising.

Read this article:

Select Residential Property

DSR Data

0:00 – Introduction
1:40 – Key idea: Price has already factored in existing amenities, which does NOT lead to more growth
4:00 – How expansion of Brisbane airport affected prices short and long term
4:45 – Do train stations affect capital growth
7:55 – Be careful of starting and ending points of statistics
8:30 – Do school affect capital growth
11:00 – How do beaches affect capital growth
12:55 – How does proximity to shops affect capital growth
13:58 – How does walkscore affect capital growth?
21:24 – What do we do with this data?
26:04 – Price variability over time

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Property Data Dive Series

Transcription

Ryan 0:00
We’re often told that when you’re buying a property to get the best capital growth, the best return on investment, you want to look for properties that are close to amenities close to really good schools, close to shops and shopping centers, close to public transport. How many times have you heard people say, you know, this is a great suburb because it’s got all of these factors in it. But as an investor, what we care about is the return on our investment, how much is that property going to grow? How is it going to perform? And so is this actually important? And today, I’ve got with me, Jeremy Shepherd from select residential property to actually dive through the data on this one, yes, it makes logical sense that we want these amenities there. But does the data actually back up this idea that this is going to lead to higher than average capital growth? So I’m excited for this on Hey, Jeremy, how I

Jeremy 0:50
can hire Ryan, Manuel, how are you?

Ryan 0:52
Yes, very good. I’m looking to buy a property in the very near future. And this is obviously something that I’m thinking about and considering when looking at suburbs is to say, okay, what’s the suburb? Like? What are the schools like in the suburbs? have close to the shops have close to the transport, basically, trying to get an idea of, you know, why would people want to live here? And will they want to live here in the future? And does it have those desirable things, but I’m thinking you’re going to tell me something different given? You’ve done the data analysis, and there’s an article on this?

Jeremy 1:26
Yeah, good, good guess. Yeah, look, it’s not a complete waste of time researching this sort of stuff. But there’s, there’s a very clear caveat to it. It’s not automatic, that if you’re buying in a suburb with good schools, shops, transport, all those amenities, that you’re going to get above average capital growth. The key is whether that amenity is new or old. So the whole principle here is that if the suburb has all these great amenities, then it should be that properties in that suburb are very expensive, because this is a desirable place to live. But the price has already factored in the benefit of those amenities being there. Let’s say for example, you get a new train station that comes into the suburb, what’s going to happen is the suburb is now more desirable, people start paying more to have that, that benefit of being within say, walking distances, TradeStation. But after a few years, once it’s factored into the price of properties in that suburb From then on, it’s just it’s business as usual, the capital growth carries on pretty much the same as any other suburb. So it’s always a short term thing. And I did some research to look into some of these, these things like, like transport? Well, let’s

Ryan 2:49
have a look. Let’s type people through the data and see what the data says from from what I’m hearing about, what you’re saying is that, like we talked about in a previous video on public housing, is that if something negative comes into us other, like you mentioned, a sewage treatment plant, or if a new airport gets built, and there’s planes flying over, then that’s other can be reduced in value, or the growth can be slowed over the next multiple years, maybe three years, maybe five years. But then you’re saying what happens is eventually, that eyesore or that issue is factored into the pricing. And then that suburb is just going to grow in line with basically the surrounding area. And I guess what you’re saying here is that the opposite is true is that if you’ve got a suburb that doesn’t have amenities, if you add those amenities, making the suburb more desirable that lifts the price in the short term, you know, maybe three to five year mark, I’m not sure. But then once that’s lifted, that’s because those amenities are factored in. And then yeah, so that is just kind of business as usual, the suburb would likely grow in line with kind of surrounding suburbs

Jeremy 3:55
and the region. Yeah, exactly. And that one, you mentioned with the airport there, I think you’re referring to the study that Queensland University of Technology did on the expansion of the Brisbane Airport to become an international airport in the 80s. And they wanted to see how the new flight path would affect the growth in properties of suburbs affected that is sitting under that flight path. And they found that that had deteriorated capital growth over a period of about four years. And from then on, it was it was business as usual. In fact, they actually caught up to many of the other surrounding suburbs in Brisbane. So it showed that a negative amenity influenced capital growth, but only for a short time. Yeah. And what I’ve done here is I’ve had a look at train stations in Sydney and I wanted to see a suburbs that are on the train line within walking distance over the train station. Excuse me. Are they have they outperformed over the long term is simply being near a train station. A good deal? Yeah. This chart shows the green line is the performance of suburbs that are not near a train station non non train station suburbs. And you can see that they have been pretty much neck and neck with station suburbs over the last 30 years from 1990. Now I did this analysis towards the end of 2018. So that’s why it chops off there. But you can see there’s there’s nothing in that that’s a very significant period of time, if there was to be a performance benefit of being near TradeStation, you would see something significantly different than what we’re looking at, right here.

Ryan 5:39
Well, that there was a performance difference over the long term, you would see these lines start to separate and diverged from each other over time, and you would expect the station line to be higher than the non station suburbs. And so you know, what we’re seeing is they’re tracking very closely together, sometimes they’re touching each other, sometimes the non station is above, then they touch each other again. So it’s very neck and neck right up to, you know, 2018 over there. What’s that a 30 year period, nearly

Jeremy 6:08
20 years, 30 years here, roughly 30 years. And I did the same thing with Melbourne. And there is actually that divergence that you’re talking about here. But it’s it’s not a huge divergence, for starters. But this, this chart would tend to suggest that there might be something in it because of that divergence. So So what we’ve got at this stage is we’ve looked at two cities, two largest cities. And in one case, it does look like there’s nothing in it. And then the next case, it looks like there might be something small in it over 30 years to have a gap of around about I think that’s $200,000. That’s, that’s not really significant. But there is an argument there

Ryan 6:46
is a decent gap. If you’re investing in something for the long term, you’d rather be $200,000 richer. That’s wrong. Oh, yeah. But I can see so someone just looked at this Melbourne statistic, they would just say, Okay, yeah, being your train station means you got a better chance of getting a return.

Jeremy 7:02
Yeah, so I thought it’s, it’s one for one again, so I’ll look at Brisbane. And although it looks like there’s a divergence there, what’s actually happening and and people get confused about this, when they’re looking at these sort of compound growth type charts, particularly over a long period, like 30 years, you’ll notice that throughout the history, they were they were neck and neck. And there were times when station suburbs would get ahead of non station suburbs. But then there’d be a catch up. And I suspect that there’s another catch up probably probably just here at the right hand side of the chart. So I don’t right that that gap there is meaning anything. So at this stage, there’s nothing really conclusive about train stations outperforming

Ryan 7:51
the cutoff period is super important. And this is something that I’ve learned for you is that you can prove any point in property that this creates more growth than this, if you choose the right starting point and the right kind of point. And then you can make them look amazing and prove your point. But if you choose a different point, you know, you can make the opposite to be true with the graph as well, if you just choose different starting points and different ending points. So that’s something people really need to consider when looking at statistics like this. Yeah, so

Jeremy 8:21
at this stage, I would say that it’s inconclusive. But But let’s keep going. The next thing I looked at was schools. So try size is just one amenity. Melbourne is known for its its fine schools. So this is a similar sort of plot. The green line is the suburbs that don’t have well known schools and the purple is the suburbs to do. And I’ve seen loads and loads of reports, where they have said that properties within the school catchment zone are selling at a premium something as high as 20% for just being across the road. But that’s that’s just a premium that’s not capital growth. What we want to know is over a period of time, are we outperforming or is it just the same as being in a cheaper suburb that’s not in that school zone. And you can see there that over a very long period of time 30 years there is no advantage from a capital growth perspective of being in a good school suburb even if you have to fork out an extra $200,000 to buy in one.

Ryan 9:28
Yeah, well as what you’re saying is that the schools zoning and all of that is already factored into prices. So when someone says buy in a suburb that zone for a good school that’s already factored into the prices and so will overtime probably not the only time was if catchment changes and previous catchment that was for bad school now becomes catchment for a good school. That little pocket may shoot up in value in the short term.

Jeremy 10:00
That’s right. Another case would be where I mean, I’m assuming here that this is good schools, apparently good schools were good schools a couple of decades ago. If the reputation of a school changes over time, then there might be an increase in in capital growth. So now what you’re trying to do is forecast how schools are going to perform how their reputations going to improve. So you can’t just simply say, this is a good school. So this is a good suburb to invest in, you’ve got to know whether that school’s reputation is going to improve in the future. That’s one one possible possible argument. All right. So that’s schools. Oh, and also just, I’m just pointing out here that if you were only looking at a five year period, this is going back to what you said a minute ago, if you only had five years of historical data, which is in the red rectangle there. You might assume that that school school suburbs do outperform but if you look at 30 years, you can see that there’s there’s nothing in it. Yeah. Okay, next next amenity is, beaches.

Ryan 11:04
This is one that I’m really interested in. I wanted to buy near the beaches is probably not going to suit my investment strategy at the moment the beaches in the north end of Brisbane, so I’m probably not going to buy there, but I was really bummed that I wasn’t buying the the beach I live near the beach. I love the beach from a lifestyle perspective. But I was very curious as to from a property perspective. How does it perform when suburbs are near the beach on the beach?

Jeremy 11:28
Yeah, well, you know, the beach has always been there. So it’s not a new amenity. And so you can see that this, these two curves are very close to one another. But as you were saying, in another video in the start of a boom where expensive property markets sort of lead the growth. in Sydney, those are beachside suburbs are many of them are beachside suburbs. So you can see that the purple line tends to get away from the green line, and then the green line catches up. So exclusive suburbs on the beaches may outperform for a period of time. But eventually they’re become overpriced. And the green ones non beach suburbs catch up. And so you can see that over over a good 30 year period. So beaches, great amenity great lifestyle, but not so great for capital growth.

Ryan 12:22
Yeah. And again, it’s because it’s already factored into the price. Right? The Beach was already there. It was there. 10 years ago, it was there. 50 years ago. 50 years?

Jeremy 12:34
Yeah, so maybe, maybe there’s some incredible global warming and the ocean levels rise, you might lose a beach. But yeah, it’s unlikely gonna gain one. Yeah. All right, unless you’re the suburb back further, somebody’s

Ryan 12:49
suburb back and pick up a beach. And now this way.

Jeremy 12:55
shops, proximity to shops is another one. And this one of the I think was Australia wide. So I’m looking at the 50 largest shopping centers. And again, you can see that there’s a crossover in in the history, sometimes the green line is above the purple, and then it swaps. Now this, again, is assuming that the the popular shopping centers of today. We’re also popular 30 years ago now that that might not be the case, but I don’t have any data dating back 30 years. And so I was looking at the size or the number of shops in order to pick these these suburbs out. But there isn’t anything in that chart to suggest that being close to least major shopping centers is of any help to capital

Ryan 13:46
growth. Okay, yeah. schools with D bound train stations or D banked beaches and D route shopping centers, shops.

Jeremy 13:54
Alright, so what’s left. Those who aren’t familiar with the Walk Score, the Walk Score is is taking into consideration all the amenities within walking distance of a particular property. And you can get walk scores based on the suburb which is just an accumulation or a combined score for the amenities in a suburb. Now, the problem with this is that walk scores are a fairly recent thing. I contacted walkscore wanting to get historical data and I couldn’t get much prior to 2014. So we’ve only got a short period of time that we can analyze this. But what you see there in those 10 bars on the far left are the highest decile of walkscore. And on the far right, is the lowest decile, meaning it would be

Ryan 14:48
the suburbs that are extremely walkable. So you’re talking about like CBD suburbs. Yes. Where you can walk to almost everything. Everything’s open late, you know, and then the number 10 would A everything’s a track.

Jeremy 15:02
That’s right, yeah, you must have a car to get where you want to go. And you can say there’s no real clear trend there. And there’s there’s, it’s hard to argue the case that the Walk Score is the domain It is useful. What might help is if we look at change in amenities over time, that might be more useful than just the current walkscore. So there’s plenty of people that look at the walkscore, trying to see whether this suburb has better capital growth potential. But But so far, there isn’t an indication of that. And yet there have been loads of reports. walkscore is actually it’s not just in Australia, it’s in Canada, the USA. So it’s, it’s been well examined. And you can easily see that there is a premium paid for properties in areas where the water is very high. But once again, that’s just a premium that doesn’t translate to superior capital growth. And that’s what we’re after, as investors. So what I did was looked at some of the walk scores. Actually, if I got these round right now, the first decile is, the higher the Walk Score. So this one shows a, a, what I’d call a counter correlation between high Walk Score and high capital growth, bear in mind, it’s only over five years. So the the suburbs that have the least amenities have had the best capital growth over that period of time. So walkscore wouldn’t have helped you. In in Melbourne, back in 2014.

Ryan 16:45
What I learnt from you is Be very, very careful trying to make any assumptions based off five years of data. Yeah,

Jeremy 16:53
yeah, that’s it’s certainly not

Ryan 16:55
in the property market to get a clear idea of what’s going on, because it can just be a certain market timing certain growth periods over that time can really exact things.

Jeremy 17:05
And so what what we might be seeing here in Melbourne, is that the outer areas were going through their growth cycle at this stage, whilst perhaps the end areas weren’t I mean, that’s one one way you could argue away the Walk Score, but certainly, it’s not helping you right now. And Brisbane, it wouldn’t have helped you it there either.

Ryan 17:29
Yeah, well, because Brisbane, if we scroll back up with the first SRL of the walkscore, would probably be, you know, around Brisbane, CBD. And Brisbane had that big influx of units and a lot of stagnation around unit prices. Right? Yes, yeah, period. And so that could affect

Jeremy 17:47
that could explain this year. And that’s a good point about the five year period. Unfortunately, we don’t have historical data for walk scores dating back prior to 2014. Yeah. And this one is a little bit of a peculiar one, because remember, Perth was having negative growth over this period of time. So over that five year period, Perth was was heading into negative territory. So although this looks like you’ve got the Walk Score, showing the same thing as the previous chart, actually, in this case, in Perth, you would have been better off having suburbs with higher walk scores that’s on the left, because you had less negative growth.

Ryan 18:33
We’re in the negatives here, we’re not in

Jeremy 18:36
the negative sets for

Ryan 18:37
less loss in the high Walk Score. So if you got a good watch, right and lose as much money, if you have a bad Walk Score, then you’re losing more money.

Jeremy 18:46
So this chart actually supports the concept of being closer to amenities. Yeah, but it’s, that’s that’s the only one. And then,

Ryan 18:55
again, we’re looking at five years and like we’ve got multiple charts showing multiple different things so that I was right, I wouldn’t personally rely on this data, or walkscore. That’s the header of growth.

Jeremy 19:09
Yep. And one more I mentioned this, this airport thing. So he’s Sydney Airport, compared to other suburbs. And again, you can see there’s, there’s a crossover of the lines over that 30 year history. And there isn’t the very clear divergence that we should be seeing if suburbs closer to the airport where we’re outperforming those further away. And yeah, so once again, that transport amenity isn’t really working out. Now, here’s, here’s a peculiar case, because this is the first time we’re actually seeing a clear history of divergence in the growth charts. And but it’s the other way around, you’ve actually caught suburbs that are further away from the airport are outperforming. Now you could argue that’s because the airport is a Negative amenity, which is interesting, given all the hype about badgerys Creek, and all the suburbs, around badgerys Creek that are supposed to get all this high capital growth. Well, here’s a case where the suggestion might be that being close to the airport is it is a negative, not a positive. But Melbourne’s airport is a little bit peculiar, particularly respect to Sydney and Brisbane, where the airport is, is close to the CBD. Melbourne’s airport is a little bit further away. And so maybe that could explain why this chart looks that way. But this one, like the others, we’re really not getting anything convincing in our data to suggest that pursuing amenities is pursuing capital growth.

Ryan 20:51
Yeah. If anything, I would look at this and say, okay, for showing a suburb where the amenities are going to improve, would be good to minimize risks. In suburbs where the mean is like to decline, I would consider that a risk factor, like you have a shopping center slowly, you know, getting less and less shops, and you know, or it’s moved, like a major new shopping centers open close by. And so it’s going to ruin the shopping center of one suburb, maybe that could have an effect. But again, I wouldn’t even have any data on that. So So what do we do with this? Like, if I’m looking at investing in property in a suburb? Do you still look at amenities? And what’s around just to get an idea for it like, or do you just not? I

Jeremy 21:33
think it can be. I actually don’t, don’t look at it in order to find high growth locations. But if you were looking at a suburb and trying to estimate the price of the property, you might like to factor in its distance from various amenities. But there is just

Ryan 21:51
as a valuation tool rather than growth predictive tool.

Jeremy 21:55
Yes, exactly. Yeah. And another interesting point is that, let’s say you’ve got a suburb that’s got all the amenities, so usually quite close to the CBD. So it’s unlikely that a suburb is going to go through a transformation that will improve its capital growth prospects. But what about an outer line, perhaps even fringe suburb that doesn’t have many amenities? But over the period of time, perhaps the next 20 years that you’re holding that property, perhaps new amenities arise in that suburb making it more attractive and accelerating its potential for capital growth? So there’s actually an argument that you could have superior capital growth, pursuing suburbs without amenities?

Ryan 22:37
Yeah, but then that kind of goes against the previous data we talked about, which was distance to CBD where we didn’t really see a big correlation there. If anything, there was a slight tiny negative correlation. Like, well, closer to CBD had slightly more growth than further out, but it was more, you said it was significant, insignificant, statistically insignificant. Yes. Statistically,

Jeremy 22:59
engineering. That’s right. Yeah, I

Ryan 23:01
would say what you’re saying there’s probably just speculation.

Jeremy 23:04
Yes. Yeah. Yeah. I don’t use. I don’t use amenities. I don’t look at them on I don’t, I don’t use the walkscore either.

Ryan 23:11
So you don’t think of that, like when you’re looking to purchase an investment property for yourself. You’re not thinking, Okay, what are the schools in this area? How close is it to the train station? Are you just doing that to factor in the value of the property and whether it’s worth what you’re paying for it?

Jeremy 23:25
Yeah, well, my research is all in suburb selection. So I’m not actually doing any Property Valuation. But for myself, personally, I would just go by what the valuer says what my bank valuation is. Or if the markets just running a little bit hot, and I’ve got to pay above market value, because things are really moving fast. So I’m not fussed about trying to pay bang on the value for the property. I’m okay paying too much. sighs I get into a market that’s moving. Because in six months time, it’s irrelevant. I paid 2.5% too much. Doesn’t matter. It’s now six months later, it’s grown by 8%. I’m glad that I’m in that market. And there’s fun times ahead. You know, you could use it for valuation, but I don’t.

Ryan 24:16
But yeah, for growth, not so much.

Jeremy 24:18
And so I find it to

Ryan 24:20
lose sleepless nights, sleepless nights over whether or not the property buyers closer translation.

Jeremy 24:28
That’s right. Yeah. And yet we hear it so often, don’t we? Yeah, we got to be close to this got to be it’s got to have schools and yeah,

Ryan 24:35
like, even even after looking at this data, I still internally think that like it’s like, okay, yeah, you want a property where they can walk to the train station to get to work. Yeah. Well, you don’t actually need that.

Jeremy 24:46
Well, there’s no harm in pursuing that. It’s just if you make that your focus rather than than other factors, then you why guess

Ryan 24:53
doing that, right. As you’re saying there’s no harm in looking at that. But what you need to do is consider other factors. Much more heavily. And look Yeah, sort of stuff if you want to be successful and pick those high growth areas.

Jeremy 25:06
Yeah, that’s right. Yeah.

Ryan 25:08
Well, yeah, you blowing the lid off this one. Another myth bites the dust here. So yeah, thank you for sharing this with us. Um, uh, go ahead everyone and check out I’ll link to a playlist where me and Jeremy have done data dives on a bunch of different topics like this one, so you can check all of them out, I am loving learning about this sort of stuff. I’ll also link up to this article. In particular, if you want to read through all of the data and all the explanations that go with it that Jeremy has done. Otherwise, go ahead and check out select residential property.com.au, where there’s a lot of good educational content over there. And you can see links to the resources that Jeremy has created as well. So thanks so much for coming on. Jeremy, is there anything you think we need to cover before we close this one off?

Jeremy 25:56
I actually didn’t scroll all the way down. Oh, right. Yes. Maybe I should. If we still got time.

Ryan 26:02
Yeah.

Jeremy 26:04
All right. Let me just familiarize myself with this chart. Okay, so this is another argument against the whole amenities thing. Sorry, I didn’t scroll down earlier. But if being close to a good school being close to TradeStation, shops, so on, if that was a positive for certain properties in a suburb, you would see those properties start to become far more expensive than other properties in the same suburb. And so you would see this price variability widen in percentage terms over time, but as This chart shows, they’re actually contracting. So if being close to amenities, what did correlate to higher capital growth, you would see this trend line going up to the right, but instead, it’s actually going down to the right, so that’s just another another nail in the coffin of the the whole proximity to amenities. Yeah.

Ryan 27:03
Do we have any others?

Jeremy 27:05
conclusion? Thank you for saying thank you right now, that was too long, wasn’t it? No,

Ryan 27:10
no, sorry, to rave on. Let’s make sure we cover all the data. It just looks like it all backs up the same sort of thing. But it’s good to get all of these different data points, understand, you know where we’re at.

Jeremy 27:21
Yeah, that’s it then. Yeah, thanks very much for having me on your show right.

Ryan 27:25
Now. Also, I’m loving this content. And I know a lot of people out there are too and it’s really helping them to research others themselves understand where to buy and to not get stung and buy in a wrong area because you know, someone said it’s supposed to mean these. Therefore, you should pay this much when you’re really might not lead to capital guide. So really appreciate your insight, Jeremy and for sharing this with the community. Thanks so much for tuning in. Everyone. Go ahead, check out the other videos that I’ve done with Jeremy learn about this stuff so you can do your own research and find the best investment suburbs for you. wish all the best out there and until next time, stay positive