Does Public Housing Negatively Affect Capital Growth? (Property Data Dive)
We are often told that if we are going to invest in property we want to find a suburb or street with low government housing. But is this actually true and does the data support this idea?
Or can you invest in an area with high public housing and still get great growth in that area?
0:00 – Introduction
1:20 – Why this idea might be false
5:08 – What does the data say?
10:00 – Yield is not factored in
11:25 – Something where there is a clearer trend
13:30 – How to use data to build an investment strategy and predict where is likely to be good
15:25 – Change in Gov housing vs capital growth
We’re often told that if we’re going to invest in property, we want to find a suburb, we want to find a street with low public housing or low government housing, the idea being that if people own the properties that they’re going to invest in them and renovate them, and the suburbs going to go up at a faster rate than other suburbs where that public housing in them are a higher percentage of public housing. But isn’t this actually true? When we look at the data? Is this the trend that we say, Oh, can you actually invest in an area with public housing and still get great performance out of your property? So today, I have with me, Jeremy Sheffield, from select residential property to talk about this, to actually dive into the data I’m gonna answer once and for all, as to whether or not this has a big effect on future capital growth or not. So hey, Jeremy, thanks for coming on today.
Thanks very much, Ron. And thanks for giving me the opportunity to talk about this topic.
This is something that has been talked a lot about in the community, there’s a lot of experts out there who say to avoid public housing, and honestly, I can understand the reasoning behind it, avoiding you know, issues that can come with that lower socio demographic area, as well as the idea behind, okay, people own the mall owner occupiers, they’re going to spend money painting their house and renovating it. And that could live the suburb as a whole. So what does the data actually say?
Well, the data suggests that there, it depends, is it there isn’t really much in it. So it comes down to how long the social housing has been there. Let’s say let’s say a suburb is to host the new cities, sewerage treatment works, you can imagine that capital growth in that area is going to be diminished over over the following years. But eventually, that lack of capital growth, while the rest of the city suburbs are growing, eventually be factored into prices. And this is the thing over a long period of time, just about any sort of amenity or eyesore or advantage gets factored into the price of property. And from then on, it’s it’s business as usual. Queensland University of Technology did an interesting study about Brisbane Airport in in 1980, there was an expansion of Brisbane Airport, there was going to be a new flight path that was going to affect suburbs under that flight path. And for about four years, those suburbs had reduced capital growth. But then after that, it was it was business as usual. So it took four years for that negative amenity, to have an impact on prices, bring them back in balance. And from then on, it was his business as usual. So if your public housing has been there for decades, it is well and truly already factored into the price of property and is having no impact on capital growth.
So what you’re saying here is let’s say we have an area that has a very low percentage of public housing, the government decides, okay, we’re going to move a lot of public housing into this area increase the percentage that could have a negative impact over a short period of time, because that’s now less desirable, because of you know, the socio demographics of that area. But what’s going to happen over the next couple of years, okay, maybe that’s how it doesn’t grow or goes backwards while the rest of the city grows, eventually, that’s just gets known as you know, the price and the value that it’s at, relative to everything else. Now that it’s reached kind of its equilibrium, as the city continues to grow, it’s probably going to keep pace with it.
That’s right. Yeah. And when you think about it, let’s say there was something very negative, like an enormous amount of public housing that comes to a suburb and it has negative growth, if that negative growth is going to continue, because it’s got social housing, do you eventually get to a point in the future where property prices a negative, like people actually paying you to buy them? Obviously, there’s got to be you use the word equilibrium, there’s got to be some sort of balancing out. And that that is the price eventually it’s factored into the price of property. So yeah, it’s it’s it’s not such a big deal. And I
actually something the opposite could be true if you have any oil with high public housing, but where the government is actively moving people out of the area, then you could get a boost in capital growth right in that area, which is something that I saw on the Gold Coast, I think it was Palm Beach, there was a lot of government housing in that area. And there were it was becoming a more affluent area. And so the government was wanting to move shift people West away from the beach to cheaper areas. And so you started to see this gentrification of this area, and it becoming more and more popular as there’s less and less public housing in the area. It could have grown extra because of the change in that so yeah,
yes, it’s all about change.
I guess we’re saying Yeah, changing public housing might affect future capital growth, but public housing percentages if they’re stable, might not. So do we have any look at today,
or let me see what I’ve got here. Okay, so this is how we figure out whether it is social housing or not. This is from the an image from the census. Alright, so this is a scatterplot, every red dot, you see there is a suburb around Australia. And this is the capital growth from 2016 to 2017. So, the last census was conducted in 2016. So this is just looking at one year capital growth. What you can see on the horizontal x axis is the amount of social housing there is in a particular suburb. So at the extreme end, and I think, see that there the screen resolution is sufficient. But you can see a very high amount of social housing in this suburb here. And the vast majority of suburbs are along this line here, which means they have zero government housing. Yeah. Now, up this axis is the capital growth over the next year from 2016 to 2017. So, there’s the zero point. So we had some negative growth in these suburbs here, and we have positive growth in the southern tier. Now. Right? pick out a trend there.
No, I can’t pick out a trend that’s so hard, because you’ve only got one year of data as well, right. And especially with 2017, was an interesting year for Sydney and Melbourne as well.
Okay, here’s where I’m pointing out, just like if we had very high, the right hand side of the chart is very high social housing, the bottom of the chart is very low capital growth. So you expect to see a lot of points in here, but there are none.
That’s if we if if it was true that more charging meant less capital growth, this is what we’d expect to see. And as you can see,
there’s no dots there. And similarly, at the other end, you’d see, well, there are dots there, but it’s not most of the dots. Most of the dots are sort of just scattered. This blue dotted line is the trend line. But like you said, it’s only one year. So let me I think I’ve got more charts for longer years. So here’s from 2012, to 2014. So the reason I’m picking these is based on when we had census data, you can see that it that it’s narrowed, so the capital growth over the long term tends to narrow. And that’s why we’re not seeing the extremes because it’s over a longer period of time. But again, we’ve got a pretty flat trend line there, which is saying there is no relationship between government housing and future capital growth.
So that same there’s a slight relationship like it looks like.
I mean, this is what you would say is statistically insignificant. So yes, there is a slight downward trend there. But it’s it’s so flat, that you couldn’t really rely on it. That could just be an anomaly in the in the data and the calculations of capital growth.
And as well, because when we’re investing, we’re investing in one house in one suburb, you know, we’re going to be one of these red dots on the line. On this graph, we’re not going to be the the entirety of the graph.
Yeah, and you can just see that the dots just aren’t stretched out along either side of the line there. They’re pretty much just random. So that’s, that’s suggesting straightaway that there isn’t a relationship. That’s over three years, from 2012 to 2015. This is over five years from 2012 to 2017. And this still isn’t really much of a relationship.
Now, even if you scroll back up or even looking at the date. Yeah, this one you look at the lowest performing suburb is actually quite low in government housing.
Yeah, that one, Will those
last ones down there quite low in government housing, compared to you know, the ones that are extremely high?
Hmm. So if if there was a relationship between highest social housing and lower capital growth, we would, we would say, a line going from the top left, down to the bottom right, meaning, the higher the social housing, the lower the the capital growth, and although the line does seem to go that way, it’s just not significant enough to say there’s a relationship here. And you’ll see that just broadly by looking at the dots, but there might be because the timeframe,
do you have any data by any chance on like rental yield compared to government housing, because rental yield higher in areas with higher government housing?
Yeah, that’s a good question. I I could have a look. I haven’t got anything ready right now. But yeah, that’s that’s a good question. Because one thing is capital grows, but then yes, you got to put a tenant in there and if they have For whatever reason I dislike of government housing being around being nearby that might affect the yields. Yeah, well, yeah,
I was actually thinking the opposite that if government housing is in an area affecting the prices, making the prices lower, obviously, you can get in the cheapest others, which we looked at in a separate video as well. So you can potentially get higher yields, there’s more to think about here, then capital growth as well, when it comes to being an investor, you need to look at your strategy, what you’re trying to achieve, what your risk levels are, etc, and to say, okay, you know, maybe you do want to avoid those areas, you know, because you want to have a higher socio demographic, because you want to rent to those types of people, you know, so there’s, there’s different factors at play here. But I think when it comes to saying you’re going to get less capital growth, because there’s more government housing, the data just doesn’t back that up at all.
Yeah, this, this certainly isn’t enough there. I mean, I, obviously, I’m looking at different years here just to see if anything changes. And for some years, it does look like there, there might be the hint of a relationship.
But that’s not even government housing.
Oh, days on market. Oh, yeah. I’ve changed change topics. So those are market versus capital growth. Oh, yeah. So this is this is showing a relationship here. But where is it that I’ve got over the long term? Oh, yes, here. So here’s another relationship. So this is the sort of thing we’re looking for something that’s a little bit more clear that there is a trend. So this is market cycle, Tom, I won’t go into the details of what that is, it’s a metric that there might be a lead indicator for capital growth, but look at the scales there too. And then you compare days on market, you know, just taking a year to sell that’s extreme. But you can see that there is a some sort of a relationship there. And then you look at government housing, and the relationship is far more, you know, a tenuous climb. So yeah, that’s why I put those charts in there just to show to kind of hear them. Yeah, he here is some sort of relationship.
What’s that? one, that one just piqued my market cycle.
It’s a score from zero to 100 of the likelihood that our property market is about to enter into its next growth phase.
Is this like the property clock?
Yeah, yeah, it’s something like that. So we’re looking at historical movements in price. How long has it been flat for? as you’ve said many times before, you can’t just look at one metric in isolation. And the reason why I mean, most metrics, you just won’t find a very steep sort of line. It’s when you accumulate a whole bunch of sort of softer metrics like MCT, and days on market, put them together, that you get a broader picture of what what’s going on. But yeah, the idea with MCT, it’s just, it’s just a score out of 100. The higher the score, the more likely that in the next few years, you’re going to see some good capital growth.
Yeah, there is some some of these trends in future videos and talk more about these as well as the DSR score and something I know a lot of people look at DSR score, and how does that predict future growth as well? Yeah, so
this chart is actually combining both days on market and the markets all the time. And you can see that this trend line is now getting a little bit steeper. And as you add more and more metrics, you become this.
This is the idea, right? With all of these sorts of things. I’m looking they started learning about this, is government housing going to affect it? Okay, No, probably not maybe a slight trend. Let’s factor that in as a small amount. And then let’s look at other things that are more important. And as we build on these things, and look at days on market, and even look at not just the length of days on market, but whether that’s contracting or expanding, as well, it can really help us narrow down as an investor, where is likely to be good and where isn’t. And that’s where we can use kind of subjectivity. And I don’t know, our own human analysis that you can’t quite do in an Excel spreadsheet to say, Okay, yeah, days on market is shrinking in this area, vendor discounts are shrinking in this area. So people, you know, aren’t discounting their properties as much combine that with vacancy rates and public housing and, you know,
REITs and yeah, and all that just throw as many as you can together to get the most comprehensive view of supply and demand for that market. And then you can make a more informed decision. Yeah, exactly.
Yeah. So, yeah, look, I think we kind of debunked this myth and looked at it and said, okay, maybe there’s a slight trend there, but not a huge trend. And as we said in the beginning of this episode, is that ultimately, if the percentage of government housing is an increasing or decreasing that’s going to reach kind of its value and at equilibrium and Then grow in alignment with the city because as if it stayed suppressed forever. And then you’ve got suburbs next door, maybe with a bit less government housing that grow significantly, people are going to start looking and saying, Oh, this suburb just next door is now half the price or a quarter of the price of the other one. Maybe I should just moved there. And then that pressure on that area and rolling all together over the long term, huh?
Yeah, yep. Well said,
What’s, what’s this graph? Um, well, this
is just looking at a change from the 2006 census to the 2011 census in government housing. And then over the next couple of years, what was the capital growth? And there wasn’t really much you can write about here. It’s just a splattering. So again, it’s just showing that there isn’t really a relationship between government housing, even changing government housing doesn’t seem to have a huge impact on on capital growth.
Okay, well, there you go.
Yeah. That is just one that’s between one census. I mean, you’d need to look at a whole bunch of them. Here’s for the five year period following on from that census, and you can see it’s changed slightly. So again, it depends on the way you set your your start and finish points. So here’s a 10 year gap from 2006 to 2016. So the biggest change in government housing, and then how did it affect capital growth over the next couple of years? So there’s not really a correlation? There is basically what it’s about.
Yeah, there’s not really much that I can see there, either. Yeah, yeah. I’m trying to look at the increase in government housing. Is there more below the blue line than above it? And, you know, not really.
Yeah, well, I mean, you got to remember that these capital growth, whenever you’re measuring capital growth, you’re using a change in median. And that’s always going to give you some outliers. So you can’t look too closely at a line like this and say, You know what, that’s actually going up and to the right, because it’s so slight, it’s just, it’s just not enough, it could easily be corrected by a more accurate measure of capital growth, for which, I mean, there isn’t one. But you know, this is the best we can do. So we’ve got to factor in a margin for so long saying,
like, as we talked about in the previous video, when you’ve got areas that are further away from the CBD subdivisions can happen. And so median price, Yeah, looks at you know, if you take one property and cut it into four, and now look at the median price for those four properties, not those four as a whole on that one block of land try. Yep, that can definitely create skews in the data as well. So look, I think that covers that I think people themselves now when they’re looking at things, they can take this data into account, the fact that the relationship is so slight, it’s insignificant, which will help them feel more confident making a decision. And maybe they take other factors into consideration when it comes to investing in areas of public housing or not, but at least they don’t have to be extremely stressed that to say, oh, there’s a little bit more public housing than another area, it’s going to significantly affect things. Doesn’t look like that.
Yeah, no, it’s a storm in a teacup.
Yeah, so thanks so much, Jeremy, for coming on and sharing this go ahead and check out one of the other videos main Jeremy have been doing a series looking at these data points. And exactly how do they affect capital growth? Or are they correlations there? can we predict the future from the past? We’ve done it quite a few of these. So go ahead, check out one of those also link up to this article, or go to Select residential property.com.au. And you can see all of these articles that Jeremy’s done over there. There’s a great read and if you’re a data nerd, and if you want to get deep into the weeds here with things I definitely recommend that so thanks so much, Jeremy, for coming on. Thanks so much. Thank you, you’re on. Until next time, stay positive.