How the next infrastructure boom could boost property prices

For many, our quality of life here in Australia is particularly reliant on infrastructure. We are a large country with significant urban sprawl in our metropolitan cities. Australians depend on roads, rail and other transport links just to remain mobile, while access to utilities and health services is vital.

In many respects, infrastructure is a crucial factor when choosing where to live. It is no different when it comes to property investing either. The property market generally attributes higher median prices to locations that have good access to infrastructure, than those that don’t.

It follows logic then, that when looking for an investment property, you should pay attention to existing and planned infrastructure. An area that today lacks accessibility could tomorrow become the next growth corridor. And as our population races higher, demand will surge in areas with good infrastructure, which bodes well for long-term property prices in these regions.

Unprecedented infrastructure investment

Previous infrastructure booms, like that before the Sydney Olympics, have seen significant investment poured into the community. This next round however, is poised to set a new record.

As much as $288bn has been assigned for infrastructure projects across the nation over the next decade. This excludes a multitude of existing projects, not to mention anything else that comes up. Over 90% of projects earmarked by Infrastructure Australia as a ‘priority’ relate to transport. Furthermore, 56% of projects are located in the metropolitan and regional town centres in Victoria and New South Wales.¹

With the property markets in Melbourne and Sydney viewed as a barometer for the rest of the country, it’s no surprise such a high concentration of investment is being allocated to these cities. By setting the scene for such development, it only serves to draw migration and demand to these areas, in turn underpinning property prices.

The property market is moving with a rising population

Beyond record infrastructure spending, we are also seeing record population growth. In fact, it is easy to argue the investment we are seeing into infrastructure is borne out of necessity. The scope of this program may need to expand significantly given Australia’s population is growing at 1.6% per annum - among the highest of all developing nations (Figure 2).²

In Melbourne last year the population grew by 2.6%. This was the third highest rate of growth in all English speaking cities across the world.³ Meanwhile, Sydney’s population is still swelling higher and expected to grow by 1.3m people by 2030.⁴

High demand on the east coast has supported property prices for a number of years. Desirable suburbs have managed to retain their allure, while a shortage of supply has pushed home buyers elsewhere. The data shows our major cities will need to be equipped to cater for a sizeable population increase. Migration is playing a prominent role in this shift (Figure 3). While many migrants are being encouraged by the government to consider living in regional locations, many still choose to live in the major cities.

To support this, infrastructure will need to continue improving. Jobs will be created. The property market will require additional housing. And ultimately, supply will be taken up in outer suburb growth corridors, many of which have been overlooked by property investors.

Identifying investment opportunities

Outer suburb growth corridors represent opportunities for long-term investors seeking to leverage the infrastructure boom. While traditional blue-chip suburbs will perform well in a rising property market, the prospect of outperformance in these other areas should not be overlooked.

Consider Kellyville in north west Sydney. Around 2013 there was significant infrastructure investment in rail and commercial precincts. If you were diligent in your research, you could have invested in a property in this suburb with average compound property price growth of 18.6% across 3 years. This compares with just 7.4% for the Sydney metro area.

More recently in nearby Cherrybrook, property prices have managed to increase despite a subdued market, thanks largely to the drawcard of new rail infrastructure.

The government is now investing into south western Sydney, where Badgerys Creek airport and supporting infrastructure is being developed. Surrounding suburbs like Austral, Oran Park and Gregory Hills currently have affordable house and land packages, yet remain poised for long-term price growth on the back of such spending.

In Melbourne the government is funding infrastructure to improve roads, increase access to transport, plus open educational and health facilities. Areas which stand to gain include western suburbs (Hoppers Crossing, Williams Landing), northern suburbs (Mernda, Doreen) and south eastern suburbs (Craigieburn).

In each of these areas greenfield developments represent affordable investment options. With a backdrop of infrastructure spending, property investors have opportunities for long term price growth.

Infrastructure is fundamental in addressing societal needs that come with changes in behaviour and demography. As a property investor, it is one thematic that can help you identify outer suburb growth corridors. Here you have the potential to achieve long term capital appreciation and outperform the broader property market.