Top 4 factors influencing house price growth

When you take out a home loan, whether it’s because you want to invest in property or just have your own house to your name, you’ve got capital growth at the back of your mind. You eventually want the sale of your house to fall into the 91.4 percent of re-sales measured in the December 2014 Pain and Gain report that posted a gross profit – not the 8.6 percent that saw a gross loss. 

On the road to such capital growth, there are any number of factors that can positively influence the value of your home. Some, however, have more impact than others. 

Quality of infrastructure

Convenience is king for any home buyer. They want to know that not only do they have all the necessary facilities and services close at hand – public transport, health care – but that they are of a high quality. Well-made and well-placed infrastructure will therefore often lead buyers to pay a premium for property. 

Consider what a new rail project could do for an area, for instance. Previously, a lack of transport might have led residents to put less away in their savings accounts and spend valuable time and money commuting to work each day by car. It may also have created a sense of isolation and distance for residents, who were cut off from the city centre. A new rail link would essentially reduce this physical and psychological distance and increase the convenience of living in an area. That’s why the news that the latest budget was maintaining a high degree of spending on infrastructure was so widely celebrated. 

Supply of property

Demand and supply – they’re the most basic of forces that drive not just a specific market, but arguably the whole economy. The principle is simple: The more scarce a particular product is, the more valuable it is. If there is only a specific number of houses – or more importantly, land, which is finite – in an area, then in order for buyers to buy into it, they’ll have to outbid their fellow consumers. 

In a report released this March, titled “Key Truths on Housing in Australia”, the Australian Bankers’ Association noted that while claims of a housing shortage driving prices should be viewed critically, the amount of housing was not keeping up with population growth. While on a macro scale, this may not be pushing prices up, on a micro level a shrinking supply of housing and – more importantly – developable land in an area could certainly make values rise in a particular locality rise in value.

Proximity to key amenities

As noted before, convenience is a hugely important factor for many home buyers. This doesn’t simply stop at basic necessities and infrastructure, however. It also applies to essential – or desirable – amenities that make up the hallmark of modern living. 

This might include schools, from kindergarten all the way to universities. As IBISWorld has pointed out, the Australian birth rate is set to rise by 6.4 percent over the next five years, which will feed the growth of a number of child-related industries. It will also make homes that are close to quality schools particularly high in demand.

Or consider the impact of the construction of a new high-end store or shopping centre. While not exactly meeting a necessity, people want to live close to areas where they can spend conveniently. Such retailers also generally do comprehensive research of their own before moving in – if they’re coming to an area, there’s a good bet it’s set to see a boom. 

General desirability

It’s not always a utilitarian decision. Sometimes, the value of a particular neighbourhood will go up simply because its living standard is high – a somewhat ineffable concept that can comprise many aspects. 

Consider two hypothetical areas: Both are located in similarly central locations, and both have access to important amenities and infrastructure, such as a train line that runs through each. However, one area also happens to be rife with cafes and restaurants, along with a busy night life. The other not only lacks those features, it has a higher crime rate.

While this may be an extreme example, it’s not a surprise which of these neighbourhoods buyers would compete over. Safety, aesthetic appeal, entertainment and recreation – these are all elements that buyers take into account before carrying out a home loan comparison.

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