Hello, Ben Kingsley here and welcome to Home Hound’s Property Investment corner. Today I want to talk to you about why property has been such a great performer over the last 30 years. The reason for that comes down to affordability and its also a conversation between human interest and human behavior.

So if we go back in time and look into the 70s, we actually saw something change in the household. We saw mom having a part time job so we had that increase in disposable household income. So we fast forward through the generation of children that came through the 70s and I’m an early 70s baby myself, the girls that I went to school with can actually focus on having careers. Fast forward coming out of that school period, through the 90s, and we start to see double household income. So again, that real high increase in disposable household income.

Now, during the late 80s and early 90s, the economy was also experiencing some tough challenges. Productivity, wage inflation and general inflation is a real challenge for the market place. So we actually went through a fairly big recession. The recession that we had to have as Paul Keating would say. We also see the Reserve Bank being de-coupled from the federal government to become an independent policy. They are responsible for the monetary policies these days and the government is responsible for fiscal policies.

So during that 90s period, we went from really high interest rate from around 10-15% and peaking at 18% for some of those older viewers who are watching this video. We saw those come down to a more historical low and we’re seeing the income grow. So automatically, what we’re actually seeing is they value of property meeting the ability for people to make those repayment. Long term, affordability hasn’t change too much but we’ve actually seen the marketplace meet that demand. So what actually happens down in the trenches? How does this actually takes place? Well, you can imagine first home buyers going to see their mortgage brokers these days and they sit down and they have in their mind that they think they would probably afford around $500,000 to buy their home. When they ask the mortgage broker, how much can we actually borrow? The banks would be saying, well, you can borrow maybe $550,000 to $600,000. Oh no, I don’t want to borrow that much. Then they go out and get on their search engines and they put property in around that $500,000 and reality is when you search for houses in Home Hound and that sort of thing, sometimes, the value of these property is actually higher than what they are put in their category. So when you go out and have a look at those properties, it is only human nature that we get caught up in that. It’s like, “Oh, I know what my mortgage broker said I can borrow so I’ll make some adjustments.” They end up spending more than what they might spend because they want it now, its just human nature. They want these types of things. So over this long term journey, we’ll see disposable income grow, we’ll see borrowing power grow and we see the price hit that market price. So when you got really low interest rates like we have at the moment, that’s why we are seeing the whole broader market rising values.

Now, the future. What does the future hold? Is it going to be as simple as this in the future? The answer is definitely no. What you need to understand about where the future performance is going to be is that we’ve had the double household income, we’ve had moms starting part time jobs, now we’ve got double household income with both parents potentially full time workers and we’re seeing the corrections in monetary policies and fiscal policies that allowed us to get cheaper interest rates. So, all of that is done. All of that is in the past. What’s going to happen in the future is, more challenging to get value increase. And how you going to get those value increases is going to come down to incomes. It’s going to come down to pockets of the market place where the income is growing greater than the masses. So I’ll be challenged in the areas and outer suburbs where income are low or grow slowly and regional areas where income grows slowly as well. You going to see the price growth that we’ve enjoyed in the past, its going to taper a bit. It’s going to not grow as quickly as some of those areas where people want to buy in and they want to invest in and have the high disposable income to do so. So the history of the rising tide lifting all property values is now done. We need to be more specialise in terms of how we do our research and what we’re looking for because property investment is still going to be a great opportunity but you need to be more precise about the area that you’re looking for and the types of property you’re buying. Thanks for watching.

About the Author:  Ben Kingsley is the founder & CEO of Empower Wealth – a specialist property investment advisory firm in Melbourne.  He is a Qualified Property Investment Adviser QPIA, Licensed Real Estate Agent (Buyers Agent) in VIC, NSW and QLD and licensed Finance Broker.  He is also the Chair of the Property Investment Professionals of Australia – the peak industry association for property investment specialists.