Understanding Property Cycles and Structural Change [Part 2 of 2]

Globalisation always sounds like a ‘weasel’ word in the property and planning sector.  What does it really mean and how does it manifest to create property opportunities and shape the planning of cities?  The second chapter of Part A unpacks globalisation firstly by looking at the ‘real’ population, not just resident population.  The fast pre-Global Financial Crisis (pre-GFC) growth in permanent migration, most pronounced in 2008/09, short stay visitation and long stay visitation was generating net overseas migration of close to 300,000[1] persons per annum and around 1 million extra people in Australia every day[2].  The pre-GFC scenario is re-emerging quickly, with growth in permanent migration and short stay visitation. Global freight and logistics chains are primary city shapers.  In terms of freight and logistics, both the Sydney Orbital (M7) and Melbourne’s Western Ring Road (M80) are the clearest examples of changing all vehicle patterns to meet the requirements of trucks.  These investments are just beginning, with the import freight task doubling by 2030, and major port expansions, intermodal facilities and freight driven road expenditure occurring throughout Australia.  Airline seat numbers (the total number of occupied seats on planes entering or leaving the airport) are growing between 4% and 8% per annum (i.e. doubling in the next 10–15 years).  Resource regions such as the Pilbara are generating not only FIFO numbers, but are also attracting major investments in airports and hotels, stimulating business tourism in parallel.  Metropolitan Melbourne, Sydney and Perth are straining to accommodate the combined effects of road and public transport demand due to sustained infrastructure under-investment.

Institutional and international investment, co-investment and ownership are increasingly generating major new opportunities for the public and private sector.  For example, Australian superannuation funds, and Canadian and German pension funds are investing significantly in Australian property and infrastructure.  Given Australia’s AAA economic and financial rating, and the re-rating of the Australian dollar as an investment-grade global currency, international institutions are reweighting investment into Australia, particularly into ‘core plus’ asset classes (e.g. A-grade office space).

ICT is facilitating metropolitan and regional change in ways not originally contemplated.  Twenty years ago, the predicted major impacts on change were the ability to work from home (currently around 10% of the labour force) and the potential to centralise decision-making through the use of videoconferencing.  One of the more subtle impacts of ICT has been to increase the productivity of ‘export’[3] driven jobs far quicker than ‘import’ driven jobs.  This has resulted in what is known as the ‘caramello effect’, with all major Australian cities becoming very wealthy in central and middle suburbs and relatively poor on the fringes[4].  Further, land use planners and infrastructure planners are continuing to invest in central areas to ‘fix’ congestion problems and drive higher productivity, accentuating the relative wealth and opportunities for inner city residents and businesses.

Property development, land use planning and infrastructure development are, from an economic perspective, either shaped by export driven investment and jobs, or population driven investment and jobs.  Export driven jobs and investment are typically the most productive, because to be able to export products and services they must be delivered more efficiently or effectively than they can be delivered at their destination.  They are also important because they are not limited by the size of the local market. 

This can apply from a property and planning perspective at a relatively small area or catchment basis, such as at a spatial scale smaller than a local government area.  Understanding exports at the macro-economic, whole economy level (e.g. iron ore), as well as at the city level (e.g. legal and financial services), can create property development value, as well as a land use planning conundrum.  Namely, can planners and developers actually generate or support growth in export-based investment and jobs in the three key sectors: services, commodities and manufacturing?  The answer is ‘yes, geography and spatial proximity matter’, and this finding has been demonstrated through a series of case studies.  This means that population driven growth (e.g. retail, office and floor space) is not the only or necessarily the key determinant for sizing and locating projects in cities and regions.

Major development and planning opportunities generated by the export sector are often not realised because this sector is poorly understood.  Population driven planning (e.g. greenfields residential) and property development (e.g. shopping centres) are supported by ongoing research and analysis driven by quality data, including the Australian Census and Australian Bureau of Statistics (ABS) intercensal estimates.  Yet as Australia moves from the population driven, urban fringe era to the AIGE era, the current lack of data presents as a major barrier to understanding and forecasting the future.  This is particularly evident in relation to health and ageing, and the resources sectors.

In combination, ageing, ICT, globalisation and exports are the keys to understanding structural change around the property cycles between 2015 and 2030.  These forces will shape Australia’s competitiveness through interest rates, the value of the Australian dollar and non-population driven growth in gross domestic product (GDP) – the total value of Australia’s output.  Each AIGE factor in its own right is generating major property development opportunities, but in some cases the scale of opportunity (e.g. residential subdivision in remote areas) is too small for the AREIT sector, or development approvals are too complex or costly for the smaller second tier investors, or project funding is too difficult to secure because of a lack of transparency or convincing research to influence credit committees.  Understanding these future market drivers will reveal that project development opportunities are both plentiful and profitable.

Beyond the Fringe presents a series of practical case studies supported by MacroPlan research.  The case studies cover retirement living, aged care, resources, energy, northern Australia (i.e. the region north of the Tropic of Capricorn) and tourism, and are intended as thought ‘starters’ to provoke creativity and thinking outside the square.  The challenge and opportunity is to apply similar thinking across every sector and to different regions of Australia.

[1] In June 2009. DIAC The Outlook for Overseas Migration June 2013

[2] Tourism Research Australia, International Visitor Survey

[3] ‘Export’ in this case means goods or services sold outside the statistical local area.

[4] MacroPlan has undertaken recent studies identifying that the relative wealth gap of inner verses outer fringe residents has widened (2006–2011).


Over the next few months, Brian Haratsis will share excerpts from his book, Beyond the Fringe on the MacroPlan website.  If you have any questions regarding the excerpts or you would like to order a copy of the book, please contact Dorothy Patrick, Executive Assistant to the Chairman on 03 9600 0500 or via email patrick@macroplan.com.au


About the author:

Brian HaratsisBrian Haratsis Executive Chairman E: haratsis@macroplan.com.au P: 03 9600 0500Brian Haratsis is MacroPlan ’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years’ experience as an advisor to governments and major corporate clients throughout Australia.Brian commands an unparalleled, on-the-ground knowledge of residential markets across Australia, having worked extensively and regularly in all capital cities and key regional markets. 
About MacroPlan:
MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Brian Haratsis, Executive Chairman today to discuss your property research requirements.