How gentrification changes your suburbs outlook

One of the significant changes in the way we live in Australia over the last few decades is the gentrification of our inner-city suburbs.

As late as 80’s and 90’s, housing in the inner suburbs were cheap enough to be home to many working-class families, most had a local pub and there were even inner-city suburbs with working factories. 

But within a few decades, the process of gentrification saw these ugly duckling suburbs transformed into graceful swans as higher income households displaced blue-collar workers; changing the character of these neighbourhoods and resulting in a significant increase in local property values.

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What caused this gentrification?

One of the main factors behind this revitalisation was exodus of manufacturing businesses to industrial estates, due to cheaper infrastructure and better roads. At the same time many blue-collar workers departed to the outer suburbs to live in detached houses with big back yards.

Interestingly at much the same time our society started to experience higher education levels which lead to more people wanting to be closer to campuses, which were usually in or near the CBD.

Similarly, the diversity of serviced based jobs located in the CBD increased, while declining household sizes and lifestyle all made living in smaller properties inner-city more attractive to a larger cohort of potential buyers.

Not surprisingly, this increase in demand led to house prices in the inner-ring rising much faster than in the outer suburbs.

Identifying gentrification

Gentrification is a change in the fortunes of a suburb as it is discovered by a higher income demographic which slowly pushes out the lower income residents.

These new, more affluent residents invest time and money improving their new purchases, pushing up prices and rents.

As these changes take place the area loses its stigma and more individuals on higher wages move in, putting further upward pressure on values.

Looking back one of the significant transformations of our inner suburbs was that household incomes grew significantly as residents were better educated and had higher-paying jobs.

Two incomes in a household instead of one meant that people had more money to spend on housing – and spend it they did!

Therefore, one of the keys to identifying gentrifying location, one where property values will increase above average, is to find suburbs where incomes are growing, increasing people’s ability to afford and pay higher prices for property.

Digging into the Census data shows that while wage growth has been stagnant over the last decade, there are some suburbs where wages have grown 40-50% more than the east coast capital average.

You’re likely to find these suburbs are home to a number of other identifying features of gentrification such as top-end cafes or restaurants as well as higher-end stores where the wealthier population can spend their money.

The secret to identifying gentrification, therefore, involves researching locations where a number of economic factors are changing at the same time.

Just to make things clear…just because a suburb has cheap properties doesn't mean it's destined to become the next growth area. Some suburbs are inexpensive for a reason and won’t improve because of various socio- economic factors.

There might be too much industry in the area, a lot of social / public housing or possibly a crime, gang or drug problem. Or maybe they are outlying suburbs with poor infrastructure, facilities or public transport.

On the other hand, the type of suburb to look for is one that is relatively affordable today but has the potential for future capital growth. Some of the major drivers of capital growth are:

•    Proximity to the city or the water.
•    Adjoining a more expensive neighbourhood so it can benefit from the ripple effect.
•    Desirable amenities such as good public transport, a large shopping centre, or within the catchment of a highly prized public school.
•    Older attractive houses with character features, that are ready to be renovated.
•    Areas where governments are investing in local infrastructure or beautification programs.

As a property buyer if you can pick an area going through gentrification, one that’s shifting from dreary to in demand, you can benefit from its accelerated growth.

And the good news is that you don’t have to get your timing perfect – the gentrification process lasts a number of decades.

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This article via Property Update does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.