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Skip to 0 minutes and 4 seconds Tell me, how do the demographics such as age, income, population growth, and race, influence real estate prices? Those are really key issues that underpin the value of real estate. What we’ve seen over decades, in fact, over the last 150 years, is a very big influence of all of those factors on the value of real estate. We go back and have a look at the issues surrounding migration in particular. And this really only affects countries where we’ve had large levels of migration, is that recently arrived people all tend to come together. They agglomerate in one particular spot. And there’s very good reasons for that.

Skip to 0 minutes and 52 seconds And if you think about it from your own point of view, if you were going to a foreign country, you’d probably go and hang out with people like you, who were culturally similar, spoke the same language, and had the same values. And when people are leaving their country on mass, sometimes because of war, famine, a range of other reasons, they will tend to agglomerate in a particular area, a particular suburb. And then that will then become the place that is known by them. So what we saw after the Second World War, was a lot of European migrants come to Australia. And they settled in particular suburbs. So we found them, the Greeks, the Italians, the Macedonians.

Skip to 1 minute and 38 seconds We found people from Germany, from the Netherlands, from France. And people from the UK, of course, from England, Scotland, and Ireland. And they would all go and agglomerate in their particular areas. And so in places like Melbourne, for example, we found them in places like Calton, we found them in places like South Melbourne, Port Melbourne, and so on. And those areas just became known as places where those ethnicities existed. And they set up their own businesses in those places. What we also found was that the location of migrant hostels had a big part to play as well. In places like Melbourne, there were migrant hostels in Port Melbourne and Springvale.

Skip to 2 minutes and 26 seconds And then later on, around the Vietnam War of course, a lot of Vietnamese came to Australia. In fact we had one of the biggest intakes of Vietnamese migrants in the world. And they went to a place like Springvale, and of course ended up in the Housing Commission flats around Richmond. And they embedded themselves there, and took over businesses there, and have stayed there ever since. And to this day, very strong ethnic bias towards Vietnamese in both of those locations. Tell us, Tony, about how some of the ethnic groups might move, or migrate from the place they originally settled in. Yes. This has been interesting over time.

Skip to 3 minutes and 10 seconds We see that the children don’t necessarily stay in the same location, although they will, for cultural reasons, stay in proximity. But they won’t necessarily migrate a great distance. And that is because in some cultures, family takes on a greater significance. So in Greek and Italian culture, and in Asian culture, family is paramount. And so, under one roof, you may have three or four generations sharing the one place. Now, in some other cultures, that is not desirable at all. And in fact, the children leave the house as soon as they possibly can, and never return. In other cultures, it’s regarded as an insult if the children were to leave the house prior to being married.

Skip to 4 minutes and 3 seconds And even then, once they do get married, they have to live fairly close by, because they share so much time together. And they have a shared life and shared responsibilities, where the elderly look after the young, and the young look after the elderly. And so there is a real strong cultural attachment to that. And what we found is in the migrant suburbs, when the people came from war-torn Europe, or war-torn Asia, they stayed in the first place that they came to. And then the children, when they moved out into Australian society, and got an education, and started earning a lot of money, they actually came back and started buying real estate close to where their parents lived.

Skip to 4 minutes and 52 seconds And pushed real estate prices up, because they then had higher incomes. And we found that in places like Northcote, Thornbury, Preston. And we found it in places like, around Springvale as well, where the next generation didn’t move to what were regarded as previously wealthy suburbs. They actually returned to where their parents raised them, and started buying real estate, and pushing prices up. Of course, income then, has a big influence as well. But proximity to work is really what drives locational decisions. So high-paying people, or people who are highly paid, want to live close to work. And because they can afford to do so, they push prices up, the closer proximity to high paying jobs.

Skip to 5 minutes and 49 seconds So you then find lawyers, accountants, CEOs, and so on, all living in much the same suburbs, because they are close to work. And really, 30 minutes is about the maximum length of time anybody wants to spend getting to and from their place of employment. So you find that where all the high paying jobs are, within a 30-minute radius by transport, you find they’re the highest property prices. Now as jobs move, and high paying jobs are found somewhere else, in the future, you might find that those things change. One of the other things that are important to people, as they form families, proximity to school and education becomes a big deal. Now, they don’t move schools very often.

Skip to 6 minutes and 38 seconds So you find that the very fancy private schools, their grounds are stuck in a particular spot. So those people that want to send their children to those schools, want to have proximity to those as well. That also drives property prices. Because again, people don’t want to spend a lot of time taking their kids to and from school. Transport becomes a big influencing factor. Now, sometimes that’s cars, and sometimes it’s public transport. In the past, in the ’70s, cheap real estate was found in close proximity to railway. Because People didn’t want to live near that, because it was noisy and dangerous. Now it’s moving in the opposite direction.

Skip to 7 minutes and 26 seconds As the roads become more clogged, and people have to live further out, getting on to public transport, and getting quickly to your place of employment, takes on greater significance. And that then drives property prices. And so people in proximity to public transport are finding themselves paying much higher prices. What we do find over time, is that these things change, and they move. And what was valuable in the past, may not remain valuable in the future. And that’s one of the tricks to understanding how real estate changes over time. Have you seen studies talking about age and property prices? Older people tending, or congregating in certain areas, that they want to, that might push property prices up?

Skip to 8 minutes and 15 seconds Yeah, look, it’s interesting, the whole idea of ageing and migrating through one’s life cycle. If you like to think, we’ve got several life cycles. And there’s no one property fits all of our life cycles. So if you think that, when you’re born, you’re in the family home, and maybe you’ve got your own bedroom, or you have to share with siblings. And then eventually, you move out. But you won’t move out necessarily into a family home, because you’re not ready yet. You’ll sit there and you’ll say, OK, I’m a student, so now I’m in student accommodation. And then you’ll move out and you’ll go into early household formation, and maybe a share household for a while.

Skip to 8 minutes and 54 seconds Then you’ll meet somebody, and you go into early household formation. And then, marriage, maybe, have a family, and then have your own family home. Now when your children leave home, you’re now an empty nester. You don’t need all those bedrooms. So by right you probably should vacate that dwelling and move into something more suitable. So downsize into a smaller place. And then as you age, your needs are going to change, your health will change, so you then move into retirement. Now what actually happens is something far different. What we’ve found is that people get into their family home, and then they stay in that family home, and they keep it until they then move into aged care or palliative care.

Skip to 9 minutes and 43 seconds And so that house is then taken, used, by people that aren’t using it for what it’s original intended purpose was, was to raise a family. They are just staying in there. And there’s a lot of tax reasons as to why they would do that, principal place of residence, capital gains tax, the means test for the pension, and so on. There’s also a familiarity with a place. You get comfortable, you like it, it’s where you feel safe and secure. The family comes around and visits, you’ve got places for them to stay when they do, the grandchildren come around. You get to know your neighbours, you get to know the nuances of your location, such as all of the retail amenity.

Skip to 10 minutes and 29 seconds You feel comfortable with the streets, you know how to drive there, you know the public transport. And so that safety and security of that community takes on such a huge proportion, relative to its real value. But as people get older, they do want to feel safe. And so that means that they prefer to age in place. And so we see more of that than perhaps we ought to, if we were to look at it rationally and unemotionally.

Some land characteristics influencing its value

What land characteristics might influence its supply and demand, and hence its value?

Last week we learned the importance of land as the basic component of real estate. So let’s try and understand what gives that basic component its value.

Watch and listen to property expert Tony Crabb talk about his views on how some of the demographic changes may have influenced Real Estate prices in Melbourne, Australia. Can you identify any such patterns in your city?

Below is a list of some of the more obvious characteristics that influence property values. These assume that the land is for residential use purposes, but it may not be:

  • land size
  • demographics
  • proximity to schools
  • proximity to shops
  • proximity to transport and note how over time a characteristic such as this, may alter from being a “not sought after characteristic” to being a “sought after characteristic”.
  • slope
  • soil classification.

We will discuss this more in the next step.

Your task

Using the block of land you found in Step 2.2 consider some of the attributes or characteristics of the land that may influence the land value.

Explain the characteristics that you feel may influence land value and impact your desire to buy the property at the price being asked.

Here is the seed to the notion of a willingness to buy (or a willing buyer) and the willingness to sell (or a willing seller) that you heard Neil Hollingsworth talk about in the valuation profession last week. A willing buyer and a willing seller will settle on a price at which each of them believe to be the value.

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