One of the significant changes to occur in Australian cities over the past 50 years, which has pushed up inner- and middle-ring suburb property values, is gentrification.
Gentrification is a change in the fortunes of a particular suburb, including the changing demographics of the people who actually live there.
Interestingly this wasn’t caused by deliberate planning policy, but resulted from a set of demographic changes that occurred in most major capital cities around the world, and especially in the inner-ring of city suburbs.
‘Gentrifiers’ are initially drawn to inner suburbs by the diversity of jobs, educational opportunities and lifestyle with this trend continuing as more and more Australians swap their backyard for balconies.
Location is critical to the long-term performance of your investment so look for suburbs that outperform the averages or ones that are going through gentrification and, one way of identifying areas undergoing gentrification is to analyse those suburbs where incomes are growing, which therefore increase people’s ability to afford, and pay higher prices, for property.
Generally, this is the result of a different class of people moving into an area who then invest their time and money into creating changes in their new neighborhood. As these changes take place, the area loses any stigmas and property values tend to grow as more individuals on higher wages move in thus placing upward pressure on values.
There are six stages of gentrification which you should understand so you can spot the next suburb about to undergo this modern metamorphosis.
As with all things real estate, change often starts with people.
This can involve people getting together to discuss the changes needed in that specific location so keep an eye on council or chamber of commerce meetings to keep abreast of any future planned changes.
This is the stage where planning comes in and developers, government entities and the local community often become involved.
This is the time to look for any new innovative developments or community infrastructure such as new residential communities, hospitals, schools and rail or road projects.
Significant developments can have a big impact on an area, especially on such things as its lifestyle and employment opportunities.
As well as state-of-art developments, there may well be intensive development happening.
This may include a new specific precinct, such as doctors’ rooms, which are an addendum to a new hospital and the installation of such zones often brings skilled workers to the area who earn more money and help to progress gentrification of the suburb.
At this later stage you often start to see population movements, which may include socio-economic changes (the ‘lower class’ becomes the ‘middle class’ and the ‘middle class’ becomes the ‘upper class’).
It is when higher wages are a normal part of the suburb landscape that we start to see property values grow.
This stage is where gentrification of an area really takes off!
When a large number of affluent people choose to move into a suburb they often start to spend a great deal of their resources advancing the gentrification trend, which results in the suburb going viral (in a good way) because these new wealthy residents are spending a lot of their money in their new community.
The process of gentrification is most common in a city’s inner- and middle-ring suburbs so if you want to profit from gentrification, it’s these suburbs you need to look at.