Location! Location! Location!
For sale: well presented 3 BR family home. Convenient location just 45 km from CBD and 10 km from adequate public transport. Four car garage.
A desirable residence? If petrol was under $1 a litre, and with a car space for mum, dad and each of the kids, it might be very desirable. However, as petrol closes in on $2 a litre, it’s a different story.
Property prices usually decline as distance from the city centre increases, and the greater affordability of housing on the fringe is attractive to many home buyers. When petrol was cheap, the greater distances to jobs, shops and other amenities wasn’t a significant detraction.
Oil prices are now regularly setting new records. Family petrol bills of well over $100 a week are putting a significant strain on household budgets. Our car-dependant outer suburbs also make up our mortgage belts, and higher interest payments put families under even more pressure.
Now imagine the stress under the ‘worst case’ prediction of the recent Future Fuels Forum. Over the next 10 years there’s a chance that petrol could skyrocket to $8 a litre! Living on the fringe won’t look so attractive then.
This influence of fuel costs on property prices isn’t new. We saw it during the oil shocks of the 1970s and 1980s, but those downturns were relatively short-lived. Now the question for property investors and home buyers is, will it be different this time?
The key difference is that with surging oil demand and limits on production, many commentators expect oil prices to maintain their upward trend. This means the old mantra of location, location, location, becomes even more important as distance from major job centres and public transport becomes a greater concern for property buyers.
It would, of course, be simplistic to base a decision to purchase a property on one factor alone, and the news for people on the urban edge isn’t all bad. Interest rates will remain a key influence on property prices, and some commentators believe the next move is likely to be down. Australia’s population is still increasing, and demand for new homes continues to outstrip supply. This will help to support home prices.
A carbon emissions trading scheme should eventually see fuel prices increase even further, but by then we may have viable and cheaper alternatives for fuelling our cars. It’s also reasonable to expect that some of the revenue raised from emissions trading will be spent on improvements to public transport. However, until some of these things come to pass, outer-suburban property prices are likely to remain under pressure.
Sources:
Shocking the Suburbs: Urban Location, Housing Debt and Oil Vulnerability in the Australian City. Jago Dodson and Neil Sipe. Griffith University, 2006.
Fuel for thought. The future of transport fuels: challenges and opportunities. CSIRO, 2008