Australian house prices don't look to be going down soon, but different areas have different experiences in the years to come. If you're looking to buy a home, you're going to want to buy where growth will be stronger, and try to steer away from the places where it will be weaker.
There are a gazillion different reasons why prices in one suburb will perform differently to others, but today I want to talk about unemployment.
Australia may be fortunate compared to our peers during this crisis, but we're still resigned to the prospect of rising unemployment. It's also a sad truth that this unemployment will be felt in some places more than others. Some areas have more people in sectors that get knocked around in recessions, like manufacturing or retail or have residents with less skills to sell. They also can have more people in part time and casual work, and are easier for companies to let go. Some already have higher unemployment, meaning job seekers are less likely to find work through social networks when many of their peers have no work.
In places like this, house prices are likely to suffer relative to more fortunate suburbs with stable industries and access to employment. There may be forced sales as laid off workers cannot meet their repayments, which can drive prices down. Potential home buyers already in the area are less likely to want or be able to take out a mortgage without job security and potential buyers from outside the area will be worried by the lack of opportunities.
Of course, having volatile employment industries also means that these suburbs may have higher price rises in the good times, but many, if not most of us, prefer a little stability in our assets.
You may think it would be quite easy too see what suburbs will suffer and avoid buying property there. They'd be the same places with the same intractable problems going back decades. Places “everybody knows” are bad news. The story has more twists than that though.
Researchers at the
Urban Research Program at Griffith University and the
Centre of Full Employment and Equity at the University of Newcastle have created the
Employment Vulnerability Index. This index looks at thousands of different suburbs across the capital cities and also regional centres. Using census data to determine the characteristics of the suburbs, it shows which unfortunate places are likely to bear the brunt of unemployment.
There are a few things to take home from this. We do see that suburbs like
Cabramatta in Sydney,
Dandenong South in Melbourne and
Loganlea in Brisbane are “red alert” risk for job loss. These suburbs have been associated with disadvantage before and we can see why they are likely to suffer again. There are lower levels of post-secondary education, and thus skills to sell. They're also in the manufacturing regions of their cities as we can see by the higher than average proportion of people in those industries. The
Bonds experience has already shown what can happen with these jobs. But areas that have experienced strong growth before the crisis are also at risk. This is even if they are educated (e.g
Ettalong Beach in NSW) or haven't before experienced disadvantage (such as
Epping in Mebourne and
Morayfield in Brisbane). Besides manufacturing, industries like retail and construction are also at risk in a recession (which explains the Government stimulus towards these areas), and anyplace where a lot of these workers live is likely to see more unemployment and lower house prices.
It only takes a quick look at the maps to these how these at risk suburbs tend to cluster in bands in the outer suburbs.
Like I said earlier, there are a gazillion reasons why prices perform differently in different suburbs, and unemployment is just one. The location of inner city suburbs like
Haymarket in Sydney or
Melbourne probably means that the properties will remain attractive despite resident's potential to lose jobs. Nonetheless, employment risks are a very important factor to keep in mind when considering how your housing investment may perform in the future.
