Alongside house prices and housing affordability these days the conversation around real estate markets and development almost never fails to include the topic of infrastructure. It’s an aspect of the market we can’t escape, and there are very good reasons why this is such an important and vital topic.
It’s a subject everyone is aware of and that impacts almost every aspect of marketing and delivering any development, and it underpins the success of projects large and small.
By definition infrastructure creates the essential building blocks of any society and comes under particular pressure as we become a more urban population. It’s been estimated that by 2050 some 75% of people will live in a city. So the race to have services that can match the shift to urban areas is a serious concern, in many ways locally we’re playing catch-up.
It’s all about providing the basic physical and organisational structures and facilities (e.g., buildings, roads, transport and power supplies) needed for the daily operation of any society or enterprise.
To say that infrastructure is a vital building block, the foundation of a city, is an understatement and the lack of investment has a very big impact on the housing market, employment and economic capacity.
Since the 1950s after WW2 and as cities grew the pressures have been building, but in many respects various governments have failed to keep up with demand. Sydney’s second airport at Badgerys Creek, as just one example was first proposed in 1969 and even now, if work was to start soon, the first stages are not expected to be ready until 2026. This delay is not only impacting the local area but is now a restraint on the entire national economy.
The Prime Minister Malcolm Turnbull, recently agreed with the International Monetary Fund’s call for more spending on infrastructure, while recommitting his government to eradicating the Federal Government’s budget deficit.
The IMF and Reserve Bank of Australia have urged the government to build roads, railways and ports that will boost productivity, increase hiring and stimulate the economy.
However, the Federal Government has dragged its feet where extra spending on infrastructure is concerned as it seeks to shore up the budget and avoid the political nightmare of losing Australia’s prized AAA credit rating. It’s this sort of stalemate that is impacting the delivery of infrastructure and the housing market is impacted because delays slow down the building of new supply. We see the states working hard to fill the gap but this is a national concern.
Beyond Roads and Airports
It’s easy to draw a connection between the direct impact of new infrastructure and for example the delivery of a new major residential estate, or the ability to create more high density housing linked to train or light rail services.
Buyers will be less attracted to an area where they have to struggle with over crowded and congested roads, they will prefer other areas, this puts pressure on supply in better located areas and naturally prices go up. This impacts affordability in every area of the housing market for anyone buying or renting.
Prices are also impacted by projects much closer to home, and one example is schools. We have already seen in parts of Sydney how increased housing density, at times aligned to transport nodes, has quickly out-paced the available school places. Over crowding in schools will often worry parents more than busy roads.
However major projects also create employment, a lot of employment, referring back to Badgerys Creek airport, figures have been published suggesting the project would deliver at least 9000 direct jobs. Then there would be a flow-on to boost tourism, and so more employment would be created. The important link between housing affordability and the flow-on from infrastructure projects to employment is another big issue and jobs are also a key aspect driving demand in the market.
The big influx of people to work on major construction projects in Sydney is just one further example of the knock-on impact of infrastructure.
There’s a strong link between housing demand, infrastructure and employment, however the lead-times can be poles apart, the speed of delivery impacts the creation of jobs, while the completion of any project has a big impact on local demand.