Is Infrastructure Driving Growth in Property Values?
Author: Eliza Owen Source: Onthehouse.com.au
Sydney is buzzing with rail construction worth billions. By 2019 the North Western suburbs of Sydney will have a rail line connecting them to Chatswood. An Eastern Suburbs light rail will be completed in 2019.
As you look for the next best growth opportunities around Sydney, we share three vital pieces of information for buying around a suburb with a train station, and some of the research findings will surprise you!
Related Article: Sydney Market Continues to Boom Despite Potential Oversupply
1. Suburbs With Stations Do Better Than Suburbs Without
Rail infrastructure generally lifts the value of properties in a suburb. In the City of Blacktown Council for example, suburbs with train stations have median house prices that around 3.7% higher than those without. In my analysis of major stations, I found that these suburbs generally had higher capital growth rates than the 10 year average for the Sydney region.
Train stations are often located within commercial hubs, and give people cheap, easy access to work and leisure. So, if you are looking to achieve relatively strong growth on an investment or family home, it may be best to buy near a station.
2. Save Yourself the Money: It Does Not Matter Where in the Suburb You Buy
Being in a suburb with a train station is a plus for house values. But do properties right next to a station have higher or lower growth rates and rental yields to those a few kilometres away?
In short: No.
Four well known train stations in Sydney - Blacktown, Sutherland, Lidcombe and Mascot - have been analysed. For each of station, I considered the median capital growth rates of properties less than 1 km away, 1-5 kms away and 5-10 kms away.
There was no significant difference in growth rates for properties that were 1 km, 5 kms or 10 kms away from a train station. However, there were some weak, observable trends.
The growth and trends for the different radius distances of properties are presented below.
Case 1: Blacktown
Graph 1 shows the Capital Growth Index for houses and units in Blacktown.
Since about March 2001, houses within in the smallest radius (less than 1 km from Blacktown station) have had a value that is marginally higher than those further away. This comes from more resistance to economic downturn, as indicated by the slope of the line in 2001. Unit trends displayed in the above graph are almost the opposite of this.
Case 2: Sutherland
Graph 2 shows a similar story to that of Blacktown, in Sutherland.
Houses near Sutherland have weakly maintained a higher rate of growth where they are less than 1 km from Sutherland train station. Houses 5-10 kms away from Sutherland station seem to have similar growth rates, but this could be because properties in this radius consist of houses that are on the Georges River, and have access to Oatley Station.
Also similarly to Blacktown, the story for units is inverse. The growth rates for units show that those closest to the station show lower rates of growth during economic downturns, but generally followed the same growth patterns in all radiuses.
Case 3: Lidcombe
Lidcombe presents a slightly different story to Blacktown and Sutherland, in that there is a more distinct value increase for properties closest to Lidcombe station.
According to the latest data, houses less than 1 km from Lidcombe station are approximately 2.1% higher in dollar value than those further away. This might not sound like much statistically, but it accounts for a value difference of approximately $20,000. Alternatively, the latest data shows virtually no difference in median dollar values across radiuses in Blacktown and Sutherland.
We can already see there is not a consistent pattern across stations when it comes to achieving higher growth rates through proximity to stations. Unlike the first two cases, Lidcombe shows a similar story in both houses and units.
Case 4: Mascot
Mascot is also an interesting case. Unlike the other suburbs presented, Mascot shows higher growth rates for houses further from the station, with those 1-5 kms away enjoying the highest Capital Growth Index.
According to December data, houses less than 1 km from the station are 2.20% lower in median value than those 1-5 kms away. Like Lidcombe, a similar story is presented between houses and units.
Why is There So Little Difference in Growth Rates Across Distance?
What does such weak differences between growth rates across different distances for all the suburbs actually mean?
The answer is that train stations can be both convenient and inconvenient.
It is handy being close to cheap transport, but it is also a nuisance having the sound of a train fill your house when you are at home. Then again, train stations often have retail zoning around them, so being close to the corner shop is another benefit - however, areas near train stations can also have higher rates of crime, because it is easier for criminals to gain access to your suburb – another nuisance.
So, there are benefits and detriments of being close to a station that are likely to affect the value of your house or unit. A combination of positives and negatives could have no effect on growth rates . If you are looking for a property in a suburb with a train station, you don’t have to buy right next to the station to get higher growth. This is particularly important when agents use ‘close to the station’ as a selling point for a property.
The same goes for an investment. In each suburb, December 2014 data showed virtually no difference between current median rental yields across different radiuses from the stations.
Rental yields were compared across the different distances from the train station at each of the four locations, and it was found that they were virtually all the same. The rental rates can be found in Table 1.
This may have important implications for the maintenance of your property. If you are concerned about crime rates close to a station that might affect your property, know that there is very little difference in the rental rates between a property that is close by, or further away. Even marginal differences in rental yields presented in Table 1 are not consistent between suburbs.
Why is each case different?
If the costs and benefits of buying near a train station affected everyone in the same way – for example, if crime near stations outweighed the benefit of being close to transport - then you should still expect the same pattern of lower rates of growth closer to a station, however minimal.
The fact that all the cases presented different patterns in the graphs means there is something else going on. Research posits 3 things determine whether the positives of a train station outweigh the negatives:
- The median income of households in the area.
- The distance of the train station from a major CBD.
- The characteristics of the train station.
Higher income households see less benefit in being close to train stations. This could explain the difference of patterns observed in Mascot, where incomes are 20.30% higher than those in Blacktown, 17.06% higher than those in Lidcombe, and 7.28% higher than households in Sutherland . It could be that higher income households are more reliant on expensive, convenient transport such as cars or taxis. When buying in a suburb like Mascot, you can save yourself some money if there is a premium on being close to a station, because the growth rates across the suburb should effectively be the same.
The distance of a station from the Sydney CBD could also affect how important it is to be close to a station. Retail zoning around stations means that for suburbs further from the city, such as Sutherland and Blacktown, shops and facilities around a train station become more useful, because it supplements a lack of access to retail facilities in the city. Because our results are statistically insignificant, it is not fair to say that houses have higher values or growth rates because of the station, but perhaps the retail facilities around it. So when investing in areas like these, it may be better to look for properties that are closer to local commercial hubs.
The characteristics of a station can also have an impact on how valuable it is to be nearby. Train stations promoting safety with lighting, security and good design can minimise the incidence of crime, and attract more restaurants and retailers to set up in an area.
While this is all interesting research, it is just theorising. There are mild, observable trends in the graphs, but they are not statically significant. This means that without more rigorous research, how close you are to the local train station is not worth being overly concerned about. Rather, where you decide to invest or live relative to a train station is really up to individual preference. It is fair to say that while train stations do add value to suburbs as a whole, you may be just as well off on the quiet border, and still achieve the same growth as the rest of a suburb. Alternatively, if you are not a fan of exercise and wish to minimise walking, being right near a train station should also have no significant effect on growth rates.
3. Millennials Might be Behind Change
While there does not seem to be much of a link between distance from a train station and house price growth at the moment, this relationship is subject to change. One thing that academics have not yet assessed is the effect of different age demographics.
Let’s take Lidcombe: it seems to have the strongest relationship between proximity to a train station and higher rates of growth. Lidcombe is popular with young professionals because affordability, proximity to the Sydney CBD and a trendy culture. ABS Census data tells us that the median age in Lidcombe is 33, which is below the national average of 37. Over 22% of the workforce is made up of professionals who benefit from easy access to the Sydney CBD. We noticed in our research that areas that had low median ages also displayed this same pattern of house price growth. For example: Petersham.
With over 30% of the workforce in Petersham composed of professionals, it may be that reduced commute times to the Sydney CBD is a driving force behind increased rates of growth for properties within 5 km of Petersham station. The median age of the suburb is 35, which is again lower than the national average, and suggests younger people, particularly those without children, value being close to a train station. Younger people without family commitments may also value easy access to recreation. These same growth patterns can be seen in similar suburbs housing young professionals and trendy culture, such as Lewisham, which displays similar growth patterns in the graph below.
It would take the observation of more suburbs to definitively prove this, but it seems different lifestyles dictate the kind of growth rates that you get from being near a station. In particular, stations on the Inner West line show that a real difference is occurring, with higher growth rates nearer to a stations. Therefore this may be something to consider when buying your next investment.
The image below summarises the different growth patterns around different train stations. Remember these represent trends observed from the capital growth index graphs only.
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 Each graph presents the ‘Capital Growth Index’ for properties at a particular point in time. The ‘Capital Growth Index’ is the cumulative growth of a property. This means that from our first data point in 1979, the 'Capital Growth Index' for say, January 2014, tells us how much the dwelling has increased since then. The slope of the line in the graphs from one 'Capital Growth Index' point to another represents the rate of growth. i.e. The steeper the line, the higher the growth rate. Each graph presents 6 lines that represent growth rates of houses or units in different km radiuses.