This trend is consistently behind the biggest gains in property value we’ve seen.
In these ‘New Normal’ times, location is more important than ever. And if you want to grow wealth, particularly over long time horizons, there’s one idea you really need to get your head around: gentrification.
Gentrification is a phenomenon that has raised the values of suburban property prices around the world, and it’s something that we can overlay over the normal ups and downs of the cycle.
It happens when the demographics of a suburb change, sometimes quickly, sometimes slowly, for the better. The place goes from ‘the wrong side of the tracks’ to ‘the hottest place in town’.
Think about what’s happened to the inner-cities of Australian capitals. Places like Newtown in Sydney or Fitzroy in Melbourne – these places used to be slums. No, literally. In the 1800s they were actual slums.
But people’s tastes change.
And this process of gentrification – of an area become more gentrified and more attractive to a wealthier cohort of people – this can drive a lot of capital gain in house prices.
If you can get on the right side of gentrification, you can get in while property prices are still cheap, and capitalise as market prices lift.
The thing to note is that gentrification can happen anywhere.
You can see it playing out. Often it begins with younger creative folks just looking for somewhere cheap to set up their arts studio / coffee roasters / skateboard factory.
That begins to change the tone of a suburb.
Seeing the opportunity, a few professionals move in. They start to spend their money, kick off new businesses. Things start to happen. Interesting things.
An arts festival might find a new home. A funky new gallery, with great coffee might open up. Someone starts a microbrewery out of the old electricity sub-station.
A 24 hour laundromat. (Yep, that’s a thing now!) Awesome dumplings at 9pm.
A rocking little wine bar, or a provedore’s pantry. You tried sourdough, but it was so high maintenance! Now you can buy it down the street, with excellent free range salami.
And the skate park at the corner is epic. There’s even a bike path all the way to the beach!
Location has always been the most important factor driving prices, but now in our post-Covid, work-from-home world, location is tied to lifestyle.
Gentrification is a good way to know a suburb is on the up and up. In fact some suburbs have experienced capital gains rates of 50-100% just in the past few years, due to this happening.
These are the stages that you can watch for in the progression of suburb gentrification.
Firstly, people get together and talk. There’s lots of “Wouldn’t it be great if we had…?” and “have you been to that great little place?” Ideas and visions and shared.
You might get in touch with council or meet with some other business people to see what’s going on.
Next, planning needs to happen to get some of those bigger ideas to the table. Developers show up at this stage and you might notice more building going on.
There might be more animated chatter in the streets about things that are moving.
You might notice more community based activities.
Council might put out for public consultation on some of their plans.
Bigger developments might be in the offing. New schools, hospitals or shopping centres will mean more jobs and more services. And an improvement in lifestyle for all those young professionals.
This makes a suburb very attractive.
So if you notice that the population is getting younger, there are less elderly people, more infrastructure is being created, and that funky little Mexican place is just getting busier and busier, then you’re probably on the money.
Take not of how many premium vehicles you see driving around!
So check out the demographics when looking into up and coming locations. Check for future developments. See how many cafes there are and how many milk alternatives they have.
It may be that the suburb next door is just kicking off and prices are still pretty low. Do some homework, become a local area expert, and get ahead of what’s coming.
If you’re too late to the party, you might miss out on doubling your investment… and some great Margaritas.