Amenity Vs Affordability
Whether you’re looking to purchase property to live in or to invest in, the principles of amenity Vs affordability should be a consideration in your decision-making process.
To explain this concept, we will use the example of a lower-priced property 30km outside the main regional/city hub (Property A) and a higher-priced property in the midst of it all (Property B). In this example, both properties are of comparable size, age, and fit-out.
The difference in pricing is determined by the cost of the land. Property A’s land value is quite low due to limited social infrastructure and distance from the city centre. Property B has a higher land value due to its close proximity and easy access to a range of amenities such as shopping, dining, entertainment and business facilities.
Property A is considered more affordable because it’s purchase price is lower.
Property B is considered less affordable because it’s purchase price is higher.
What we’re talking about here when we say affordability is the price for accommodation. However, we all know that the cost of living encompasses many factors, not just accommodation. So, if we change the way we look at this scenario, although accommodation costs may be less for Property A, all other costs increase.
Dormitory/’affordable’ suburbs have less access to social infrastructure, which reduces lifestyle/quality of life or increases the cost of accessing lifestyle (cost of commuting). The cost to access both entertainment and simple life necessities such as employment and shopping can mean a net increase in the cost of living, compounding the lack of access and quality of life.
In more expensive areas, the land costs more because of all it gives you access to. People will pay more for accommodation if it costs them less to access social infrastructure, employment, amenity, and lifestyle.
If you’re looking to purchase for yourself, consider how much you will have to pay in commuting (whether it’s by public transport or your own vehicle) in monetary and hourly sacrifice to access your work, education, shopping, entertainment, medical needs and more. Does Property A or Property B seem more affordable overall?
If you’re looking for an investment, consider all this for your potential tenants and the likelihood of being able to find someone to rent your property with plenty vs limited amenity. You may think a lower-priced investment might be a lower risk, but really, it could just be a lower level of debt. A higher-priced investment might be a larger bank loan but perhaps there is less risk in finding a quality tenant who will pay a higher price for all the amenities?
Now we do have to qualify something here, we’re trying to point out that difference in two areas and why it’s about demand not price. It’s not all about ‘paying more’. This example looks at two similar properties priced differently due to the area. That’s not to say that in the area Property B is located there aren’t cheaper options that should be considered. However, what we often see is when people are looking in a higher-priced area, they can sometimes struggle with smaller lot housing; often qualified with the comment ‘I wouldn’t live in that’. It’s important to note, your view may have nothing to do with demand, returns, and growth. It’s about understanding who lives there, who will live there and why. It’s also important to keep in mind that the demand to be near amenity is a key driver of price growth and as an investor, your return on investment is a factor of both the rental return and the capital growth of the property. So, we need to start with the end in mind.
If you’re trying to make investment decisions based on price alone, we sincerely urge you to speak with a property investment expert to help you determine the right strategy for your circumstances and goals. They will help you find the right property to fit your strategy and meet current and future market demands and real success might not come in the location or the type of property you may have originally thought!
Want to review your options with an expert?