https://www.youtube.com/watch?v=z2TkAOaidtg&ab_channel=OnProperty Experts often tell us that the more a suburb has grown in the past means that suburb is more likely to grow in the future. But is that actually true and does the property data back up this idea: High Property Growth History is a Red Flag Select Residential Property 0:00 - Introduction1:38 - Why the opposite might actually be true4:45 - What does the data tell us?9:50 - Last 10 years vs next 10 years12:15 - Applying this to cities and larger markets15:00 - Performance of significant urban areas over the last 30 years Recommended Videos: Why Population Growth Does NOT Predict Capital Growth (Data Dive) Transcription Ryan 0:00Experts often tell us that the more a suburb has grown in the path or a suburb with good growth history means that that's above is also likely to grow in the future. So does the past predict the future in terms of Southern growth? But is that is that actually true? Are we actually making these decisions based on data? Or someone just told us this and you know, general consensus has just kind of agreed to it and gone along with it. So today, I have with me, Jeremy Shepherd from select residential property, to look at the data behind this and say, okay, does pass growth actually predict future growth? Or could the opposite be true? And I absolutely love Jeremy, that you just take a super data approach to this. And you're happy to, I guess, come over the top with some, I guess, counterintuitive views on what may be happening here and just provide us with these knowledge bombs of insight. So super excited for this one. Jeremy 0:56Yeah. Well, thanks very much for having me. on your show, Ryan. And this is this is a topic that I I get a lot of heated arguments with, with experts about Yeah, so I'm always falling back on what the data says Show me. Ryan 1:10What is the premise here that the experts are saying, why why do they think that? If an area has grown Well, in the past, it's going to grow? Well, in the future? What is their reasoning? Do you think? Jeremy 1:23Right question. I actually, it is it is peculiar. Why is it just because it did in the past? Why does that mean it will in the future? Because my initial reaction is, well, if it's if it's grown too much in the past, if it's outperformed, and put a massive gap between itself and you know, its neighboring suburbs? Don't the neighboring suburbs look more attractive, because they're now relatively affordable by comparison. And that's the whole concept of this ripple effect where, you know, you have the ideal suburb, everyone's buying there, they love it, prices go up too high. And then people look for the next best. So they think, well, it's not ideal, but it's it's close enough. And so that reduces demand for the ideal suburb, because then it's unaffordable, and increases demand for the next best thing. And that just keeps happening. And it all ripples outwards from, you know, the most affluent, exclusive suburbs. Ryan 2:26Right, our saying today, you would you would expect from the data, the opposite to be true that if a suburb has grown significantly in the past, then it's less likely to see growth in the near to medium term future. Jeremy 2:39That's right. But as as things just balance out, Ryan 2:41or Yeah, may not be triggered growth, but my won't necessarily see more growth in comparison to other suburbs close by. Jeremy 2:49Yeah, that's right. And I do use this. apples and oranges analogy, where picture yourself in a fruit shop 100 years ago, and you can buy an apple for one cent, or orange for two cents. Now, if oranges grew in value at 8% per annum, but apples only grew at 4% per annum, then 100 years later, you'd be spending 50 cents on an apple and $44 for a single orange. It's It's ridiculous. It's still an apple, it's still an orange. Why would you walk into a fruit shop buy $44, one orange, when you could buy 88 apples for the same price. So what would happen is long before that ridiculous price discrepancy arose. People would think oranges are expensive. What's an alternative? Yeah, apples there, they seem to be quite affordable. So that reduces demand for oranges. And they have a lower growth rate increases demand for the substitute the apples, so they catch up. So that what's more likely is you walk into a fruit shop 100 years later, and it's 50 cents for an apple and $1 for an orange that sort of thing Ryan 4:02that makes discrepancy will kind of counterbalance so we'll kind of try and stay around the same sort of thing. So if you got like in this picture, we've got Bondi Beach here. I think this is a very desirable suburb, obviously. But if Bondi grows by significantly too much, then people will look at the outer suburbs surrounding Bondi to say, Okay, I still want to live near bond I maybe won't be able to get necessarily near it. Where else can I live? Or what are the beaches Could I potentially live at in Sydney that's not bond dye. And so then maybe bond I won't grow as much over the coming years while other suburbs catch up, then, you know, Monday could have a run again in the future, and then other suburbs catch up. So let's jump into the data and have a look at what the data actually Jeremy 4:44tells us. Okay, well, I'll scramble through this come down to my first most important chart. Okay, so this is a chart showing the growth over a 15 year period following a process A 15 year period. So what you can see across the horizontal x axis is the past growth from 1990 to 2005. And every one of these little purple plus signs is a suburb somewhere around Australia Ryan 5:16is this and Australia or just in one city. Jeremy 5:20It's it's all around Australia, but it excludes those suburbs where there was so little transaction volume that the capital growth was was considered unreliable. So it might be only, you know, 500 dwellings for some, for example, in fact, there are an enormous number of localities around Australia, which only have like 50 dwellings. So you know, very rural, very remote places. Yeah. So Ryan 5:44those are excluded. Jeremy 5:46Yeah, yeah, this is just the reliable data. Okay, and what you can see there is an orange dotted line, there's not much of an obvious trend, but once mathematically fitted to this scatterplot. That's, that's the trend. Past growth is is an indicator of future growth, but not how you would have thought or not least not how many of the experts suggest. So the higher the past growth, the lower the capital growth. So you see, over on the right hand side, these are all the suburbs that from 1990 to 2005, had excellent double digit capital growth Ryan 6:27over a 15 year period as well to hold that sort of annual growth for a 15 year period is pretty Yeah, Jeremy 6:32that's, that's quite extraordinary. Yes. And that over the left hand side, they had very poor growth, all of these suburbs have poor growth over a 15 year period. Now that the suburbs at the top had excellent growth over the following 15 years, the suburbs at the bottom had poor growth over the following 15 years. So Ryan 6:55mostly, for people who are struggling to understand this graph, or each every cross is a suburb. And the higher up that crosses on the graph means that you know, in the future, like I say, you know, if we were in 1990, looking forward, is that when it was no 2000 2005, they were in 2005. Looking forward, the dots at the top of the graph are the ones that would have performed better and the dots down the bottom of the ones that would have performed worse. Jeremy 7:25Hmm, yeah. So if past growth, high growth is an indicator of future, high growth, and past low growth is an indicator of future low growth, then we would expect a trend line that goes from the bottom left, up to the top right. But instead, as you can see, it's it's pretty much the opposite of that. Yeah. Which means if you've had some good past growth, you're more than likely to see some poor future growth and vice versa. Yeah, but it makes sense. That's nificant. There. That's right. Ryan 8:00Yeah, most of those are clumped in this major circle here between, you know, 4.5, to 10%, in the past, and what 3% to 8%, in the future, most of them are all kind of clumped in there. With no real trend there, if you took out the outliers, or the massive cuts right here. Jeremy 8:20I mean, to say that this is a trend is a bit bit of a stretch. So really, what we're looking at here is, there is no relationship between past growth and future growth. But if you wanted to believe in one, it's actually the reverse. So Ryan 8:36what I will pull from this graph myself, personally, is that if an area has had an extremely good growth, if it's one of the outliers, you know, clustering insane growth for that 15 year period, then I it looks like there's less chance of it performing well, or being one of the best performing suburbs in the future 15 years, versus picking something more in the middle that's, you know, kind of had average growth that could be a high performer. Could be a middle performer. Could be anything, really. But all I can really say from this myself, is that, yeah, the ones that had really significant growth in the past, are less likely to perform, because if you look from 10.5, up to 14.5, you don't really have any suburbs they're in the higher, you know, the higher growth in the future. Jeremy 9:23Yeah, that's right. Yeah. And these are, these are extreme sort of figures. But yeah, you're right. There's a clump there. But I mean, bear in mind that this, this plot is considering every one of those, those points, so it's the closest relationship we can get. But there's a better chart. If you let me just scroll down. And it looks at 10 years, last 10 years in the next 10 years. And this might be an easier one to look at, rather than a scatterplot.
