Do Properties Near The CBD Actually Get More Capital Growth? (Property Data Dive)

https://www.youtube.com/watch?v=F9rz9q5B74c&ab_channel=OnProperty We are often told if we want the best capital growth we need to buy as close to the CBD as possible. But is this actually true and is there any data to back up this advice? Why There's No Need To Buy Near The CBD Select Residential Property 0:00 - Introduction1:13 - Issues with prior reports6:35 - What trend you'd want to see if this was true8:10 - Calculating the data9:25 - The results11:45 - A problem that makes this difficult to assess13:30 - Change in growth/m216:35 - Yield vs distance to CBD19:20 - Don't just look at one data point20:25 - Volatility vs proximity to CBD22:30 - Why are properties near the CBD more expensive? Recommended Videos: Why Population Growth Does NOT Predict Capital Growth (Data Dive) Transcription Ryan 0:00We're often told that if we want the best capital growth, then we need to buy as close to the CBD as possible and that the further out you get from the CBD, the less capital growth you're going to get in that suburb and in that property. But is this actually true? Today? I have with me, Jeremy Shepard from selected residential property to talk about this. Do we actually need to buy in the CBD or as close to the CBD as possible? And is it true that the further out we get, the worse our capital growth is going to be? When we look at the data? Does it actually tell us a different story? So hey, Jeremy, thanks for coming on today. Jeremy 0:37Thanks for having me. on your show. Ron. Ryan 0:40No worries. So yeah, this is one that I'm really curious about. I know that you take different angles, other people, you look at the data, I guess more, I don't know, less emotionally, you don't draw conclusions as quickly as other people do? And you tend to say no, what does the data actually tell us? And sometimes you throw your hands up and say, Look, it doesn't really tell us much. So I'm excited to hear what conclusions you come to and what data you've looked at. So don't talk us through a bit about what research you've done, what conclusions it's likely to? Yeah, well, Jeremy 1:11I guess it was all triggered by having a look at some prior reports, I've seen quite a few. And it all seemed very convincing. And I tried to replicate the same sort of results and just to a little more well rounded job of it. So for example, people refer to inner ring, middle ring, outer ring, why have we got three rings? A lot of the reports I've seen have just focused on a single city. And I just thought, we need something a little bit more broad. What I wanted to know was, what is the improvement in capital growth per kilometer closer to the CBD? Is it possible to come up with a metric like that. And really, what I found was, there's not really much in it. And it's debatable whether there's anything in it. In fact, if I just scroll down, I think there was a Okay, so I go through some other reports and just point out some of the shortcomings, or some of these reports were quite a few years ago. So we can't really, you know, point a finger at what was done then it was was pretty good for its time. But there is a chart or where I cut to the chase. So I'll just if you'll bear with me, and I Ryan 2:24will link to this article down below if people want to go through this go through it in way more detail than we're going to cover in this video. And you can see all the graphs and things here. Jeremy 2:34This is a great one from two big names in real estate. Well, two big names in data in general RBA and real estate Institute of Australia. And, and this chart is a little bit hard to absorb. But what they've done is they've they've tried to create a ratio between these two timeframes, 2014 and 2008 2008. two and six. And the idea of this chart is that prices are getting the difference between inner and outer rings is getting larger and larger over time. So all I did was I tried to replicate this exact same chart, but for two for different time frame. And I've got completely the opposite result. So where's my one? Ryan 3:27I don't even understand what this chart is trying to tell us. Jeremy 3:31Well, yeah, okay, so Ryan 3:32his inner ring, and where's the outer ring? Jeremy 3:35Yeah, where exactly where do you draw the line? That's, that's another issue. What is Ryan 3:40it? Like? What does red mean? What does blue mean? What is medium prices? How much? Ring house versus an outer ring house? Jeremy 3:49Yeah, that's right. Okay. And that's it's 2006 versus 2014. So, you can see that in every case, the blue is higher than the red. Ryan 4:02That is the ratio is getting higher inner ring, the growth of inner ring houses outperforming the growth of outer ring. So you want to kind of 2014 the ratio should be higher than 2006. If the CBD is going to grow faster. Jeremy 4:18Yeah, that's right. And so if this was what you looked at in isolation, you'd be thinking, Well, yeah, I better buy closer to this CBD. But quite often in these sort of capital growth analyses, it's quite important way to set the finish line for whatever race you've got set up and he they've set the finish line just as a 14, maybe this this came out in 2014. But I tried to replicate it. And just for two different dates, nine, another eight year period, but this time from 98 to 2006. I've got pretty much the reverse. And and this is the whole thing about you know, surges in booms for cities, they tend to start in the affluent areas which are closer to the CBD where there's more expensive property. And then that growth tends to ripple out towards the fringe suburbs over a period of years. And Ryan 5:15talk about in future videos is that the top end of the market, how it does fluctuate more, it can grow more during boom period and get into decline more during You know, that's right periods. Jeremy 5:27Yeah, so depends where you set your start and finish line. So what we need is something that's a lot longer than just eight years. And also, I Ryan 5:34can already see the downside of this draft, as well as it's only talking about detached dwellings or houses. And obviously, you're looking at the CBD of Sydney. How many detached houses are you going to find in the CBD? Jeremy 5:47Yeah, that's right. Yeah. Ryan 5:50I mean, it's out there. So it's kind of it's not really comparing apples to apples? Yeah, well, what Jeremy 5:55I wanted to do was it was create a lot more rings instead of just three. And then where do you draw the line is an inner ring within five kilometers, it could be, you can't use five kilometers for every city in Australia. So I thought that the best way to get a general trend about proximity to CBD is looked at multiple cities over multiple time frames long term, and using a large number of rings. So what Ryan 6:22I did find out, Jeremy 6:24yeah, he's just more reports more previous ones, I'm just picking holes in, in the, you know, the, the way, the methodology. Okay, so let's say that we had 10 rings instead of three. And now this is just fictitious, you know, a theoretical chart, Ryan 6:45there's not actually done on this chart Jeremy 6:47you've just made just to show the point of why we'd want 10 rings instead of three. Because now we can plot a trendline and see, well, what is the general rule going on here? If you've only got three, like three in in our middle? Well, we can't really plot a trendline so that's why I thought let's come up with 10 rings. And instead of, well, here's an example of like, you know, what are the growth rates for each for each ring? So this is just hypothetical stuff, then I get into the the actual so here's another good good question. What do you do when you don't have a completely circular city? You know, like Melbourne, you know, a few kilometers to the south and you're you're in the water. There's plenty plenty out to the east but the greater metropolitan areas a bit short on the on the west, so goes a long way down the South. I mean, did you know that the greater metro area went that far south I didn't it's it's extraordinary. So what I did Ryan 7:44was so the morning I created Tim Peninsula, which I know is a popular area is so far from the CBD, but it is a highly desirable area. Jeremy 7:52Yeah, yeah, that's that's a good point, too. So I came up with GSR, so I put, based on the distance from the CBD, I put each suburb into one of 10 buckets. So the 10% of furthest away suburbs are in the 10th desolate, so when you see over there either, so the inner ring would be in the first decile. So instead of actual kilometers, it's just evenly sized buckets. And that way, we don't care about the shape of a city, because we've got the same number of dwellings in each Ryan 8:31or so. Okay, so it's not, it's not necessarily Okay, here's one to five kilometers, five to 10 kilometers, it's the 10% of suburbs closest to the CBD, then, you know, the 10 to 20% 20% 30%. And then when you get to the end, it's okay, here's the 10% of suburbs furthest from the CBD. Jeremy 8:51Yeah, that's right. Which, like in Canberra, Canberra might only be you know, 10 kilometers between Sydney it's like 80 kilometers, right to the the outskirts. Ryan 9:00Yeah. against what big cities as well as smaller cities and can work for shrine. But I did Jeremy 9:07limit this to only the cities with populations of a million so it's, it really is just Sydney, Melbourne, Brisbane, Perth and Adelaide. Yeah. But it could be extended to other cities. Okay, so this is this is the rub real data? Yes, this is this is a real data this is actual. So you can see that there does appear to be some sort of a relationship for the first three decimals, and then it goes flat. So you'd expect if this is a true relationship, you'd want it to continue to decline the further and further you are away from the CBD. And this is growth over 40 years.