375 - Perth vs Melbourne Property Investment ft. Lachlan Delahunty

You're listening to the Perth Property Show. Australia's only weekly property podcast by West Australian experts for West Australian listeners. Catch your latest episode every Monday at 7am. Good morning, everyone. Welcome to the Perth Property Show. My name's Trent Fleskins. Your host, as always, and one of the industry is one of the most popular guys on our podcast. He's back in the studio. It's taken us a month outside of Christmas to get him in. He's usually one of the first to come in for the year actually. It really sets us up for a conversation about where Perth's market's going these days. It's none other than Locky Della Hunty from Folio. How are you going, mate? Trent, could we be back? We have a lift at late. Normally, we do our predictions first week at Jen. It's been too long. It's nice to have your back in the sphere and have your conversation about property. Notwithstanding the fact that you're chatting with Rhys on a weekly basis these days. And congratulations on your own podcast, mate. You've certainly got yourself a very fervent following, it seems. A lot of people commenting on what is becoming a very informative chat every week, mate. What was your idea that I should do on Trent? So I think a lot of credit goes to you and Rhys for kicking off the folio property podcast. I love it because what it means is we're having more conversations every week. The more good information out there in Perth, and this is why we started the Perth property show over seven years ago. The better property decisions we're making as a community and therefore the stronger our market should be as a whole and the less brokers from the East Coast that get a look in. And I think between you and I, that's one of the things we agree on the most when it comes to property is that value system of making sure that we're making strong prudent decisions about property and not getting on the bandwagon and joining the locus swarm that seems to be a bit of a club these days. Which leads us into, and segues us into this episode, the name obviously gives it away, Perth, V Melbourne, investment strategies. It's one that I don't think has been very relevant for quite a few years. And before that, it wasn't that relevant when Perth was in the dark as it's been going around. It's been going around. And we know those who have listened for seven years now on the podcast, we know Perth's journey, we're going to summarize it a bit as we go through this episode. But we'll use it as a bit of a sign posting for something you've been getting a bit noisy about over the last quarter in your own conversations. And that's the Melbourne market. It's not something that we have ever spoken about on the Perth property show. The Perth property show clearly is about our own market. But I always think it's good to be able to balance off our stats and use those context for what's going on with other states. And I think it's time to have a conversation, especially giving them out of research you've been doing. And the fact you spent the first half of your life in that state as well. You're the man to talk to, at least in my sphere, about what that looks like. I think the first thing that we should probably chat about if you're okay with it is the general idea around investing outside of your own state. Now, whilst you guys in your own business have clients around the country, this podcast is for Perth people as the intro says right. So the listeners, by and large, are West Australians. They may be looking at the Perth market and have done really well over the last few years. They've got some equity and they're making a decision around an investment property. Clearly not known or occupied because they want to stay in Perth, the best state in the country. I agree with that. Maybe they're thinking about investment property. Maybe they're seeing some YouTube videos saying, "Hey, look at Melbourne. Perth's done. Have a look at Darwin. Have a look at other states and territories." You're really doing all the way. Yeah. Yeah. So let's talk about Melbourne. But the first thing I guess we want to talk about is that risk profile on what you need to be confident about in yourself to be investing outside of your own state where you should be an expert. You should know the first advice I would give is when you're first buying property invest within 5Ks of where you live because you know the streets. You know where your safeguards need to be. That one's a dodgy street. An issue with noise or maybe pollution or bushfire risk or whatever it is in your own five-kilometre sphere. A lot of people over the years, and I would say it's tens of thousands of Western Australians over the years have been caught. And this is why the podcast started getting screwed by Sprookers pulling them out of the Perth market where they're comfortable and they're fairly safe with their decisioning. Or over to a Western Brisbane market, a West Melbourne market, a unit market somewhere that they've never been in a suburb they've never heard of. And getting a total story. I'm not suggesting it's arbitrarily a bad decision, which is why we're having this podcast. But the first thing you have to speak about is how do you safeguard yourself as a Perth investor if you're ever going to invest outside of your market? Yep. The first point you're raised there is a risk profile and this is what's really interesting because they don't argue on the other foot that and this is where we may agree with this agree that exposure to one market be that in shares or other investments outside of property but being exposed just to one asset class one market is arguably more risk. And then we talk about a little bit on our podcast it's about diversification in any asset type but particularly in property is also naturally a good thing. But that comes at some inherent risk when you're investing outside your backyard or what you feel comfortable with. So diversifying for the sake of diversifying is not the solution? No, absolutely not. But it's important to consider and always start the conversation there. If I've got all my exposure, all my eggs in one basket and if you had asked anyone in Perth in 2015 or other local buyers agents that only bought in Perth during 2010 to 2020, I think if they had their time again they would have done things completely different because that's all their exposure in one market that suffered during that time. That's an arbitrarily a great point but then how do we make sure that when we are diversifying we're actually safeguarding ourselves in the same way that far more conveniently we would be in Perth. If you're a Perth buyers agent and I live in Morley and you're suggesting for me to buy something in River Vale. If I'm a North River boy, I'd hear their River Vale. I may not have gone there often but I'm only in 10 minute drive away to go drive the streets and understand the feel of the place. I'm not often doing that in that situation of going across the country. I agree. So what are we doing here? First point is always education right and there's so much information out there. A lot of podcasts, there's a lot of sprukers but hopefully our job is to educate the listeners on what to look at and for and what not to look at for. So you can never educate yourself too much with local markets. You may even want to visit and get an understanding where you are. Obviously you want local expertise, you want legs on the ground. We do have a buy agent service but I'm not need to plug that but anyone who you were to use and I use professionals, yes you have to pay for that service but I want to make sure that there are local specialised buys agent that know the market far better than I do and wouldn't know Williams down as well as you know Mollie. So I think it's super important to make sure you surround yourself with the right team but also educate yourself. Otherwise you do have the ability to go on a market so far and that you could make a mistake. How do we differentiate between a padbury versus a hillarise or a cool ball up versus a melville? The next to each other geographically in Perth, right? They're very different, right? But there's a totally different demographic and socioeconomic space and I can imagine myself being concerned that I'm being given an opportunity 15k's out of Melbourne in a suburb I probably haven't heard of, right? It's called a box hill or something like that, right? I've heard a box hill because of the 40 team. I have no idea what box hill means. I don't know if that's the good one or the bride's made one. How are we actually making sure that we're keeping our consultants, our buyers agents accountable in that space? Or is it just a case of Trent, if you're going to be a Perth person, buying in Melbourne, you've got to get there on a plane. Is that required? Is that non-negotiable? Or is it actually not? In this day of technology? It shouldn't have to be. If you're advisor, you're a buyer's agent, the person that's representing, you trust them in full and they're doing their job in full capacity, they should in theory do a far better job than what you can do yourself. And when I've used buyer's agents local specialists in areas that I'm not familiar with, I know a few suburbs in Perth, but I can't say I'm an absolute specialist because I haven't lived in every suburbs of Perth, and when I've had to buy in areas where I wasn't specialised, I've seen great value by using a localised specialist buyer's agent that told me don't buy that house because next door was previously housing commission, and that has a lot of issues associated with it. Or don't buy in this street because did you know there's potential DA down the road for a child care centre? I didn't know that, unless you live in the area. You need to have the conversation. Are they in the area? Now with the right questions, you can find out pretty quickly how well they know that local area. What's the demographic? What's school catchment? Straight off the phone. Give me the three local primary schools in the area. Okay, what's the major hospital? What was the shopping precinct there? What's the demographic of own occupies? They can't realise stats off straight away. Maybe probably not with the right person. When we think about housing construction, we know that obviously Perth and Adelaide stand out in themselves a bit and that they're all double brick. When we start to look at properties of Melbourne, Sydney, Queensland, we start to think about different construction methodology. Stuff that in Perth, we may not actually be super happy. We may turn that away. It's a bit different over there, isn't it? Yeah, it is. It depends on your Queensland. You've got the traditional Queensland. A lot of timber construction, which is a bit foreign for Western Australians. Majority timber. And that's the problem. You have to get your head around what is acceptable and what is the market norms in different areas or different states. And in Victoria, it is a lot of, I'd say, 89% of it is timber construction, or brick veneer, which is obviously instead of double brick, internals timber and the externals brick. Okay, slabs on the ground. We're expecting that or are we on stumps? It might be similar to Perth. Anything pre-1920s is likely on stumps in Perth unless it's brick, but all the timber homes in Big Park are typically on stumps. You'll find the older constructed homes will be on stumps. Anything built in the last sort of 20, 25 years will be slave construction. When we think about our segments in Perth, we have the golden triangle, the Western suburb is getting northern beaches becoming very much blue chip anywhere from caught or slow all the way up to Mindari, to be frank. Yeah, well we start even as far as free men or even further south. Of course you would, yeah. And then you've got your river line down Canning Highway. Those are the blue chip areas in Perth. And we also know that on the flip side, at the end of the train line in Amadal, Kwonana, you've got your Kondola, Mirabooka area. These are probably the areas that are the lowest socio-demographic parts of Perth. Can you give us a bit of a comparison in the Melbourne space of where you would put those buckets? Yeah, it's really a good question. I think people that listen to a lot of podcasts and get a lot of that clickbait would be getting suggested to invest in the out of west of Melbourne or potentially the out of north of Melbourne. There's a lot of information around that. That would be the equivalent of buying up in Turox or buying in Amadal. Okay. And strongly recommend against that. But that's typically where there's a lot of activity because there's a lot of supply and it makes it easy for those type of buys agents to buy that. So we want to be avoiding those areas. There's a lot of loud people in those areas. Very much. And there's a lot of house and land package type of states which we know that can bring on supply. So we have concerns about that. Where we see the value or the opportunities in those more blue chip affluent areas to start with before the prices run away. So you think about Perth in 2019 you could actually buy something in leadable for under a million dollars. And I bought my house in 2020, in leadable for $800,000. Okay. We want to replicate that in Melbourne now. And we'll buy in a suburb such as Richmond. We'll get a terrace, a house similar to Suviaco for 1.25. Fantastic. Or we might go further out to say Q. Still a very much a tree line suburb similar to say a leadable. Probably slightly superior to that. And we can pick something up with a bit of land for 1.31.4. So I can peer Melbourne now to where Perth was in 18 and 19 from where we see the market at. Where there's still some supply available. So it's not a bidding war that we're seeing in Perth at the moment. And those blue chip areas haven't ran to the point where they're outpriced. In Perth, I've been suggesting since I've been a professional in this space that there's 4K drivers for value. Water, proximity to the city, school catchment zones and activity centers. Melbourne is set up a little bit differently, right? The beach is suck. Yep, there's not really a good river. So what are our big ones? Transit transports number one. And that's in Perth, I think it's a little bit understated because everyone's got a car, right? It's not the case in Melbourne. So transport knows it's super, super important. Train lines in particular. Obviously they've got trams as well. But getting access to the CPD in Melbourne. If you live 25, 30 minutes traditionally from the city, that takes you 2,000 pkg traffic. So being close to a train line becomes super valuable similar. Not as extravagant as say London. If you're on the tube line, it's 10, 20% increase if you're close to the row line. But it certainly would be a five to 10% difference by being within proximity to transportation nodes. If you were to be spending one and a half million dollars, let's say, in Melbourne right now, where will that be suburb and where is that suburb compared in relation to the city? In a ring right. So if you look to the east, you look in at Richmond, Peran, Windsor, Chapel Street locations, at Hawthorne, it gets more expensive there. So 40 times, the fun places. Exactly. Everyone's familiar with that. In the north, all the funky in hipster places, like Fitzfroy, Brunswick, Colleenwood. Again, similar to probably like a freemen or vibe. But close to the CPD within three to five kilometres. And in the south, you've got south Melbourne. As you make your way through to the coastal areas of Sanctuary and Ham, etc. So I think the best value in Melbourne in my eyes at the moment is between that one and a half. As we've spoken about previously, off air and a huge push in the markets below that because of the first-home biogram, which I believe is now probably artificially a little bit inflated across the board everywhere, everywhere. So we want to stay clear of that to some level and get in that sort of one to one and a half price point where you're targeting homes that are typically going to be attracted to own occupier appeal. But they're also aspirational suburbs, right? There's equivalent to your subiacos, your west leaderville, Wembley's, floriate type suburbs. Okay, so that gives us some great context about what it might be where you'd probably want to keep your guardrails if you genuinely are looking for Melbourne because I'm not here to suggest that Perth's always going to be the best place to invest forever and that no one they're going to look for it. It's like having a teenage you're going, at some point you're going to drink a beer. Let's get an understanding of how you stay safe when you're going out there in Northbridge or something. And I guess that's the point of the conversation today. What I then wanted to do is talk about the realities of having a beer, right? And where we are right now versus where I see Perth that is having a sparkling water. A little bit of carbonic acid, but for the most part, not super risky right now. And also the idea of why, from your perspective, Melbourne is a place not just arbitrarily, not just from a main reversion argument of it's been down. So it has to go up. We've seen Darwin, for example, spend 10, 10 years since the impacts project. It was down because for the genuine reason of there was nothing going on. And the only reason Darwin's going up right now is because of replacement. Yeah, because of real placement costs in yields. Because essentially inflation. That's the earneries and people are seeing value in Darwin. On this wave of it's cheap, too. So the wave of buyers agents are going and they're buying things up and naturally artificially inflating the value there. Yeah, and we saw that early days in Perth to be frank. Yeah. So what I wanted to hear from yourself first up is in giving you've got the context of Melbourne 100 times more than me and the story of it is other than it's been cheap for a while and I think it should be worth more, why would people actually look at Melbourne totally disregarding Perth in the first place and we know why at the moment people would be investing in Perth. But why Melbourne right now? Give us your pitch. Yeah, that's a very good question. And just to say it's cheap is not a reason to invest somewhere. And cheap, it's still not cheap. Yeah, it's relative. Comes back to the fundamentals we talk about, supply and demand. And that's all I'm ever looking at is where's that going to come from? And on the demand side, what is the best forecastor for activities is population growth. And if you look at the two leading capital cities in Australia right now that it have the largest population growth in the country, it's no surprise Perth leading the charge and closing in very fast is Melbourne. Has that changed? Because my understanding was for a few years, Melbourne was in a net deficit on the immigration. It was, that was COVID. Everyone left, right? We got to allow people from Melbourne. Exactly. Everyone wanted to get out these mass activists and it's been, I want to say overstated. It was probably rightly stated that the government spent all this money, lost the Commonwealth Games. Everyone left because they had two years of lockdown. But our largest city in Australia is Melbourne. It's got more jobs than any other state. It's a sports hub, sports capital of Australia as well. So naturally, it's a fun place for a weekend, but what's actually the. Where's the data? They're all coming back. So interstate migration. It's got the highest interstate migration in the country at the moment. And it always gets its overshare of overseas migrations. Because typically, when people come to Australia, they go to Sydney or Melbourne. They see the headlines. Of course they do. Sydney and Melbourne, some won't even know where Perth is. But Sydney's so expensive and has been now for quite a few years to rent or to buy home that more of that migration from overseas is now going to Melbourne. So all of a sudden, they're getting all these people from Darwin, Tasmania. All those people went away on holidays up to the central coast. Now coming back to Melbourne because their family's there. Yeah. And they gravitate back to Melbourne. So all these interstate migrations coming back. All this overseas migration that typically goes up to Sydney. It's so expensive we've got to go to Melbourne. So it's just sheer population growth. And throw that with the affordability play. I know Cheap's doesn't really have its place, but affordability does. So overlay, strong demand underlying by now what is an affordable market to rent and buy for the first time in a long time. Melbourne becomes affordable to live. So the cost of living now becomes less. Is the argument there instead of it being a bride has made suburb, it's like a bride has made a city to what is becoming untenable in Sydney? Without a doubt. And that's driving us. It's a sustainable market. I'd love to live in Sydney. I just can't afford to live there. So let's go to Melbourne. And now it is the largest population city. And I think for that reason, because it's not as landlocked as Sydney and other markets, that you can still get affordable property. And then that demand that we're seeing going in there is only every quarter when we go through the data is only increasing. So I think that's when I think it's cheap, because it's cheap. It's the sheer demand that we're seeing in Melbourne. And we look at this year still believe Perth will have a full moment. Don't get me wrong in terms of capital growth. The fundamentals of Perth, data sets alone. Still the strongest market in Australia. So let's not show away from that. Yeah, I want to talk to that sort of get to a comparison as well. But I want to keep looking into where Melbourne's been going first. So you're right. In my understanding, at least, and you can correct me on this, that days on market has been tightening. It's come from about 60 days down to 30. Correct. It's still no seven. Not that I want to compare yet. But it certainly has. It is showing a reversion there in terms of going from what is a tanked 2018 Perth market if I can give some context there. Coming back to some level of normality. We also know that we're seeing growth, right? Like, my understanding from just reading news articles is that the housing market is quite detached from the unit market and that the housing market itself actually is undersupplied. But the unit market is pretty market and especially around your South Bank, Docklands, apartment space. It's like Perth bad. Yep, back in 17, 18 levels. You noticed that it's quite detached. It's two tiered markets. It's a two tiered market. And that's what we're going to be really careful when you do invest in these markets to understand those fundamentals. Because you could go in there and in Perth at the moment, you buy a unit. You've got 10% growth within a couple of months. But in Melbourne, you buy an apartment. You think, OK, I'll just do the same over there and buy one better apartment in South Bank. I can afford it. Yeah. You probably could likely lose money. So there has historically been a huge over-supply in Melbourne of apartments. Because that a wave of, until they clamp down on these buildings. They're really good at developing apartments. They have. And before they clamp down on overseas investment, it was a safe haven. Everyone was just parking their money in Docklands and some of these buildings didn't have the electricity turned on. We're talking three 400 apartments because they were all just safe havens for cash. So no one was actually living in these apartments. But you've got to look at the stock. So one thing COVID didn't mean is we essentially shut down building, particularly in Melbourne for a couple of years, for the most part. So what was extremely oversupplied market where you're losing all these people to interstate has now become very much an undersupplied market. Because who didn't go bust, took a long time to finish their projects. And now there's not enough builders in Melbourne to keep up with the demand that's coming in. Similar to what was seen in Perth. And that supplies which, but I do agree, I certainly wouldn't want to be going to Melbourne and buy an apartment in a market that is still arguably oversupplied in that space. Yeah, it does sound very 2018ish from Perth to me in that I was buying and developing product in that time. But it was a very unique niche space that I was in. To be frank, I was simply just developing triple X's about 15Ks out of Perth. I knew exactly what I could buy it for. I knew exactly what I could develop for. And within $5,000, I knew what I was selling it for. Perfect development conditions. Yeah, but if I was to have his bought and sat on that, I wouldn't have seen the growth that I wanted to see either. And I wonder if there are actually development opportunities in Melbourne. This is next level investment strategy that people living in Perth, investing in Perth may not even be at the moment. But I wonder if Melbourne actually is showing some of that too where adding specific infill supply knew of product to downsize the market, it might even be a safe place to be for those who have the risk profile as well. Yeah, I think that's a huge opportunity in the market because the land is sat there and with the land tax often talked about with Melbourne. It's actually not dramatically different if you buy and want to invest in your personal name. But if you've got multiple assets in trusts or in your own name, then it starts to really stack up. So those that have been landbaking historically are now selling those because the land tax is so high. So I think there is an opportunity for investors. Let's have a look at that concern that people have. You mentioned it just then. What we've heard from Western Australia on the airwaves is that Victorian government, which is bankrupt essentially, which is a concern from an economic activity point of view from my side, has tried to rein in that money side of things with fairly punitive property taxes. They've also had fairly aggressive hit on landlords with regards to the equivalent of the Rental Tensies Act as well. You can't have no reason evictions and things like that over there now. Which is pretty horrific, I think, if you're trying to sell a property. What's your update on that from your understanding on the ground with the tax policy side of things? Yep. So I think the three things that get the negatives with Melbourne get really overstated. First up, economy on its knees. The second is the crime issue. And the third is the land tax issue. Now, investing in your personal name versus a trust, different tax rate applies. But when you're just looking in that threshold, we spoke about before, say, between the difference between buying an investment property in your personal name in Perth, compared to Melbourne, isn't dramatically different. It is more, but it's marginal. And it does depend on the property and the land value of that property. It's the land tax. But it's definitely overstated in that regard. Different if you go and buy a $3 million property or you're going to buy multiple properties. In the scale? It does start at the scale's far more aggressive than Perth. And in Perth, if you had any different names or entities trust, so you've got to get good tax advice first and foremost. But it is overstated, the difference in land tax. Okay. That's important to know. Because we don't want to have that sledgehammer understanding of these things and have it shy away from it. If there is a pocket there where you might want to diversify with one property or two properties that stay under a threshold, before it starts to really get punitive, that's important to understand, right? It is. Stock market's been dropping, as I mentioned. I believe a balanced market in Melbourne is like 30,000 properties. Yep. Stock market in Melbourne is at 18,000. It's below a balanced market still. It's just not Perth levels. Well, levels is not. It's extreme right now. But it's not like the Melbourne numbers are at the equivalent of what Perth was in 2019, which was 17,000 versus a balanced in Perth of 13, as we know. It's still normally undersupplied. That is what I find quite interesting is the idea that it is normally undersupplied. It's like maybe the equivalent in Perth of 8,000 properties or something like that, which at the time was a fairly frothy market in Perth that was really going on the recovery path. And at the time as well, I guess the unit market wasn't going anywhere either in Perth 2's. I'm trying to find some parallels. You probably can notice that between my personal understanding of the history of Perth's data and where Melbourne is now. And I guess it does correlate a bit in the idea that at that point in time, Perth's housing market was really running far more than what Melbourne is right now. I guess given the COVID influence and the interest rate influence as well. But Perth's unit market was not. That sounds exactly what we were talking about 10 minutes ago. Yeah. No, it isn't. You can draw parallel levels. And I think momentum has a lot to do with it. We look at Perth. We at least, if you look at the bottom of the market in 2018, maybe early 2019 started to warm up trend through 19, 20, 21. But you look at the growth. More than 50% of the growth has happened in the last three years. It's significant growth, but takes a while for a market to get out of a slump. And, albeit the fundamentals may be right and have been right for Melbourne for maybe a year or two, sentiment hasn't been there. And that. We don't understand why. People are pretty down on Melbourne just life in general, right? It takes a bit. And we've only started buying there 13, 14 months ago and very clear with my clients and myself personally, we're likely getting in too early. And we may see a slow down last year, but in hindsight, no one's ever going to pick the top of the bottom. We probably got in maybe two or three months too early, because it probably dipped before Christmas in 2025. And we'll get into the three months before that. You don't invest in property first. No, exactly. So I think you can be a little less critical on yourself about that. And that probably talks to the point that you want to be investing for at least a decade when you're holding property. And if you get out earlier, it's taking advantage of an opportunity. That's the only opportunity cost. And that's, let's be honest, the opportunity cost there. If you're investing in something in Melbourne 14 months ago, what's been the opportunity cost for a perth client? Yeah, you've probably got yourself 20%. So you've got a factor in those things. Every individual client circumstances are very different and they're at risk profiles different and they're exposure to more diversification argument, isn't it? I assume that's what you would have been going with at the time. Yeah, you've got a client that's going to heavily invested in one market. And we know markets, we've got a very good indication what's going to happen with the next 12 to any months, two years. But when you meet him at the client, we're typically not talking about what's happening in the next 12 months or two years. We're talking about what's happening in the next five, 10 years, a little bit more holistic approach. And like I said, Melbourne last year had almost 5% growth across the board. So markets, frankly, did almost 20%. There's various markets within markets. But regardless of that, we're going to get back to the point. The momentum has swung in Melbourne last year. And so I do think, again, this year, I don't think it'll be the highest before we market, but similar to where birth was in 2021, it builds that momentum. And when you're buying that cycle, it's the quality of asset you can buy when you're not having to pay 5% over market value, just cure a blue chip family home, right? That's where I see the opportunity. Because when the market, like it is now, you don't really have selection. And that's when people buy compromised assets. And that's where I get a little bit concerned. So I think that's where I see the opportunity. A market that's building momentum. Certainly, I don't believe we should lights out in the short term. But when it gets momentum, I want some exposure in that market when it kicks off. Is it somewhere you're personally getting into at the moment? Yeah. Yeah. And that's telling, right? The money where your mouth is. Now, I wanted, I guess, then take away the whole diversification argument. Yep. Because some people may be looking at their first investment right now and they're from Perth. Yep. So then it comes down to a pure conversation of, and this is where it may get a little debatey even, is what does the next five to 10 years look like in terms of where Perth's going versus where Melbourne's going? If you're starting at a zero basis now. Yep. No reasons you, Bellasus. Yeah. No reasons you buy us. Just an index of 100. Yep. Let's put a hat sign here for a second and make some arguments for each of these. Now, I know that you're still a big fan of Perth. With that. And so I don't want it to be us arguing about the two things. But I want us to both try and flesh out as many ideas and forward looking conversations at the moment about what that index might look like and why for a 100 index basis in 2026 in Perth versus Melbourne with, let's just call it with a million dollars and all that. What I'm interested in and this was going to ask you before we start the podcast. I thought I was going to ask it in the podcast. Yeah. I hear it all the time and even speak in the clients. You're fundamentals of Perth. So you just pull out all the reasons you buy us and look at every capital city and or regional. And just look at the data. And you didn't know anything about Australia, but you had these capital cities and you had to put your money into a market based on the data only. Yeah, one by one. Perth can't be beaten. It's still the most affordable market. Still the most undersupplied market. But where I get concerned, I can't remove reasons to buy us. It's difficult to write a human nature, not to. You tell me, how can Perth continue to keep going at this rate? And if there was a runway, what could slow down the market? So for Perth, what we understand is that on a historical basis, we are in a mature boom right now, right? So people have to make a decision, are we at the end of a cycle, or are we in a re-rating essentially? Are we in a classic traditional sound wave style cycle that we're getting to the higher end of, where you start getting diminishing returns and then possible down a side risk, because of, again, just the idea of what goes up must come down at some point, right? Or do we have real tangible step-changing things happening in this state, that would suggest that there isn't a come-down period. There may be variations of growth, but they're not negative growth in a material way across the board. That's how I want to frame my viewing of this all the time to detach from that recency bias and the mean reversion issues that come with it. When I think about Perth, you're starting from this hot base of a market that has three weeks of stock, rather than 30 in 2019, and 30 in Melbourne right now, you're sitting on that, and what happens with that market is it creates this whirlpool situation, and I've heard you talk about this publicly as well, where when there's nothing to sell, there's also nothing for the sellers to buy, and therefore it just stays low, just structurally low. And when things stays structurally low, even if it's not that natural for it to do so, then prices have to go that way, as long as there is at least a meeting of demand. So you need to go back to the fundamentals, then from that baseline of the hottest market we've seen ever in Perth in recorded history, does that sustain between somewhere from there to a balanced market? So anywhere from 13,000 in terms of stock on market, which is an indicator of demand per supply, and then tempered by affordability, right? So how do you get to that? So demand must therefore continue at a level that is at or above 2.2 times the amount of houses we can build, and that demand comes from population growth, and I was talking to Reese off-air about it this week when we were thinking about this episode, is that population growth and demand comes from a couple of factors. And I've been plotting this recently in my nerdy 2am thought processes, is that population growth not only is domestic immigration, obviously, which we've been on a plus 10,000 for last few years, which compares to a negative 10,000 for many years before that, since 2015. It's also an overseas immigration number. It's factored by deaths, which is people who no longer need a house. And then often people get confused because they'll then bring in births. And births, in my opinion, don't count. A kid doesn't need a new house. Having a kid doesn't mean you need more houses. It means you may change house. Doesn't need to need another house. And so I've started to then plot in this idea of a shadow demand. A demand that comes, let's call it 30 years after someone was born. So then starting to plot births 30 years ago. And how that is impacting our market versus births today, which will obviously impact in 30 years. We should do this. We should make an index. And please do make an index. It will save some work for me. And then obviously, when you do that, and you plot that against supply, which is construction, that number has varied from a peak in 2016 or 32,000 to a low 11,000. With calculations or approvals. Completions, approvals meant nothing. And a current situation of 22,000. Then you see a story starting to occur, right? And I wanted to start that story a cycle or two cycles ago back to when prices started to rise again, which would indicate that's called a zero-line baseline on supply deficit relationship. And that was 2004. So we've given ourselves, really, a nice round number of 20-ish years of conversation. And the fascinating thing there is, this really strong correlation between price growth and this cumulative supply deficit relationship with regards to demand and supply and housing. And that cross-story bar in my numbers around 2021, yep, started to hit a deficit. And then as we know that deficit's been growing every single year and it continues to grow. And then I keep plotting it out with a forecast of a number that looks like about 24,000 houses a year. So more than we've done in the last 10 years being built, which is optimistic. But let's build some fat into the model. And then a straight-line method on immigration numbers that isn't the 2,000 year it was pre-COVID obviously, but it talks to a number less than what it's been since COVID. And the crossover there is 2030. That's, yeah. So that's where we start to then go. We've actually built enough houses versus a straight-line method on where our immigration's possibly going back to a main reversion on immigration. And so that for starters gives me confidence if we're going to still be in deficit, then give me an argument outside of affordability for prices not to grow. I don't see how you've got an argument for prices to go down in that time. So again, not talking about global events that screw all of this conversation up. And then you start to factor in economic activity in the first place that would possibly bring more people than I'm thinking into the market. And the big one, which I've referenced a few times that I don't think gets close to enough attention right now is orcas. And I think that's because not many of us, including me, really understands how big that is. It is massive, man. It's 12 billion dollars. It's like talking about the amount of jobs from about it's like an oil and gas plant up north in Quenana. And those people will need houses. Defense housing, for example. And how's it? It's 3,000 jobs. Thanks, Rhett, full-time jobs, right? I've only got 2,300 properties on the market. Yeah, 3,000 people. So you've got yourself, the defense housing needs, it has a 30-kilometer radius that needs housing out of that, for example. That pretty much encompasses all of the south of each highway down to Mandra, including Munderjong, Rockingham, Mandra, Quenana, PR awarders, Hammond Park, these sort of areas when we think about ourselves and Perth. That's a lot of people that need to come in. A lot of houses that need to be built, a lot of work, and a lot of money. And so when you ask, how can we afford like a 1.2 million house price? I'll tell you how Sydney's households make less than us. Correct. Their median house prices like 1.6, I believe. Houses 1. They pay the same interest rates as us. They have the same banking policies as us. They have the same nominal savings as a first home buyer, as we do with ever-increasing equity from parental guarantees that will continue to help with what has been the solution in Sydney over the years and what is an untenable debt-to-income ratio level there. And that still happens, right? So anyone who comes and tells me that for some biased reason, how can Perth a 4.1.2, given we've seen it before in 2008 when Perth's house price was higher than Sydney's? And that now Sydney's is 1.6 with money less than us. Then that's totally debunked. It's that's a bias. That is just a self-deprecating Perth bias that somehow. We are still the most affordable market in the country. Perth's people are somehow less smart or should be less well-off than Sydney's offering and houses are more valuable and better. And they're not. That it's bigger, it's more dynamic, I'll give you that. It's got more billionaires. It doesn't have the richest billionaires, but it has more billionaires, it has more foreign investment. But it doesn't have the broader. Perth has the most income. Millionaires per capita in the world, by the way. Oh, there you go. And so when I think about Perth's market, those are the reasons that I'm confident that barring some Trumpian event or an absolute drop-off in demand for our resources. We don't really have much of a pathway for prices to become more affordable for prices to drop, which sucks for first home buyers, but it talks to the confidence investors should have from Perth here. How would you rebuff that if you were putting on a less biased opinion than mine if you're coming from the other side? If I wanted to count holes in there, if I wanted to count argue that. It would be difficult because the stats don't lie, and that's what I look at. So you demand and supply fundamentals. I can't argue that because the facts are the facts. Where I would start to challenge it to two things, sentiment and affordability. Or, but Perth's still just prizes people. It's affordability index. So how sold incomes? Is it 36% of their income goes towards their mortgage? So, okay. That sounds like there's still some surplus spend there. Perth is capped out previously at about 46%. So that is its historical ceiling, and that was back in 2008 when you started it. So the only thing I would rebut, that is, okay, you're right. When demand outweighs supply, and there's affordability in the market, there's no doubt prices can only go one way. When you do see, historically, not just Perth, but other markets, when demand outweighs supply, but a market hits its affordability, it can certainly stagnate. We've seen it in Sydney at the moment. Of course, in Perth, and so we haven't seen it. See, this is a perfect example. Demand outweighs supply in Sydney significantly. But it's stuck. It's well above its historical ceiling, so it's struggling to grow. So what we need to counter that, or to facilitate continued growth, if demand is incomes go higher, is wage growth. So based on interest rates as they are today, if you look at our historical ceiling, and assume interest rates don't change, but that's a different argument. Yeah. For tomorrow. Yeah, for tomorrow. The housing market would have to increase by another 36% before it hit that historical ceiling. Units would have to go up by another 56% before they hit that historical ceiling. So that's the only caveat I would say. Once if. When a wage growth is what you're saying, there is still a runway. Yep. But if it's going to be this endless rainbow road, at some point in time, we're going to affordability ceiling at that point. I would struggle to see how the market could continue. It would have to be the situation we're in now, where demand's so outweighs supply that there's only one way the market's going down. Yeah, it's just broken, yeah. Like, we've got three weeks of stock on the market, as we speak. Doesn't matter how unaffordable the market is, when you've got three weeks, 2,300 properties on the market. People find ways. Yeah, you're just going to get in. Let's flip it on its head then, and then let's hear your thoughts from the saying, if you can use like similar metrics if possible on the open market. What is the story then? Yep. Yeah. How do we offer that first time investor confidence that Melbourne's next 10 years, for example, the index could look stronger than Perth's? Yeah, so I look at Melbourne, and we always look historical, because historical data tells a story of what markets have done. There's only been one time, and again, shape's not cheap just because it's cheap, but there's only one time in the last 30 years that Perth has been more expensive. The Melbourne, just as a metric, and that was when that 2008 boom occurred in Perth, of 2002 to 2008. And now. And now, okay, that's interesting. It doesn't really tell us too much. But when I look at Melbourne over the last 30 years, it has been the most consistent market in Australia. Even Sydney has fluctuated with extreme growth followed by some levels of stagnation. When they got rid of investment lending in 2017, it actually went backwards and then went up. If you look at Melbourne on a graph, it is like a perfect growth chart where it's done 6.5% growth year-on-year for the last 30 years. And what's meant for that is that just immigration. Immigration. Yep. Immigration's been a huge part of that. What's the student immigration as well? A lot of student, yep. So overseas migration in particular. It's been a staple hold in the Australian economy. But just recently, in the last five years, if you look at the data, it just flatlines. And it looks very strange. For the first time in this, really forever, Melbourne has stagnated. And we know why. COVID, everyone left. So why does that change going forward? Because Melbourne has shown us, historically, that attracts a lot of people. For whatever reason, that is jobs of fun place to be. Yeah, jobs of family, like population has been flooding in Melbourne for 100 years. So history would tell us that's not going to stop. And the data showing that's certainly not stopping. It's now the penalty terms going back. The other way, everyone's moving back to Melbourne. It didn't stop being a dynamic city to live. Correct. So at some point, take away the data, that is going to return to its natural place in terms of what the house prices in comparison to other states. But naturally, where it's going to go on its trajectory, back to that 6.5% to 7%. And for the last 10 years, it's been significantly underperforming. In the last five years, it's had negative growth year on year. The last 10 years, it's been running about one and a half to 2% long term comparing growth rate for the last 10 years. So it's been underperforming for some time. And when you talk about the surplus about the housing deficit in Perth, the same works with growth rates. When you've been underperforming for so long, and your long term growth rate is 6.5%, but you've been running at 2% for 10 years, at some point, that ticks like we saw in Perth, the long term historical growth rate is 6.2, between 2010 and 2018. So it underperformed for a decade. And then, inevitably, it was going to catch up. Regardless of external factors. Are the factors on replacement costs? One thing I was reading, which supports your argument, is that even in the unit market in Melbourne, the cost to build a new one is like 23% more than the current established prices. Exactly. And we saw that in Perth, and at the moment. Usually evidence in the housing land space, for example, where the house next door was 400 grand, but the housing land package was 550. Exactly. So that's what we're seeing. And that's the sign of a market that we see value when the replacement cost is so much more than the established cost. So, yeah, that's the pros, the cons for Melbourne. They're the big three, like I said before. The government economy, you said, it's almost bankrupt, but what happens there? The national government starts to support the state government because they have to. Or it's the biggest population. So that's going to like COVID, the government will throw money where they need to, and that will, at some point. Especially around election time. Exactly. Second point, I said, was land tax, so land tax, which we discussed, we've been through there, and the 30th is crying. And I was speaking to my sister about this the other day, because I was like, every time I go on my phone, it's like someone's been stabbed in Melbourne. And I'm like, maybe I've understated this. She's in the medical sphere. She's on the front line of this stuff. Yeah. And she says, not at all. They're making a pro-effort in Victoria to highlight how bad the crime is. I noticed that when I was walking around the city, there was a lot of cop cars that were literally just sitting out on the streets with slogans of, we need protection, we need support, a lot of union-based stuff. Obviously, Melbourne has huge unions, but it seems like they're under a lot of pressure. They're trying to create change. And the best way to do that is highlight when there is a problem. So, not saying it isn't a problem, but certainly it gets far more attention at the moment than it would if it happened in Perth or Adelaide or Brisbane. We wouldn't even see it, but something happens in Melbourne. A knife's found. Yeah. And it's, you know, news.com, it's the first headlight. Another knife's been found in Melbourne. I believe that crime issue is a huge problem. And certainly needs to be resolved. But there's more attention on that at this point in time. You're going to read more about it because they're trying to implement change. We have the similar issues with meth and all that in Perth for a while. It goes in all, and Mandro and Spumbry. Bowed out of us were by the meth capitals of the country. And we do see a lot of stuff in the news about machete stuff in Melbourne and Queensland. Where are the places you might want to avoid in Melbourne when it comes to crime and therefore investment? There are any places where you probably stay away right now regardless of university's house. Does same in the West and suburbs. It tracks more issues, and particularly just even looking at the news, than likely the Eastern suburbs, which would be the opposite here. We would sometimes appear that in Perth sometimes in the Eastern suburbs you're more crime than you in the West. But that's not to say that there isn't some really good areas to invest in the United West. But we are saying that's what out of West appeared to be getting more problematic. And certainly more attention from the media than other areas. And that might be one of the guardrails from 40 minutes going this chat that we might make sure if someone suggests a new property in the out of West and maybe pick up the phone and cool drink and all of them. Oh, definitely a lot going on. Hey, I'd just been a long chat, but I think it's one that I've enjoyed massively. I think it's been super insightful about what the real key points are on if you are going to look abroad from Perth because your risk profile suggests that you don't believe there is enough steam in it for a 10-year cycle in Perth and that Melbourne has better chances on it. This is what you need to know. And if I was personally, this is why I do this podcast and how I govern it. If I was going to ask anyone on what I should be doing about investing in Melbourne and be calling you mate. So thanks a lot for your time. And hopefully we can chat soon. Absolutely. Thank you for listening to another episode of the Perth Property Show. If you've only just joined the conversation, you can catch up by heading over to our website PerthPropertiesShow.com.au subscribing to the podcast or joining our Facebook page. Don't forget to tune in next Monday at 7am for more expert insights, local analysis and suburb spotlights. Happy hunting!