The very fast train is back in the news again. The government is talking about a very fast rail line, linking Melbourne to Sydney.
Projects like this are great for the Australian economy. But the ultimate effect of such infrastructure projects is to increase the value of the surrounding land. A new train station, for example, makes nearby houses more desirable and increases the sale value.
MP John Alexander has been pushing for the rail line ever since he entered Parliament in 2010. He believes high speed rail would liberate regional towns and relieve housing pressure in the capital cities.
He estimates newly connected regional growth centres would act as a pressure release valve on property prices in Sydney and Melbourne. Under conservative estimates, Mr Alexander believes 50,000 people could move into towns along the rail line each year.
See the proposed routes below…
Source: Sydney Morning Herald
Regional areas to be most affected include Victoria’s Shepparton and the NSW township of Goulburn.
If, for example, the commute from Goulburn to Sydney could be done in 30 minutes it would entirely change the outlook for property in the region. Property which was once valued at $200,000 is now being mooted to rise to $600,000.
You can see how the end result will bring home affordability problems into the outer regions.
And you can see why life just doesn’t get any easier despite all the wonderful improvements. Those who rent in places like Goulburn will simply have to work harder to pay for higher land price and rents.
You only get to see the benefits if you already own one or more properties.
There is talk of capturing some of these gains to fund the high speed rail link, via land value capture. My guess is that this talk will disappear from the public discussion over time. The most likely outcome is the land price will be permitted to take most, if not all the gains.
As an investor you need to watch these kinds of government infrastructure developments, because the government is essentially telling investors the best areas to buy for price growth. In the case of speculative projects like the high speed rail, this has not yet been priced into the market at all.
Investing where new infrastructure is being built is a good strategy for property investors, because of the promise of windfall land price gains.
A similar experience is the level crossing removals in Melbourne’s southeast. Agents surveyed said the removals would increase the desirability of properties in the immediate area and have a positive flow on effect for the suburbs, giving local property prices a boost. You have to own to receive the benefits.
There’s an enormous amount of infrastructure work going on presently. And almost all the gains will be absorbed by the land value. This is what is happening right now. Several companies tied in to the infrastructure sector are punching around all time highs, and posting record profits.
The sector is busy. Know where the gains will manifest.
Your investment takeaway
You can see how proposed infrastructure increases the value of land in surrounding areas.
Should the fast rail project eventuate, those who rent in those regional centres will pay twice. First in government taxes, which usually funds the infrastructure. And second in higher rents, which the improvements bring.
While those who own also pay taxes, they’ll have their taxes offset by the increase in land values. You have to decide which side of the fence you want to be on.
You simply must own land to benefit from society’s progress. Look for areas where the future use value is not immediately built in. The long list of proposed government infrastructure projects is just one example.
At Cycles, Trends and Forecasts we have more examples of how you can profit from the real estate cycle ahead. Go here to get started now.
Lead Researcher, Cycles, Trends & Forecasts