What Australians’ ‘Density Tolerance’ Means for Property

2000 per train — Metro’s standing room future

The Age

In 1976 I moved to Tokyo. Not on my own, mind you. I was only seven.

My father was an economist for the World Bank at the time. A position he held for 25 years. And when an opportunity opened up in the Japanese capital, my parents packed up our suburban Virginia home and off we went.

The cat came along too. As did my sister…and our new Volvo station wagon. The dog and the rabbit didn’t make the cut. They went to live with some friends on a farm. (They did, really!)

Tokyo in the late 1970s was enjoying tremendous growth, both in GDP figures and population. Depending on where you draw the boundaries, the city claimed 11 million inhabitants, compared to just over 13 million today.

Traffic was a bumper to bumper nightmare back then. And the Volvo attracted a ‘heavy vehicle’ tax from the Japanese government. It ended up spending most of our three years in Tokyo sitting in the carport, only emerging for the occasional foray into the countryside.

If you wanted to get around within the congested city, you used the train. Tokyo’s train network was already world class at that time. Trains ran every few minutes. They ran on time. And during peak hours they were unimaginably crowded.

Maybe you’ve been to Tokyo and experienced peak-hour train travel for yourself. Or maybe you’ve seen a video. But in 1976 my family was wholly unprepared the first time we encountered the Oshiya, or professional pushers. These are the men — at least they were all men back then — whose job it is to cram commuters into the train carriages so the doors can close.

And the Oshiya take their job seriously.

They really lean into the crowd, pushing until commuters are crammed in like so many sardines. Often it takes a few attempts before the doors can close without someone’s foot or elbow in the way. And when the doors open at the next station, the commuters pressed against them spill out onto the platform like popcorn from an overstuffed bag. Only to be pushed back into the carriage once anyone needing to exit has managed to do so.

Now, I bring this up for a reason.

Real estate prices were exploding in Tokyo at the time. And that trend continued through the 80s. According to Housing Japan: ‘Real-estate prices across Japan rose by as much as six to seven times during the 1980slow interest rates and loose monetary policy fueled a strong economy and high stock prices.’ Driven by the booming urban population, property prices in Tokyo skyrocketed.

And Australia’s cities today are facing a similar picture.

What’s your density tolerance?

OK, you know we have low interest rates, loose monetary policy and high stock prices. And you know the population is growing. But it’s the concentration of that growth in a very few cities that is driving the real estate boom. And despite the spate of recent headlines trumpeting a housing crash Down Under, all the ingredients for continued growth remain in place.

So when you read headlines like ‘Alarm on housing debt “ringing”’ (The Australian), take them with a grain of salt.

Yes, CoreLogic data indicates average home prices fell 1.3% in Sydney and 1.8% in Melbourne in the first 29 days of May. But bear in mind that same data shows home prices are up 75% in Sydney and 50% in Melbourne over the past five years.

With that perspective, and our cities growing rapidly, you can see how May’s figures are likely nothing more than the inevitable minor pullback.

The Australian Bureau of Statistics (ABS) reports that, since 2000, Australia’s population has risen by more than 19%, or about 4.6 million people. Last year Australia’s population surpassed 24 million people. And the capital cities continue to grow.

From the Herald Sun:

Victoria again led the nation in population growth last year, adding 127,500 people in the year to 30 September 2016 to reach 6.1 million…

Given continuing high migration, fertility and life expectancy rates, Melbourne’s population could almost double to 7.95 million by 2046 and top nine million by 2056, according to an ABS projection.

Melbourne’s rail network, for one, is already gearing up for the continued influx of new residents. The next generation of trains should accommodate 2000 passengers. According to The Age:

The bumper loads will be accommodated by enabling “standing passengers to safely travel at a density of up to six passengers per square metre”…

A 2011 study of Australian commuters’ tolerance for crowding, by the Co-operative Research Centre for Rail Innovation, found Australian train travellers would easily tolerate a density of up to four people per square metre before a sense of overcrowding kicked in.

Six passengers per square metre? Bring on the Oshiya! And perhaps Japan’s 500–600% real estate explosion of the 80s will play out here as well before the property bubble final bursts. And make no mistake. Aussie real estate is in a bubble. And it will burst. It’s just unlikely to pop anytime soon.

Our own real estate guru, Phil Anderson, agrees. In fact, he has a very specific date where you can expect the Aussie housing market — and stock market — to plunge. And he has very specific dates where both sectors should soar.

With centuries of global data to back him up, Phil’s ‘Grand Cycle’ theory is critical knowledge for every Australian, renters and owners alike. Phil’s put together a brand-new video presentation detailing his ‘Grand Cycle’. It’s an hour long, so you’ll want to put aside a little quiet time to watch it in full. But you’ll be glad you did.

Just click here to watch it.


Bernd Struben,
Managing Editor, Money Morning

Money Morning Australia