Will new airport in Badgerys Creek impact the property investment game?

Sydney's second airport is expected to create an economic boom in Western City

What’s happening

16.03.2020

If the proposed plans go ahead, Western Parkland City will become one of three new cities within the Sydney metropolis. Established on the strength of the new international Western Sydney Airport and Badgerys Creek Aerotropolis (a subregion whose layout, infrastructure, and economy are centred around the airport as its commercial core), this polycentric city will also capitalise on the established centres of Liverpool, Penrith, and Campbelltown-Macarthur.

Source: Greater Sydney Region Plan

 

The development of Western Sydney Airport in Badgerys Creek is one of the largest infrastructure projects Australia has seen in decades. The Australian Government approved the project way back in 1986, but it is only now that the region’s transformation is finally beginning.

After three decades of debate, major plans to transform the whole western side of Greater Sydney finally began to come to life in 2018 with the establishment of the Western City Deal, a partnership between the Australian Government, NSW Government, and local governments to create more jobs and improve quality of life through the vision of the Western Parkland City.

As of March 2020, stage 1 of airport construction has officially begun at Badgerys Creek. It is anticipated that the airport will be operational by 2026 – which is not all that far away in real-estate terms. After all, we speak of Australian property values doubling every 10 years.

So what can we expect to happen in the western suburbs over the next six years?

Government plans for the Western Parkland City

The Government has ambitious plans regarding job creation, infrastructure, and upgrades to the overall liveability of the region. These changes have the potential to improve property price growth not just in suburbs adjacent to Badgerys Creek, but throughout the entire region.

However, steady price growth in the long term is far from a sure thing. Ultimately, the main determinant of real estate price growth is demand from investors, owner-occupiers, and renters – and at the moment this is still very much up in the air.

Let’s take a look at a few of the proposed changes in the Western Parkland City and consider their potential impact on house prices in the near future.

Job creation

The new airport is expected to service five million passengers in its first year – about the same as the Gold Coast Airport today – and its capacity could double in as little as five years. Needless to say, this massive growth has the potential to create many jobs – not just in the airport itself, but also in the building, transportation, accommodation, and hospitality industries that support it.

The number of jobs in the Western Parkland City is expected to rise from 85,000 to 140,000, with the majority of this growth concentrated within and around the Western Sydney Airport Precinct. It is hoped that this spike in job creation will increase the average wealth of local residents and potentially bring new residents to the area.

Urban Infrastructure Minister Alan Tudge said construction of the airport would result in 11,000 jobs in Western Sydney in the short term, and 28,000 full-time jobs within five years. [1] Sounds good, right?

Well, yes and no. Any number of new jobs created for the region is great, but the wealth of local residents (that has impact on the property price growth in the area) will depend partly on how those job numbers compare to the overall population.

The current population of the Western Parkland City is around 740,000, and this is projected to grow to 1.1 million by 2036. For argument’s sake, let’s assume everything goes to plan: the airport is operational in 6 years, and 28,000 full-time jobs are created.

Are 28,000 jobs enough to accommodate the needs of all residents? Probably not. Will these jobs really encourage 360,000 new people (mostly migrants) to move to the area by 2036? Who knows.

Creation of new jobs, combined with lower property prices than the rest of Sydney, may encourage some people to move. But with 740,000 people already living in the Western Parkland city and infrastructure set to improve, most jobs will probably be taken by local residents – especially when you consider that most people will not be travelling more than 30 minutes to get to work with the creation of three 30-minute cities within Sydney.

At this stage, there is no evidence that creating 28,000 new jobs will support the local economy enough to stimulate high demand from buyers and renters and increase property price growth.

However, that’s not to say that demand won’t increase based on other factors.

Infrastructure updates

New train lines and road upgrades are planned throughout the west, northwest, and southwest to increase connectivity and accessibility for residents and reduce local traffic and travel times.

One of the major projects associated with the airport is the North South Rail Link, which will connect the North West, Western Sydney Airport, South West, and Greater Macarthur growth areas. This major transport link is expected to support population, jobs, and economic growth across Western Sydney and for the planned Western Sydney Airport.

These infrastructure upgrades could potentially impact property price growth not only in suburbs adjacent to the airport, but within a radius as wide as 20 kilometres or more. St Marys, for example, is 21 kilometres from the airport, but will most likely benefit from the direct rail link, which provides easy access to thousands of new jobs and facilities.

Infrastructure upgrades are always good for the local economy and usually provide serious price growth, especially at the time of announcement and again upon completion. But the main question for property investors is:

Will new and improved infrastructure bring enough new residents to the area to occupy all the proposed dwellings and generate competition in the market?

Some existing local residents will take the new jobs created in and around the airport, while others will continue to travel to Paramatta or Sydney Harbour CBD for work as they did before. The only difference it will make is to the commute time. That’s it.

Also, it’s worth remembering that proposed changes to infrastructure, job creation, or indeed any projects related to area development, don’t always pan out as planned.

The new plan for Greater Sydney will take decades to fully execute, and a lot can happen in that time. Projects can be cancelled, delayed, or significantly revised due to lack of funding, unpredictable international or local circumstances, changes in government, and even public action.

Such delays and revisions can impact property price growth and rent growth – often negatively. Fortunately, this is a predictable and perfectly mitigable risk. It’s quite simple: don’t invest based on a promise of project development.

Do your research to find out what stage developments are at, and give more weight to projects with good funding and that are nearing completion. Choose to invest only in those suburbs where infrastructure updates are likely to be completed and to offer benefits.

As a starting point, check out page 7 of the Western District Plan 2018 [2], where you’ll find a list of committed projects and projects under investigation. From there, you can visit the official websites for these projects to see how they are progressing.

Supply of properties

Construction and operation of Western Sydney Airport will encourage new residential and commercial development in the area, opening the door for property investors.

Those who bought in the area before 2014, when the decision to build the airport was made, are of course benefiting greatly from the construction in the area. Home values in suburbs immediately adjacent to the airport have already skyrocketed, and huge construction companies are willing to pay large sums for worn-out properties on huge parcels of land in order to build high-rise buildings or housing estates.

The median house price in Bringelly, NSW – right next to the new airport site – went from $890,000 at the start of 2014 to $3,500,000 in March 2020 [3]. No, that isn’t a typo!

Of course, the chance to buy cheap land is already history, and even if land prices continue to increase, the strategy of ‘land banking’ – securing future property development sites – is out of reach for most beginner investors. With no rent to offset the cost of the mortgage repayments, you need to have massive savings to use this strategy.

In recent years, Greater Sydney has already seen strong increases in new housing. More homes are being built than at any time in Greater Sydney’s history, with 38,759 new homes being completed in 2017. For the first time in a decade, housing supply is reaching the level required to support growth. But for property investors looking for a favourable supply/demand ratio, these numbers are shocking.

The NSW Government has identified a need for 725,000 additional homes across Greater Sydney in order to meet the growing and changing population over the next 20 years. The Western District Plan sets out a process to deliver a steady pipeline of supply to meet this forecast housing demand and thereby improve housing affordability.

All these measures can certainly be expected to develop the region if new residents really do come in the great numbers that are predicted. But strict immigration policies and unforeseen situations such as the 2020 coronavirus epidemic, which has paralysed not only migration to Australia but international travel in general, may prove a significant barrier to this projected population growth.

Which areas are likely to undergo the most construction?

As property investors, we need to pay special attention to land release areas in Western Parkland City. As you can see on the map below, some of these areas are massive!

Sydney is transforming into three-city metropolis - 3

Source: NSW Government Greater Sydney Region Plan

 

The Government has plans to create many housing choices in these regions, ranging from high-rise developments to medium-density housing. Any way you look at it, the future supply of housing in the area is concerning. In particular, the Government’s use of the word pipeline suggests that the steady stream of housing supply isn’t about to stop any time soon.

In 2016, the Government set a target to create 39,850 new homes for the Western City District by 2021, including traditional detached and attached houses, apartments, and granny flats. This number was based on analysis of the Western District’s dwelling needs and opportunities. Yes, it’s a lot. And more is coming!

Source: Western Sydney District Plan

 

If this steady housing supply is matched by enough buyers and renters this is not necessarily a huge deal, though it may result in below-average property price growth (that is, house prices won’t necessarily double every 10 years).

However, if supply outweighs demand, we will end up with lots of new properties and not enough people to occupy them. Without enough competition between buyers, property prices are likely to stagnate or even fall, as will rental prices. For existing property owners, selling will become a struggle.

Of course, if you have a super long-term vision (50+ years) or if you are investing on behalf of future generations in your family, these concerns are less significant. By the time you or your family is ready to sell, the area will likely be fully developed and all of these homes will probably be occupied.

Most of us, however, are looking for a standard long-term investment of more like 10–20 years. There is no way all that released land will be completely built up and occupied in 10 years’ time.

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Population growth

For property investors, the biggest concern regarding future property price growth in the Western Parkland City is the potential for lower than planned population growth.

The second Sydney airport is being touted as a game changer for Sydney’s western suburbs, with promises that it will create once-in-a-generation economic boom for the Western Parkland City.

However, all this relies heavily on population growth continuing at the same high rate, which in turn requires that immigrants choose to settle in the West rather than throughout the rest of Greater Sydney.

The population of the Western Parkland City is projected to grow from 740,000 in 2016 to 1.1 million by 2036, and to well over 1.5 million by 2056 [4]. But what happens if we don’t meet these projections?

We may end up with more homes than residents to occupy them. As we’ve seen, population growth can be affected by many factors, including unpredictable situations such as bushfires, coronavirus, or changing government policies.

Australia is still growing faster than most developed nations, partly due to natural growth (37.5% of total population growth for the year ended 30 June 2019) and partly due to strong overseas migration (62.5%). However, some demographers believe that Australia may not reach the population growth projections modelled by the ABS [5].

Also, as Greater Sydney changes to become a three-city metropolis, residents will be distributed even more widely across the region. We will start to see changes in population, amenities, job availability, and much more in many areas across Sydney, not just the Western Parkland City – and this will determine price growth for the future.

As buyer demand shifts and redistributes across the three new cities within Sydney, property prices will reflect this trend. Areas with less demand from buyers, investors, and tenants will experience lower property price growth, and vice versa.

Why are we so certain that demand will be concentrated in Western Sydney? Yes, new jobs will be created and housing will likely become more affordable. This will definitely impact demand among people who require more affordable housing, but will it be enough to support property price growth in the long term?

Conclusion

There is a lesson we can all take from this. While it’s important to take a long-term view of the economy and Australian property markets, as property buyers we must also allow for uncertainty and surprises. We can do this by carefully choosing only the best properties to invest in, by having risk minimisation strategies in place, and by diversifying (buying different property types in different cities).

We are definitely skipping the opportunity to invest in residential real estate in Badgerys Creek and surrounding suburbs taking into account all the concerns mentioned above. You can learn our method of choosing the best real estate in the Smart Guide 3 – Property.

Sources:

[1] Article in The Sydney Morning Herald

[2] Western Sydney District Plan

[3] Median Property Price for Bringelly, NSW 

[4] Western Parkland City Vision

[5] Demographer Liz Allen, from Australian National University, said that Australia may not actually reach the medium-growth projections modelled by the ABS. 

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