Larger Block Older Houses
The idea that a block land is the most important driver in making an investment decision can be examined below the surface.
This factor alone arguably should not dominate all investment decisions as it may not give the best outcomes long term outcome for investors.
Things like the zoning laws in an area and the quality of existing house on a particular block are critical considerations.
For example, if we consider the 25 KS zone south of Brisbane between Woodridge and Beenleigh as a case study, we find two factors coming into play when pursuing larger block sizes. They are the firstly the quality of the homes which were built 15 to 20 years ago. It was these suburbs which are early examples of new home mass production methods predominate in the late 1990’s.
These homes have inherited structural issues which can render the dwelling improvement as a negative. Termites and poor roof trusses are two examples of a dip in quality compared to today’s homes. The second factor is the inability in the Logan Shire to allow owners to split blocks due to the zoning laws.
Houses which fall into the criteria above can only seriously be valued on land value only.
The dampening factor on capital growth is the fact that these areas may never have the values which would make removing the existing houses and building new homes a possibility. In which case these properties become slightly difficult to achieve good capital growth. As the quality of the quality of the existing house improvements is not good enough to sustain capital growth.
Another classic example of older houses being problematical for an investor is the Brisbane suburbs of Mount Gravatt and Murarrie. The houses in these suburbs are not worth renovating due to their poor post war construction. They have little long term value and this lessens capital growth potential and values overall. The second factor is not enough people want to remove the older houses and build new homes due to the levels of investment required.
The net result is many inner-city suburbs which lie dormant without any real increase in rents or capital growth activity. These houses stagnate in price due to limited long term potential.
They do of course receive the standard capital growth for the area which in its self is a positive. The extra maintenance of these older homes is a consideration mainly due to the poor quality construction of the post war period.
The fact is the mooted or desired upside in capital growth may not eventuate just from the block of land alone. Residential investment is called residential investment explicitly for a reason.
We invest in a dwelling and the land component. Separating these two factors should be considered when making investment decisions.