Distributing real estate demand: some ideas

I am not an economist or an expert on policy. However, I have found myself chafing at the current policies adopted with respect to alleviating real estate cost concerns. It is not a secret that real estate is now consuming a significant portion of income for both renters and first-home buyers. Instead of moping, I thought I should throw some ideas out there.

Basic Thesis

Demand for real estate tends to be unevenly distributed, with most consumers focusing on concentrated areas around cities and near public infrastructure. Oversimplifying, the two key drivers in location selection are:

• The locus of work
• The locus of social infrastructure

Based on these drivers, if we could find a way to create more loci of work and social infrastructure, we could redistribute demand for real estate more evenly across a wider area. This could theoretically reduce demand in concentrated areas, and increase demand in less concentrated areas, flatterning prices for real estate. Furthermore, new developments on city outskirts (the areas where most housing developments can occur anyways) would have more impact on demand and prices on a regional scale.

Caveat

My ideas are based on my personal experience and observations living in Melbourne, Australia. I have not done any research on this topic, and my observations are limited to anecdotes from my own experience.

Therefore, it is also possible that my ideas may not be the right fit for certain regions where real estate demand is either not determined by the above factors, or where demand is already more evenly distributed.

The Ideas

These are in no particular order. Ideally, I would love to see a policy focus on all three.

Flexible and hybrid working

Let me briefly step on my soap box and support a greater push for flexible and hybrid working. As above, I believe that work location is often a determining factor for a person’s living location.

Therefore, one could ease the concentrating effect on demand for real estate by supporting more flexible working locations.

The return to office in the post-COVID world was, in my opinion, more a function of financial commitments to office leases than to optimize performance. I may at some point write a more detailed post focused specifically on flexible working.

Nevertheless, I believe that there are many roles which could be performed (without significant sacrifice) with flexible or even fully remote working arrangements, allowing for households to consider a wider radius of potential living locations.

Developing distributed social hubs/infrastructure

This basic idea involves fostering the development of distributed (social / work) hubs throughout a region.

This will address the increasing urban sprawl appearing in modern cities, where surrounding areas are redeveloped into flat lands containing a maize of streets, housing, and not much else. While it is often raised that urban sprawl results in an over-reliance on cars, there is also an effect on real estate demand. Many first-home buyers will be looking for proximity to the shops, main streets with cafes and shopping districts, and other social infrastructure. I am placing myself at this point, but I will mention that I personally am looking at houses in Melbourne’s Prahran and South Yarra suburbs, which have proximity to social infrastructure (libraries, cafes, shopping areas, hospitals, etc.) and are also close to the city and public transport.

Applying this pattern to most first-home buyers, new and affordable developments are not as appealing if they do not have a community bundled in. This is a tough problem to solve, as the people make the community, and that’s not something that can be transplanted. More research should be performed to find out how to build new healthy communities in developing regions away from cities.

Perhaps if there was a shift from planning at a city level to a regional scale, we could design intra-connected regions of hubs each with their own social infrastructure. One highly corporatist approach here could be to encourage companies to create their own communal hubs.

Reliable and accessible public infrastructure

Infrastructure such as roads, and more importantly, good public transport can contribute to alleviating a need for proximity to central hubs.

Speaking personally, one of my key requirements when looking for property is to be near a train station. In Melbourne, trains are the most reliable form of public transit. The more a location provides me with easy access to where I need to go (for work, shopping or other locations), the more appealing it is to me.

This last point is really simple, and integrates well with the previous two ideas.

Conclusion

These are very socially focused (progressive) ideas, and I do not come from a place of expertise, but of need. I felt that despite my lack of knowledge, there was more value in raising my issues through the lens of solution, than as complaint.