The Urban Exodus Reversed: Regional Australia is losing its investment shine

While an initial surge in property prices and remote-working flexibility fuelled a regional renaissance, the tide is turning.

Affordability is slipping away, and the charm of rural life is facing the harsh realities of economic shifts and infrastructure limitations.

This begs the question: is investing in regional residential real estate still a wise move?

There is no doubt that top-performing regional investment properties will outperform secondary property in our capital cities, but that's not really a good comparison, is it?

Why on earth would you buy a secondary property anywhere?

So let's look at 6 reasons why I believe regional Australia is, in general, not the best choice for residential real estate investment.

1. Affordability Mirage

The affordability gap that once made regional properties a steal compared to their metropolitan counterparts is rapidly shrinking.

The pandemic-driven boom saw regional property values soar, erasing the initial price advantage.

The surge in demand during the pandemic, coupled with supply chain issues and construction delays, has led to significant price increases in many regional areas.

Overall regional property prices lifted 47% since January 2020, compared with an uplift of 28.7% in capital cities on average.

But this has caused a "reset" in regional affordability.

ANZ Bank calculated that the measure of years to save a 20% deposit for the median regional home on a median regional income has risen from 7.4 years in early 2020 to 9.7 years now, as opposed to 10.0 years for capital cities.

2. Return of the Urban Magnet

The work-from-home dream fuelled the regional exodus a few years ago, but as companies now call employees back to offices and the allure of city amenities resurfaces, many are reconsidering their rural idyll.

The lack of diverse career opportunities, limited entertainment options, and social isolation experienced by some in regional areas are also driving them back to the bustling city life.

This exodus will potentially lead to property value stagnation or even decline and is causing vacancy rates to rise in some regional areas and decreased rental income for investors at a time when capital city rentals are skyrocketing.

3. The Infrastructure and Amenity Gap

While the pace of life in regional Australia may be slower, so is the pace of development.

Access to essential services, healthcare, and educational opportunities can be limited, especially compared to bustling cities.

This can be a major deterrent for families and young professionals who crave the vibrancy and convenience of urban infrastructure.

And while some regions have seen infrastructure improvements, many still grapple with issues like limited public transport and less developed healthcare systems, and with our governments not having enough money to supply us with all the infrastructure upgrades we need, it's possible many regional locations will miss out on infrastructure upgrades.

This could of course impact long-term growth prospects and tenant demand.

4. Economic Reliance and Vulnerability

Regional economies often lack the diversity and resilience of capital city economies.

In fact, many regional economies are heavily reliant on specific industries, such as tourism, mining, or agriculture.

Of course, economic downturns in these sectors can have a drastic impact on local employment and housing demand.

This cyclical vulnerability poses a significant risk for investors, as property values can plummet with job losses and population decline.

5. Liquidity Concerns

Unlike metropolitan markets, selling an investment property in regional Australia can be challenging.

The smaller pool of potential buyers makes finding a purchaser at a desired price more difficult, hindering liquidity and potentially causing capital lock-up.

This is especially concerning if unforeseen circumstances necessitate a quick sale.

6. Hidden Costs and Maintenance

Hidden extra costs often lurk beneath the surface of regional properties as remote locations can make repairs and renovations more expensive and time-consuming.

The bottom line

It's important to remember that "regional Australia" is a vast and diverse landscape.

While investing in regional real estate is not inherently bad, it's no longer a guaranteed path to riches.

Some areas, particularly those with strong employment opportunities and good infrastructure, may still offer promising investment prospects, but why not invest where the population growth and wages growth is going to outperform over the long term?

Recently demographers id.com.au estimated that Australia's population will increase by 9.2 million people by 2046, and the vast majority (67%) of that population will reside in 4 of our capital cities.

You see… I don't like to fight "big gorillas."

I like to invest in locations where there will not only be strong population growth but also in gentrifying suburbs where the locals' incomes will be increasing more than the State average.

That will not only keep pushing up the value of my investment properties, but it will ensure that my tenants will be able to pay me increasing rent.

Remember your future rental income will be dependent upon your tenant's ability to pay more rent over the long term.

Now I know there are many so-called experts, blogs, and podcasts telling you to invest in regional Australia.

And they're armed with data showing that regional Australia outperformed recently, and that is true, but rather than looking in the rear vision mirror and short-term statistics, I think it's important to look towards the future and it's essential to weigh the risks and rewards carefully.

Remember, the sun doesn't always shine brighter on the other side of the fence, and the golden allure of rural Australia might just be fool's gold in disguise.

Photo by Kathleen Banks on Unsplash