Cheap property

People of my age tend not to own property. But, increasingly, they want to.

Here’s what you get for a smigden under $800,000 in North Fitzroy:

Here’s what you can get for a smidgen under  $200,000 in Ballarat:

The cheaper one is only two bedroom, but the more expensive one is an apartment with no outdoor space.  What really explains the $600,000 premium?

If we assume the occupiers of both work in Melbourne’s CBD, then the North Fitzroy people have a half-hour tram ride and the Ballarat people have a 70 minute train ride.  That’s 80 extra commuting minutes a day for the cheaper house; 3 hours 20 minutes a week, or 167 hours a year.  If they plan to live there for 40 years, that’s 6680 hours.  Only if they value their time at a hundred bucks an hour does this cover the extra cost. And there’s jobs in Ballarat…

So, what explains this?  There’s a theory about ‘positional goods’ – goods that are very valuable  because of their scarcity.  These are things like being ‘first’ or ‘best’  The value of an Olympic gold medal is not the gold that’s in it, but in the scarcity of knowing it can’t be replicated.   Maybe ‘close to the CBD’ is another ‘positional good’?  Is it just show-offish to want to live close in?

The definition of positional goods is that they can’t be created, only redistributed.  Maybe that’s why there’s also an increasing premium on free-standing homes in the inner city- Apartments can easily be made, but examples like this little home are set at an absolute number.  If you’ve got $2.3 million, snap it up.

Blog revenues would need to edge up a little before I’d take on that sort of mortgage…

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

6 thoughts on “Cheap property”

  1. ‘Is it just show-offish to want to live close in?’

    Yes.

    The inner city has become a prestige location. ‘Yuppie’ ‘inner city trendy’ ‘cafe latte set’ are pejoratives tinged with envy. We associate those who live close to town with education, fancy jobs that involve pushing paper, fancy habits like swilling plonk and socialist sensibilities indulged in pinko rags like ‘The Age’.

    Contrast with image of the ‘suburbanite’ or the ‘soccer mum’, those mindless drones breeding up families that strain our delicate ecosystem, destroying our future every time they pour fuel into into their inefficient four wheel drive, not to mention feeding their fat kids Maccas while they obesely read the Herald Sun.

    It’s all nonsense of course. Metropolitan areas are wonderfully diverse, and no single area can claim to represent any single mindset or culture. A short distance from that very pricey flat is a big stack of much cheaper flats: the Fitzroy Public Housing Estate.

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  2. Some peeps proved that a bigger, more expensive house that’s better than the Jonzes, does not increase happiness, whilst a short commute time does in fact increase happiness across the board.

    Buying in ballarat is a bit each way on this test. More commute time, but less expensive meaning less work time! Possibly comes out even on that scale.

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