Housing in high-crime areas across Sydney and Melbourne are outperforming the property market, according to RiskWise Property Research.
The research house has identified high-crime areas, with some perceived, while not founded expectations, were trumping their safer neighbouring suburbs when comparing their five-year growth to the city’s median.
RiskWise CEO Doron Peleg said land scarcity and undersupply of houses in the two capital cities had created strong demand even in high-crime areas, with affordability being the key driver for house price increases.
For units, however, there are major differences between our capital cities, with Sydney delivering stronger results. However, units in high crime areas of Melbourne underperform the market, as large supply of units in popular areas in Melbourne are affordable, and apartment buyers simply don’t need to compromise on high crime areas.
Houses undersupply and land scarcity deliver strong results
In Sydney, the 10-year capital growth rates for houses in all 10 high-crime suburbs materially outperformed the Greater Sydney growth rate, with the lowest (Granville) still outperforming by 7 per cent.
Sydney has a clear trend that these suburbs are all in the western part of the city, and only within the three SA4 areas of Parramatta, South West and Inner South West which all enjoy good access to the CBD and have affordable prices. This is due to a long-term trend of expansion, first to the Inner West with major price increases and then further out. This phenomenon is more widespread in Melbourne meaning there is no clear trend of areas affected.
However, the results were similar in Melbourne for houses where the 10-year capital growth rates in eight high-crime suburbs outperformed the Greater Melbourne growth rate. While two other suburbs slightly underperformed, they still showed strong capital growth.
Units – a tale of two cities
However, Mr Peleg said units in Sydney and Melbourne presented a completely different picture.
"In Sydney the 10-year capital growth rates in six (of the eight areas where valid data was available) high-crime suburbs materially outperformed the Greater Sydney growth rate. Granville performed just above the market while Guildford slightly underperformed but still showed strong capital growth," he said.
"While Sydney’s median unit prices are materially higher than Melbourne ($761,792 in Sydney vs $575,009 in Melbourne), units in high-crime areas are still relatively affordable compared to other areas in Sydney."
In Melbourne, due to a major oversupply of units with good access to the CBD, five out of seven high-crime suburbs that had valid data underperformed the Greater Melbourne growth rate.
"Unit oversupply across large areas in Melbourne make units affordable and consequently property buyers don’t need to compromise and buy units in high-crime areas," he said.
Mr Peleg said most property investors believed high-crime rates would have a detrimental effect on property price growth, but it was apparent the opposite was true.
"Investors commonly attribute too much weight to crime figures and should more objectively analyse the financial risks when making property investment decisions," he said.
"Our nationwide research actually found gentrifying suburbs with high crime typically deliver strong price growth and outperform the local benchmark. This is also consistent with the international trend where areas that had been notorious enjoyed gentrification and major price increases.
"We found affordable high-crime areas with significant gentrification are likely to produce strong price growth, particularly when dwelling prices in the inner and middle rings are severely unaffordable."
Mr Peleg said investors should more objectively analyse the financial risks when making property investment decisions.