Gentrification: What it means for Sydney property buyers

November 15th, 2017

Once a den for organised crime – from gambling to prostitution – Kings Cross still retains something of its gritty reputation. For now.

In reality it is a social petre dish likely to yield results which will help buyers and others understand the process of gentrification occurring in many suburbs across Sydney.

The last half-decade has seen the Kings Cross strip-joints increasingly lose their allure, making way for yoga studios, Italian snack bars, and Parisian-style cafes. Developers, too, are starting to flock to the inner-city locale: last year, a cohort of sixty-five landowners clubbed together to put King’s Cross strip of nightclubs – dubbed the Golden Mile – on the market. Meanwhile, the slickly named Omnia development (marked lush green in this photograph) consisting of 135 luxury apartments, is currently being erected: in 2015, the three-bedroom penthouse, complete with killer views, sold for $11 million.

Kings Cross, in other words, is gentrifying. For those buyers who got in early to the suburbs and streets surrounding the notorious neon Coca-Cola sign that is good news. Prices have soared.

The proof is in the numbers: over the last five years, Darlinghurst median house prices have risen an eye-watering 124 percent, according to the Domain Group (that compares with 82.5 percent for the median house prices across Greater Sydney). Potts Point, meanwhile, is one of 12 suburbs, along with the likes of Bellevue Hill, Point Piper and Watsons Bay, with a median house price of a whopping $7 million.

But the question remains: is rapid gentrification always in a property buyer’s interests? For those buyers invested in living in an area and contributing to the community – rather than buyers looking for an investment property with high returns – gentrification runs the risk of transforming into “blandification” as the hip kids, ever in search of the next best thing, move on to riper pastures.

The pattern, says Eoghan Lewis of Sydney-based award-winning Eoghan Lewis Architects, is largely the same. “Where the conditions are right, young creatives and students move in: people with energy and time [to create] a community that is engaged. The key factor is economic conditions: affordability. The demographic slowly starts to change. These people make an area cool and the money follows,” he says. “New people to the area have more cash, are older and more sedentary in their behaviour. The economic conditions change and people are displaced.”

“It’s important to note that the people that make an area cool don’t own; they rent. They’re mobile not sedentary,” he adds. “Their relationship to place is pedestrian: they are present on the street and they are active in exploring its possibilities.”

We’re talking about a caffeine-fuelled revolution

Once upon a time living in the suburbs in Sydney was a luxury; today, the wealthy increasingly want to live in vibrant beach suburbs such as Bondi and Manly or inner-city locales – think Surry Hills, Redfern, Darlington, Chippendale, Rozelle, Kirribilli, Neutral Bay, McMahons Point and even Crows Nest — closer to the city centre. They are following in the footsteps of billionaires such as Judith Neilson, at one point Australia’s richest woman and founder of White Rabbit Gallery. She decided to build her multi-million dollar architecture-designed home, Indigo Slam, not in an elite harbour-side location but in the streets of concrete-filled, former working-class Chippendale.

The shift is partly about prestige, partly about changing ideals over what ingredients make up a good lifestyle. In days gone by the Great Australian Dream of a house of one’s own in the suburbs – featuring garage, garden, and pool – was the ultimate proof that you had made it. Today buyers are happy to swap space for proximity to boutique shops, buzzy restaurants, and work opportunities. They are both attracted to, and are helping to drive, the caffeine-fuelled revolution: an abundance of hipster cafes – with lashings of turmeric lattes sipped by residents  in active wear, acai bowls and smashed avocado – that are markers of gentrification. Moving to an apartment (Sydney today has over 100 suburbs where fifty percent of the population lives in a flat) is, for many, no longer a compromise: it’s a considered choice.

An increase in urban living

Forcing the issue is Sydney’s burgeoning population. Immigration is at a record high in Australia: 28.5 percent of the population, some 6.9 million people, were born overseas at the end of June last year, according to the Australian Bureau of Statistics. As the country’s largest city, Sydney hit five million this year. Predictions are that the New South Wales capital will have a population of eight million as soon as 2050, helping it morph into an urban model more akin to London or Paris.

“Sydney is going through an urbanisation change as it evolves from a ‘suburban’ city to an ‘urban’ city,” Chris Johnson, chief executive officer of Urban Taskforce Australia, a non-profit that represents property developers tells Curtis Associates. “This is a product of size. When Sydney was three million people the suburban model was fine but at five million people a change occurs with a swing from house living to apartment living.”

“The suburb living style is very much about owning your own house, your own castle. Urban living is often in smaller homes but sharing common amenities… I think there is also more diversity in more urban areas with a mix of younger people, families and retirees,” he adds. As Sydney grows, he expounds, “we will become more diverse, we will own less and share more.”

So, for every buyer who is looking in a wealthy enclave such as Cammeray, Northbridge, Balmain, Double Bay, Bellevue Hill or Rose Bay there are many more who are turning away from the strollers, SUVs and private swimming pools for a smaller home or apartment in grittier suburbs, like Summer Hill, Rosebery, Redfern, aircraft affected Marrickville, Enmore and even Westconnex challenged Newtown Camperdown, Erskineville and Alexandria;  all of which are perceived by many buyers to have more pizzazz and, critically, “more soul”.

The downsides of gentrification

Is there a risk, though, that as the wealthy buy up Potts Point, it might turn into another staid Mosman or Cremorne negating the reason to move there in the first place? Will the weeds of vice – and all the accompanying character that comes with it – still grow through the pavements of Kings Cross long after the uber wealthy move into Omnia?

“For people who already are fortunate enough to live in a place that is experiencing gentrification and are lucky enough to own their property, it’s a good news story as they’ll be benefiting from that process,” says Professor Hal Pawson, an expert in housing research and policy and associate director at the City Futures Research Centre at the University of New South Wales (UNSW).

Yet, Professor Pawson adds, “some may also see it as a cultural downside even if the value of what they own is increasing. Those places become off limits to anyone who isn’t privileged really. There’s a certain better educated or better-trained, higher status population that will be more inclined to value an area that has other things [going for it] rather than just a ghetto for the rich.”

Diversity matters

To keep an area vibrant then, diversity matters.

“There was a lot of lower income housing in the inner-city that is progressively being wiped out. If you just leave that to run its course we’ll have a city in twenty years time which is much more starkly divided than it is now in the inner suburbs, with the centre entirely wealthy and lower income people pushed to the edges,” says Professor Pawson.

Gentrification in and of itself isn’t always bad points out Professor Alan Morris, a research professor at the Institute for Public Policy and Governance at the University of Technology Sydney (UTS).

“In some ways it improves the area, in terms of amenities and appearance,” he says. “But it very often has very negative implications: rents increase, house prices increase, and people of a low income are displaced. You get increasing homogenisation and a very significant spatial divide based on wealth.”

The case for affordable housing

One way to avoid this – and to retain a suburb’s “soul”, while simultaneously helping to protect the poorest members of society – is affordable housing, traditionally a turn-off for some buyers. In European urban centres such as London, however, affordable housing targets in new developments sit at around 35 percent. Public housing is also spread throughout the city, both in the centre and on the outskirts. By contrast in the massive 278 hectare Green Square development, one of Australia’s largest urban renewal projects just three percent of the residential floor space has been put aside for affordable housing.

“Historically, in many cities, public housing has prevented total gentrification, because unless you have coercion like in Millers Point [where the government is controversially evicting tenants in order to sell land to private developers], public housing tenants are safe from gentrification,” says Professor Morris. *

Sydney equivalents include Surry Hills, Glebe and Woolloomooloo.

In Australia however, market forces are king.

“It’s the absence of policy that is a problem,” insists Professor Pawson. “If markets are left to their own devices it leads to segregated cities. Land-use planning has a very laissez-fair approach in Australia – you zone it, walk away, and let the market do the rest. A lot more could be done to require that when new developments are going up they include a proportion of affordable housing as a condition to getting permission to develop. That’s a completely routine thing in London or Paris or New York.”

There is robust debate within government about upping affordable housing targets. But resistance is strong, says Professor Pawson. The reason is this: if a site owned by the government, as is the case with Millers Point, is put on the market with an obligation that developers must include a high-percentage of affordable housing, the value of the land is pushed down. “The government is being very resistant to committing [to affordable housing] because it will mean the land will be worth less and the Treasurer will get a smaller capital receipt,” he says.

But if the government is slow on the uptake, we at Curtis Associates have noticed that many buyers are changing their attitudes towards suburbs with higher concentrations of public housing. This, of course, has something to do with property price points: last year, property research platform Ripehouse.com.au found that properties located where 18 percent of the street is public housing are valued at 20 percent below the average rate. It is also, however, emotional: diversity, we are told time and again by buyers, means street life. Which means community. When an area becomes too upper-middle class, too staid and stagnant, it can throttle itself; we have noticed that there are some supposedly blue-chip suburbs where the demand pool for resale isn’t as good as it once was.

It’s all about politics

Affordable housing is one issue spearheaded by government. But there are other policies that are critical for creating the right environment for grassroots bottom-up change, allowing the small, the boutique and the funky to flourish.

“Consider the impact of the small bar license [in helping to foster street life] or lock out laws or the political decision to close Bourke Street to through traffic,” says Mr Lewis. “These decisions allow things to grow (or not).”

Again, Kings Cross is a classic example, where political decisions have had both good and bad impacts (depending on who you ask). Mike Baird’s lockout laws were widely condemned by the nightlife industry as the death of the Cross; club revellers have by and large moved to Double Bay, Newtown and the inner-west where there are no such heavy restrictions on drinking and entry.

Forcing out the down and dirty however, has opened up space for all those yoga studios, marking a dramatic reduction in street violence and noise pollution. A 2015 New South Wales Bureau of Crime Statistics and Research report claimed that assault in Kings Cross reduced by 32 percent since the laws first came into play in 2014. The reduction in the numbers of revellers visiting Kings Cross to go out at night no doubt also played into this. As journalist Elizabeth Farrelly pithily described it in 2016, this was a case of “draining the ocean to prevent a shark bite”.

That, in turn, has attracted a new, more moneyed crowd, largely young professionals (singles or couples) without children and retirees. As The Sydney Morning Herald reported in 2016, the lockout laws had a direct effect on property prices: “The median price of units sold in Potts Point in the final six months of last year was $748,500; up 25 per cent from the six months before the laws came into effect in December 2014.” That compares with an 8.7 percent increase of the median prices of units across the wider city.

One example of positive knock-on effects following well thought through policy is the City of Sydney, says Mr Lewis: “Government only has so much control but the City of Sydney is an amazing case study I think in terms of creating the conditions where good things can grow.”

“Some of these things are obvious: like bicycle lanes, spending money on public and cultural buildings, park upgrades, playgrounds and amenity projects. Others not so: like [Lord Mayor of Sydney] Clover Moore’s ‘Design Excellence’ process that forces developers to enter design competitions, their ‘fine-grain’ agenda, pedestrian agenda, public domain improvements (spending an extra $200 million on George Street light rail over and above their commitment), matching grants for community projects, green initiatives etc.”

A more pointed case of negative top-down, government led gentrification is again, Millers Point – the largest sale of public housing Australian has ever seen. By using forced evictions of tenants – many of whom have lived there for decades – the government hopes to raise up to $500 million.

Working class Millers Point is, indeed, sought after by those who want to be smack in the centre of the city: last December one three-bedroom renovated terrace sold for $1.2 million, a $300,000 increase from two years prior. But part of what makes Millers Point attractive is not only its proximity to the Sydney Harbour and central business district. It is the people, high footfall and cosy sense of community.

“Historically, this is an area where people had very few cars. People walked, caught the bus, caught the train,” says Professor Morris. As wealthier buyers move in, however, households with cars increase. “It’s become very individualised and privatised. Whereas before there was incredible interaction between the neighbours, because people saw each other on the streets, caught the bus together, went to the pub, now people don’t walk around. They drive around.”

Density is no longer a dirty word

Public transport, then, is one way to help foster and maintain positive gentrification, particularly in Sydney, a city traditionally hostage to the car (roughly eighty percent of trips in the New South Wales capital are done by private vehicles). Good public transport means cross-fertilisation between suburbs.

It also goes hand in hand with increasing density, a key factor for Australia. While Sydney is one of Australia’s most dense cities – with 1,900 people per square metre according to think tank Demographia’s annual World Urban Areas survey, it ranks just 955 in the world’s most densely populated cities.

“Australians don’t like density traditionally,” says Mr Lewis. “Being immigrants, many have come from poorer, more dense parts of Europe and Asia – they have wanted something that Sydney offers, a bit of land and space.”

Yet density, if done right as in Hong Kong, Tokyo, New York or London and if combined with increased access to better public transport, can help an inner-city area become attractive to buy in and to live – and can help a suburb avoid solidifying into a more sedentary population.

“Density can make a city very vibrant” says Professor Morris. “Density can be very significant in terms of creating facilities and a particular atmosphere. Suburbia can be very bland.” Or, as Mr Lewis put it in an interview with the Financial Times in 2015, “density is no longer a dirty word.”

Gentrification: an ongoing process

There are no absolutes in gentrification. Instead, it is a process formed and shaped by market forces, top-down intervention, government policies, public transport, and density levels. Gentrify, as Mr Lewis notes, “is a verb: it’s a process, a kind of urban evolution; a continuum. To greater and lesser degrees it happens everywhere all the time.”

Professor Morris agrees, that “there’s a push and pull factor. Also it’s about stage in life. People who are single would prefer some areas, couples with kids prefer another area. Areas do lose their attractiveness, others become more attractive.”

An elder Potts Point resident might love the crowd that frequents Fratelli Paradiso and Billy Kwong and yet, her daughter could complain of the influx of the “grey brigade” in an area once dominated by the young. Where to buy now is a question of taste; predicting how an area might change is another thing entirely.

*  Postscript: following publication of this CurtiseCall, we were contacted by the NSW Department of Family and Community Services which led to a round of communication which can be read here. The Department has not responded to our questions – a silence reinforcing the points made in our article and suggesting Professor Pawson is right when he refers to … “lower income people pushed to the edges.”