Neighbour Price Balancing, which is sometimes abbreviated to NPB, is a measure of the difference in price between a suburb and its neighbours.

The idea is, if most of the neighbouring suburbs have higher prices than the suburb under investigation, then it’s possible that suburb is under-valued.

Now, there might be very good reasons for the cheaper price tag compared to neighbours. Perhaps the suburb we’re looking at has always been cheaper than its neighbours because it is in a bad spot, like in a gully, while the neighbours are on hills with better views.

The NPB like most metrics is not a perfect read of an investment opportunity. It merely indicates the “possibility” of an opportunity to capitalise on that price discrepancy.

Perhaps buyers will realise that this suburb is better value for money, or they simply have no choice due to affordability constraints.

The NPB is usually expressed as a number of dollars per km. For example, if the typical value of houses neighbouring a suburb are around $700,000 but the suburb itself has prices closer to $500,000 then there is potential for some of that $200,000 price difference to balance out. Now if the neighbours are on average 4 km away, then we divide that $200,000 by 4km to come to an NPB of $50,000 per kilometre.

The larger the price difference between the target market and its neighbours, the more pressure there may be on prices to balance.

But just keep in mind, there may be a valid reason for the price difference.