Matusik Missive

A stocking filler this week, flat chat of late with project advice consultancy work.

The table below shows the list of the top 50 urban areas across Australia.  It contains last year’s (fiscal 2021) population growth versus the previous five-year annual rate of change.

These top 50 urban areas, whilst comprising just under 5% of the countries land mass, holds 83% of Australia’s 25.8 million residents.

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Recent project advice work

I undertake all this work myself these days – so you get me (sadly) and my work in this space is based on – a clear brief, site inspection, SWOT, relevant local property market and demographic demand/outlooks, plus an in-depth analysis of existing and future supply.  A draft report is supplied; followed by a debriefing (in person or digitally) and then final documentation.

My aim with this work is to maximise each site’s potential return whilst reducing risk.  Risk can involve sales, renting, future capital appreciation and timing of release/development.

For most commissions I recommend:

• Development type/s
• Product descriptions/dimensions/mix
• Target market origins/type/characteristics and wants
• Market depth and outlook
• Competitive set, now and into the future
• Potential pricing/rents and future potential escalations/declines
• Best timing for release/development
• Key marketing points
• Marketing overview/ base strategy

 The investment to undertake such work typically ranges between $7,500 to $12,500 per site.  Excludes GST and, sometimes, direct costs.

Time budget is usually four (4) weeks from commission to completion.

Recent work includes:

• Yeppoon subdivision
• Coomera infill housing development
• Toowoomba apartment complex
• Melbourne mixed use housing estate
• Gatton subdivision site sale
• Richlands infill housing development
• BTR various: Brisbane, Melbourne, Canberra and on the Gold Coast

Interested in knowing more? 

Email me on missive@matusik.com.au

As the heading suggests I have covered this topic several times in the recent past.

Our analysis is proving to be a reliable indicator of short-term house price growth.

We know that Australian house prices rose 18% during the 12 months to March 2022 and the just released official lending statistics suggest that house prices could now rise by 12% for fiscal 2022 and median house values appear set to rise by just 5% for the year ending September 2022.

So, house price growth is expected to continue – despite the recent lift in interest rates – over the next couple of months but then start to fall (slightly) on a quarterly growth basis into the September quarter.

In simple terms and from the bird’s eye view,  if you bought a house in June last year, it could be worth 12% more come this June and a home bought around September 2021 could have grown by 5% more in value by September this year.

But if you bought a house this June, then it could be potentially worth 2% less within three months’ time.  See table 1.

Two charts are also included in this post.

 

Let’s start with some numbers.

Number of new home loans

There were 717,000 new home loans across Australia over the last twelve months.  This excludes refinancing.

This is up by 31% on the year before.

Around half of these loans were to owner residents who have bought a dwelling in the past.  These borrowers are what the real estate industry like to label “second and subsequent” buyers.

Another 28% of the 717,000 home loans were taken up by second and subsequent investors.  These 200,000-odd investors were up from 124,000 such loans the year before, an increase of 60%.

And 22%, with about 160,000 loans, were first time owner-occupier buyers.  This volume was up just 11% on a year earlier.

Finally, just 1% or 10,500 loans last year went to first time investors.  But this volume has increased by two-thirds in the past twelve months.

So, in summary, experienced home buyers make up about 75% of the market at present, with first home buyers holding 25%.  And investors hold a 30% market share.

Investment interest is currently growing a two and half times the pace of the second and subsequent owner occupier interest and six times the speed when compared to first time owner resident buyers.

For more details see table 1 at the end of this post.

Also of interest is the size of new home loans.

Price of new home loans

The average new housing home loan for owner residents is currently $570,000 across Australia.

Over the past ten years, the size of Australian home loans has been growing by 8% per annum.  Last year the rate of growth was 18%.  The average Australian home loan size was $100,000 cheaper at the start of the pandemic.

Chart 1 shows the relationship between the RBA cash rate and home loan size.

Chart 2 and table 2 (at the end of the post) shows the size and recent growth in home loan size by buyer type.

Both tables 1 and 2 provide the relevant data by state and territory too.

End comment

There is little doubt now that interest rates are going to rise.

Some are saying that this will occur faster and at a great amount than previously thought.

This change in tone is somewhat astonishing given that most economic talking heads – just a few months ago – were lockstep with the RBA’s ‘promise’ of no change in the cash rate until at least 2024.

Nevertheless, I am sticking to my original forecast.  Well almost.

 I said in November last year.

 “…a limited increase in official interest rates this cycle should be enough to adequately dampened inflation and lessen irrational exuberance.

 For mine I don’t see the RBA overreacting and as a result I see the official cash rate lifting between 1.75% and 2.0% by the end of 2024, with the first lift being just 0.15% – bringing the cash rate to 0.25% – sometime in late 2022.  After which I see 0.25% increases, and most likely on a quarterly basis, during calendar 2023 and 2024.

 A few are now forecasting house price falls during 2023 as a result of rising interest rates, a lift in the number of dwellings for sale, affordability limits and even buyer fatigue.”

Those house price falls were modest.  But now we have punters calling for 15% plus price declines.

Again, this change in tone is amazing, bordering on duplicitous.

Yet, there is no precedent for the RBA increasing the cash rate through prolonged double digit declines in Australian housing values.

Plus, this time around – given how low interest rates are plus the size of mortgages these days (and for mine that there is little real wage growth forthcoming) – there will be greater household sensitivity to interest rate changes.

For example, a 1% to 1.5% rise in the home loan rate, doesn’t seem like a lot (especially to those among us that were paying 15% to 17% when we bought our first home) but that 1% to 1.5% increase represents a whopping 37% to 55% lift over the current 2.7% average home loan rate.

This will see many home borrowers paying between $500 and $750 extra per month.  That will have an impact and the housing market should slow accordingly.

So, for mine, at best there could be a plateauing for housing values, on average, over the next five plus years.  This might even extend to a decade.

There will be falls in median housing values at times along the way and those falls could reach double digits (at times) in terms of an annual percentage change.

But if I was to place a bet, I reckon that the median Australian house price in late 2022 will be about the same number at the end of the decade.

To finish let’s revisit that well almost.

Well almost

Given inflation’s propensity to get out of hand, the RBA was right to have lifted the cash rate yesterday.

I think it should have been increased by 0.4%, bringing the cash rate to 0.5%.

Why – well unless you have been hiding under a rock during the past week – Australia’s annual inflation rate currently exceeds 5%.

Remember the RBA is supposed to try and keep inflation in the 2% to 3% band.

But it is an election month after all.

Then my earlier interest rate outlook comes back into play.  That is 0.25% lifts, roughly six weeks, after each quarter until we get a cash rate somewhere between 1.5% to 2.0%.

The RBA has always lifted interest rates – well going back to the 1990s – the meeting immediately after the latest inflation figures.

But of course, the world is in an increasing state of flux, so who really knows what will happen.

…..

My April 2022 playlist is below.

50 songs that I have liked listening to last month.  The usual caveat applies being some tunes are new, many old.  No rhyme or reason for their inclusion, playlist order or genre.  And the cartoon is again by the very talented Avi Steinberg.

 

This topic has got a massive head of steam.

To be a bit flippant, it needs a good slapping down.

Below is a recent press clipping from The Oz newspaper.

To repeat there is no race to the regions.

If my recent conversations are any guide, then a lot of people are making real estate buying decisions, on this shallow analysis and associated exposure.

To deliver a final smack here, let’s focus on the population growth figures for New South Wales, Victoria, and Queensland.

The table in the media article correctly states that Sydney’s population lost -5,200 people over the twelve months to 20^th June 2021, whilst NSW’s regional locations gained 26,800 peeps.

Melbourne lost 60,500 people yet regional Victoria’s headcount was up 15,700.

And the Brisbane capital region grew by 21,900 folks and the Qld regions rose by 24,100 people during fiscal 2021.

As explained several times over the last two years, much of this regional growth is in the areas immediately adjacent to the major capital city boundaries and more often than not within commuting distance to the big smoke.

In NSW some 38% of the recent regional population growth was in the Newcastle area; followed by 19% in the Wollongong region and another 9% in Richmond/Tweed adjacent to Queensland’s Gold Coast.

Ballarat, Bendigo, and Geelong accounted for 70% of Victoria’s regional increase last year.

And in Queensland the Gold Coast held a 35% market share of the state’s regional population growth: with the Sunshine Coast coming in second with 30%.

The next biggest regional Queensland growth market was the Fraser Coast (think Hervey Bay) with a 1,670 population increase – or 7% of the overall regional growth tally – during financial 2021.

In fact, all but three Queensland regions, saw their annual population growth rates fall during 2021.

The exceptions were Mackay, with an 840 increase in 2021, compared to the 300 previous five year annual average.  Gympie, up 790 last year, compared with its 680 average and Gladstone, with 335 versus 235.

For mine charts 1 and 2 hammers the final nail in the ‘trend setting’ regional growth coffin.

Chart 1 shows that annual population growth in Australia has plummeted.  It is at its lowest level since the first world war.

The big reason for this fall is that overseas migration has stopped due to Covid restrictions.  Some 70% of the population growth in our capitals comes from immigration.

Chart 2 shows that big fall in population growth in our major cities and importantly very little change in regional growth numbers.

Our truly regional centres aren’t growing any faster than usual.  The absence of overseas migration makes their recent population growth rates look ballistic when compared to our bigger cities.

Despite headlines and the talking heads spruiking otherwise there isn’t really much to see here.

Oh, and both my charts this post – and whilst I would argue such action needs some really careful deliberation – indicates that our annual net immigration intake is about to ramp up and big time.

The ABS a few weeks ago released some updated population growth figures.

In short, for the year ending September 2021, Australia’s population grew by 70,000 people.  The big winners in the population growth stakes were Queensland, up 58,000; New South Wales, up 24,000; and Western Australia, up 18,000.

Victoria lost some 33,000 people over that twelve month period.

When I present stats about population growth – and especially when asked by friends or relatives around the dinner table (or more likely firepit these days) – I see eyes glaze over.  Many cannot process what, say an increase like 70,000, actually looks like.

So, when answering such questions, l like to provide the answers as a weekly figure.

Table 1 outlines such.

Therefore, Queensland’s total population growth is increasing by 1,100 people every week; whilst Tasmania’s (and despite what the locals will tell you) is only seeing its population lift by four (4) people each week.  That is just 190 people over the last 12 months.

The long trend interstate migration results for both Queensland and Tasmania are charted below.

Many people in business applaud high population growth numbers.

There is a lot of debate that population growth without accompanying economic grunt doesn’t help much when it comes to the monetary welfare of the local population.

And more bums on seats means more cars.  The latest figures (2021) suggests that for every 1,000 increase in population across Australia equates to 785 additional cars.  This figure is 830 cars per 1,000 in Qld and SA.  And rises to 870 in WA and 955 in Tasmania.

On one of my recent regular work trips to Queensland many punters wanted to tell me about the rapid rise in net interstate migration to the sunshine state.

Yes, again as at the September Qtr. last year, the net interstate migration result saw 1,400 people per week move to Queensland.  This was up from 600 people per week over the same twelve week period a year ago.

Some 60% of the most recent interstate migrants to Queensland came from NSW, with another 30% coming from Victoria.

Is this sustainable?

Hmmm, I don’t think so.

I think the recent flooding; cooling NSW and Victorian housing markets; office call backs and the removal of most Covid-related restrictions will most likely see interstate migration patterns settle back down to the longer term averages.

If I am correct, then Queensland’s’ net interstate movement will still average something like 800 new people per week.

It really is a rat race after all.

It is that time of the year again to share with you some books and albums I have enjoyed over recent months.

Einstein was a very smart man, as time is relative indeed.

It speeds up the older you get!

For mine it was just Christmas a few minutes ago.

With that message in mind, please spend some time this Easter with those that matter.

I find that turning off all your devices helps.  It is only for a few days.  It makes a big difference.  And on this theme, maybe read Johnann Hari’s Stolen Focus over the Easter break.

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And to those that are interested in my regular music playlists see below my March 2022 playlist.  50 songs that I have liked listening to last month.  Some are new, many old.  No rhyme or reason for their inclusion, playlist order or genre.  And the cartoon is by the very talented Avi Steinberg. Enjoy!

This week is a follow up from my post last week.

And yes, counting what’s available to rent is a bit like musical chairs.

I have included two tables this week that shows that there is a difference in the available rental listings count.

SQM Research’s measure is based on all monitored and unique online rental listings for the period of a calendar month.  They are taken from online monitoring of major listings sites, such as realestate.com.au and Domain.

Only those properties with unique addresses or a unique listing id are used.  Those advertisements with no addresses are excluded from the series.  Any addresses repeated between sites are de-duped.

Importantly only those listings that have been advertised for three weeks or more are used.

Price Finder, which is powered by Domain, is my preferred housing market data portal these days and in the tables I have only included listings since January 2022, removed any repeated records and excluded those entries which have been leased.

Realestate.com.au and Domain results are based on what is currently available for rent, excluding any repeated listings.

None of these measures are necessarily better than the other.

My post last week used SQM Research’s vacancy rates – their count is often a bit short when compared to the other three data sources, as their measure rules are tighter – but their database has been up and running since 2005 and when it comes to vacancy rates – like a lot of things in real estate – I am after the trend rather than an individual result.

For your information.

 

Housing affordability is shaping up as a key election issue and in a bid to bridge the widening gap to enter the market the federal government is expanding its deposit guarantee scheme.

Federal budget initiatives

But while the doubling of its Home Guarantee Scheme to 50,000 places is aimed at making it easier for first home buyers to get into the property market there are concerns it will do little to stem affordability issues.

The expanded scheme will make 35,000 guarantees – up from 10,000 – to first home buyers with deposits as low as 5%, 10,000 guarantees for regional buyers to purchase or build a new home, and 5,000 guarantees to support single parents to buy a home with deposits as low as 2%.

It applies to new or existing homes worth up to $700,000 in cities and $500,000 in regional areas.

…..

Also, the scheduled increase of the First Home Super Saver will commence as announced in last year’s budget on 1^st July 2022 and lift the cap from $30,000 to $50,000.

Plus, the National Housing Finance and Investment Corporation cap has been expanded by $2 billion to a combined $5.5 billion which is estimated to equate to an additional 27,000 dwellings.

…..

Interestingly Josh Frydenberg’s budget speech didn’t mention housing affordability.

When quizzed on the subject, Scott Morrison, reiterated the Coalition standard line about buying a house is the best solution to low housing affordability.

In his mind (and maybe the Coalitions too?) you are superior if you hold your home rather than rent one.

For mine, there are three things that matter when it comes to the affordable housing issue.

Three things

1. The Australian economy is addicted to housing. This has been the case over the past 20 years.  Chart 1 shows that today two thirds of all lending goes to housing.  It was just a third 30 years ago.  Many of our biggest companies – i.e., the banks – are dependent on dwelling price growth.  And most of us are too.
2. And that brings us to the second thing, seven out of ten households hold a dwelling. They don’t want the value of that asset to fall.  Ditto when it comes to the share market – as most super funds have a heavy weighing to financial institutions, whose biggest asset base and business growth model is home lending.
3. Real estate at its core is about supply versus demand. When demand exceeds supply, prices/rents rise.  The reverse interplay sees values fall.  The key to making housing more affordable is to reduce demand and/or increase supply.  And the new supply needs to be cheaper.

My quick replies

I think we should be doing everything we can to reverse the lines shown in chart 1.

For mine all federal, and many state, economic policies should address this issue.  Housing is shelter.  It is vital.  It is a place to live first and foremost.  A vehicle for profit or an economic return a distant second.

Business grows an economy.  More money to business enterprises will help boost our productive capacity and set the foundation for future growth.

But changing this mindset – at present – regrettably is just wishful thinking.  So, let’s forget doing something meaningful here and move on.

Any major changes that affect the value of existing housing – changes in property-related taxation, removing negative gearing etc. – just won’t pass the ballot box.  So, we really must cross this out too.

Yet what would be popular with most voters is restricting home ownership to Australian citizens.  It is beyond me why a federal electoral party doesn’t run with a No Passport – No Buy policy.

Many of the things that both major political parties do in the housing market space – like first home buyer incentives – increases demand.  This is seen as a good thing by the real estate and construction industries, but it often lifts end values and hence makes housing less affordable if there isn’t a corresponding (or greater) lift in the appropriate dwelling supply.

Since FHOG was introduced in 2000, there are less first home buyers – as a proportion of the total relevant first homeowners age group – than would have been the case  (in my opinion) if such incentives were not introduced.  See chart 2.

First home grants and guarantees (like the expansion just promised) are great politics, but poor policy.

One approach would be to try and reduce demand, by aggressively lifting interest rates or restricting investment activity for example.

But as I outlined here, there isn’t enough rental supply at present due to previous investment restrictions and higher interest rates adversely affect first home buyers and often renters too, as many landlords lift rents when their costs rise.

We could also reduce housing demand by seriously capping our immigration intake.  But the business lobby – again at present – makes this a very unlikely scenario.

Plus, we could legislate that certain housing-related costs are reduced.  Think real estate fees or investment selling commissions.  I think this needs exploring but it is questionable if changes here would improve housing affordability.  It would most likely see sellers and developers pocket more of the sales price.

So, we are left with trying to lift dwelling supply.

This is really the only thing that realistically could be implemented to help improve housing affordability.

And importantly that new supply needs to be cheaper – for buyers and renters – than it currently is.

How could this be done?

1. Increasing the proportion of investment loans towards new construction by either dangling a carrot or using a stick to alter behaviour. I think a carrot is best so maybe lower interest rates for new investment housing builds for a time.  Another approach would be to offer a high rental yield for new stock.  I stress that these are short-term solutions.   This would lift the new supply, but not necessarily make it cheaper.
2. Making it far easier for developers and builders to supply ‘alternative’ housing stock. This will mostly involve smaller product – both land and housing size/dimensions – and/or more occupants per dwelling and/or title.  Location, sitting, and design become very important.   Density needs to be offset.  This would lift both supply and introduce cheaper homes to buy or rent, especially for tenants who are prepared to share.  Our work suggests that some 65% of new housing supply over the next decade – in both urban and many regional places as well – needs to be this ‘missing middle’.
3. Changing the tax and fee structures associated with new builds. For example, infrastructure charges should be set at 5% of the end price and not a flat fee.  The flat fee approach stops many developers building affordable stock.  Also, infrastructure charges should be levied at settlement.   Moreover, stamp duties could be substantially reduced for new homes and maybe the GST is either reduced or removed from new housing.  The GST action might have a set time frame.  This would increase the proportion of cheaper new builds.
4. Much commentary about new housing supply focuses on the availability of appropriate zoned land. But little is said about the exhausting approval process and the various imposts that come with a development approval these days.  Worse still is that this is a moving target and one that often defies logic.  Plus, there is no consistency between councils or even within the same council!  This process needs to be streamlined.  This would increase supply and potentially reduce costs/price.  Why we also don’t have a nationwide building code – one that only varies according to climatic zones – is also beyond me too.
5. Remove any tax imposts on Build to Rent. Also encourage this type of rental supply – which is big overseas and has a very large future in Australia – to other locations (it seems to be heavily focused in Melbourne at present) and across other product types such as townhouses, terraces, and small lot detached housing.   This will substantially increase supply.  Many tenants want security of tenure and a well maintained/managed abode.  They will pay a premium for this.  My project advice commissions in this space – which has been a lot in recent years – suggests that one in six tenants could live in BTR product within the next decade.
6. Start to provide more ‘public’ housing. Governments should be entering the development space, especially when they own the land.  They could go down the BTR road, or offer a long lease purchase option, or sell with some form of equity holding.   Again, they need to work on getting the product and offer right.  Ideally, 10% of Australia’s new housing starts should be in the public space each year.

End note

Unless new housing supply is addressed then the affordable housing debate is just a lot of noise.

Those that like to rant can postulate for a reduction in housing demand or financially punishing those that already own or hold residential real estate, but woe betide any government that attempts to make changes here.

Remember often the first thing a new home buyer will ask once they have signed a contract is how fast will their new home grow in value.

This is fine and dandy, but we need to lift the number of affordable homes to rent and buy.

We need more cheaper new housing supplies.

A good place to start would be to revisit the newly expanded Home Guarantee Scheme and lower both price thresholds by say $200,000 plus limit its application to new ‘missing middle’ dwelling builds.

Social engineering?  Maybe, but something actually needs to be done.

Let’s start with some helicopter numbers.

Table 1 outlines the current housing rental vacancy rates across the larger urban areas in Australia.

Most locations have a vacancy rate under 1%.  Weekly rents for detached houses have risen by 15% over the last twelve months.

It now costs, on average, $570 per week or $30,000 per year to rent a modest three-bedroom detached house in Australia.

And whilst not included in the table, median weekly rents for a two typical two-bedroom apartment have risen by 12% since this time last year.  That median rent is $425 per week or $22,000 per annum.

Charts 1 and 2 illustrate the vacancy rates of each capital city over the past ten years.

Each location has its own cycle, but they have all now synced up.

Weekly rents are very much influenced by rental supply.

My experience is that rents rarely fall – unless the vacancy rate heads towards 3% and stays elevated for longer than a year – but they show little growth until the vacancy rate falls below 2%.

Every market I have studied shows a similar trend.

The often used 3% vacancy rate – as a measure of rental balance – did apply when communication was based largely on paper and tenants used to get a For Rent list from the local real estate agent and were shown available properties on a weekend.

I am old enough to have experienced such things.

In more recent times, of course, everything is digital – except the actual inspections and sadly often the tenant approval part – so the rental market acts much more quickly when rental vacancies appear, hence a tighter 2% vacancy rate is a more appropriate measure of balance these days.

Chart 3 exemplifies this trend.

There is a debate at present about why the vacancy rate has fallen so sharply in recent years.  This is especially the case given that Australia’s population growth slowed rapidly due to Covid-related immigration restrictions and HomeBuilder (plus record low interest rates) boosted new housing approvals.

Some have been citing a fall in rental household size, others the rental Covid-related Eviction Moratorium (now expired) and/or a change in landlord mindset, with some investors opting to keep their asset empty and rest on capital gain and foregoing a yield.

Net rental yields are often low and with record price growth over the last two years there might have been some landlords that have gone down the ‘locked-up’ route.

But the main reason for the synced fall in vacancy rates in recent years has been the big fall in the number of housing investors across Australia.

This fall in investor activity was principally due to APRA placing a brake on the proportion of investment loans.  A 10% annual growth benchmark on investment loan growth was introduced in 2014 as part of a range of actions to reduce higher risk lending and improve banking practices.

This was removed in 2019.  But the consequences of this policy can be felt today and the relationship between investment lending and the rental vacancy rate is shown in chart 4.

My final table shows that there were just 40,500 new construction-related investment loans approved across Australia over the last year.  This is up 32%, or by around 10,000 new housing investment loans, over the last twelve months.

And since February 2020, some 71,000 new construction-related housing investment loans have been approved across the country.

Assuming that about 60,000 or 85% of these potential new rental properties are built and tenanted out (past trends suggest that this is the likely result), then this will see the size of Australia’s rental market lift by just 1.5% to just over 3.7 million properties.

My back of the envelope calculations – assuming a return to the 400,000 annual increase in Australia’s population growth (150,000 from natural increase and 250,000 from net overseas migration) – sees the need to build between 55,000 and 60,000 new rental properties per year to cater for this demand.

So, in short, the recent lift in investment lending, will do little to alleviate the rental undersupply.  Even if the federal government decides to cap immigration, we still aren’t building enough rental properties.

And yes, Build to Rent is on the rise – but even if all current 40 BTR projects with some 15,630 apartments under construction across the country are completed in the next two years – they will only have limited impact.

Also of note is that some 10,000 or 70% of these BTR apartments are located in Melbourne. So, the BTR rental supply – to date – is somewhat concentrated.

By contrast some 160,000 new loans were given to investors over the last twelve months to buy an established investment property.  This number lifts to 250,000 such loans since the start of the pandemic.

The number of investment loans for established properties is currently four times the volume to investment loans for new construction.

More has to be done to increase the supply of new rental property.

This can be by developers building more investment style stock.  For my ideas here revisit some of my earlier posts:

A case of more dual occupancy housing

Better apartment buying guide

Better townhouse buying guide

Also targeted incentives to help developers attract more investment buyers could offer a short-term, band-aid solution.

Spreading more BTR to other locations and also BTR encompassing other housing stock, such as townhouses and even small lot detached housing, offers a longer term answer to insufficient rental supply.

As does the state/territory and even local governments building more rental housing.  This is a lot easier than many pundits think, especially when the government body already owns the land.

My last comment this post is that again, when the market is artificially interfered with – in this case impeded by a regulatory authority – the normal property cycle is often adversely affected.

This week I want to cover the Australian economy.  Well, my take on things economic.  And in particular I want to put a final nail in the ‘wage growth is coming’ palaver.

I will try to Keep It Simple Stupid, not for you so much dear reader, but for my dull intelligence.

Eight charts and one table this post – I have been on a roll in recent weeks – and they do take a fair bit of time and effort to put together, as yes, the Missives are my main promotional tool, but donations are very welcome.  My bank account says thanks!

So, enough self-promotion, let’s start with chart 1.

Chart 1 shows that Australia’s population growth has slowed down since the start of the Covid restrictions, and by my estimates there will be 750,000 less people living in Australia by the middle of this year, that might otherwise have been the case if the federal government didn’t lock out overseas migrants.

Chart 2 updates previous commentary, showing that despite the government largess over the past two years, Covid has driven a half billion dollar hole in the Australian economy.

My third chart shows that – despite last month’s ‘apparently’ strong job growth result – the size of Australia’s labour force still remains smaller over the past two years, again when compared to its potential size, based on the pre-Covid trend.

I say ‘apparently’ because for mine the ABS employment data and the current 4.2% unemployment figure is fake.

As I have written several times before, Roy Morgan Research do a much better job measuring unemployment across Australia, and they suggest that Australia’s rate of unemployment is rising and is currently 8.5%.

Did you know that the current ABS data counts as employed 131,000 people working zero hours for economic reasons and a further 222,000 people doing the same ‘zero hours work’ due to illness, injury or sick leave.  There are obviously always people in the second category, but in recent years that number has been elevated.

Making the appropriate adjustments sees that ABS jobless rate lift from 4.2% to something like 5.5% to 6%.

Chart 3, below, is based on ABS data and it shows that at the start of the pandemic the size of the Australia’s employed workforce shrunk by 896,000 people and today (based on a somewhat fantasised 4.2% employment rate) the size of Australia’s employed workforce is just 83,500 short of the pre-Covid trend.

Using Roy Morgan’s survey results, saw the March 2020 employed diminish by 1.1 million workers and today the size of the Australian employed workforce is still 239,500 workers short of where it could have been if Covid hadn’t happen.

Regardless of sample source, one of the big reasons for the fall in both the unemployment and underemployment rate has been because of people giving up looking for work.

Whilst some of the workforce may have retired and others whose children went to daycare or school stopped working in order to attend domestic duties and home school, many in the labour force, I believe, just gave up.

Some may question this statement, but on my side of the argument, the current labour force participation rate is 66%, which is higher than in March 2020 when pandemic commenced in earnest on our shores.

Furthermore, Australia’s employment to population ratio has also risen over the last twelve months to be the highest on record.

And on the flip side did you know that since late 2019, the number of ‘main’ jobs rose by just 1.4% whilst the number of ‘secondary’ jobs increased by over 10%.  So more people are working a second or even third job to make ends meet.

Chart 4 clearly illustrates that domestic wages are not putting pressure on inflation.

Prices are not rising because workers are demanding higher pay, but mostly because of supply-side issues and demand driven aspects like the overheated housing market.

Chart 8, later in the post, shows how real incomes rose due to government largesse during the pandemic.  This lead to a lift in domestic demand whilst covid-related restrictions constrained supply.

Additionally, chart 5, highlights that the link between unemployment and wage growth remains much reduced.  I do think that this relationship will condense further.

Chart 5 also suggests that the predictions of wage growth rising above 3% per annum in coming years is somewhat fanciful, regardless of what unemployment does.

And we now have a very likely return of high net overseas migration which will add more bums of seats and further dilute generic wage growth as labour supply increases and recent immigrants accept lower renumeration.

But for mine the bigger problem is that many workers are not getting rewarded for their efforts.

Whilst government spending boosted our economy during the pandemic, the private sector hasn’t really yet picked up the slack.  And business really cannot blame labour costs.

Chart 6 shows that over the last three months of 2021, real labour costs fell and are now 4% below what they were prior to the pandemic.

And in the last December quarter just 46% of GDP went to the compensation of employees – 1.5% lower than two years earlier – and lower than in any time in Australia’s economic recorded history.

Adding further salt into the wound, is rising inflation, which as chart 7 shows, is causing real wages for both the private and public sectors to actually fall.

Real compensation per job is now less than it was ten years ago (see chart 8) and during 2021 57% of Australia’s workforce saw their wages (again in real terms) actually fall.  One in seven workers (14%) have seen their real take home pay fall by over 10% over the last twelve months.  See table 1.

Furthermore, as a result of rising inflation, interest rates are likely to rise, adding even more pain to most working Australian households.

And of course, there is the impact of the recent floods and the tragic unfolding overseas events to content with too.

In conclusion my economic KISS hypothesis suggests two things:

Firstly, there is nothing to suggest that most Australian workers are about to receive some mystic windfall wage gains.

My thesis, if anything at all, intimates that the past decade of stagnant real wages is set to continue – it might even get worse – unless a prospective government seeks to do something meaningful about it.

Pigs might fly!

And secondly, as a result, the housing market is about to slowdown, and I believe, at best, enter a prolonged period of little price growth and limited sales activity.