Big Smoke joins the Hayseeds + Goodbye 2020

Well, it’s a wrap.

But before you all go off and do whatever you do at this time of year, there are a few things I want to say.

Big smoke joins the hayseeds

There has been much written about peeps moving out of our cities to more regional places this year.  Almost all have been written from the big smoke’s perspective.  Only a few journos have bothered to look at the other side of the coin.

I am, these days, a hayseed.  We moved to a small village, an hour south of Hobart, before Covid and it was part of a long-term plan.  We have been planning this move for over ten years.   So, if you are seriously considering a similar move – but not to Tasmania please as we are now FULL – then here are some things that we have learnt so far.

  1. Don’t talk about money or your financial situation. The locals don’t care, they aren’t impressed, and it is the quickest way to ostracise yourself.
  2. If you have personalised licence plates or are into similar shows of, well wankiness, then you might really ask yourself if moving a regional town, especially a small one, is really for you. Best drop all wonkiness too!
  3. If you think the move will change you, or your relationship, the maybe take a breather and think again, old habits die hard, leopards don’t change their spots. You get the drift. We weren’t going to get a TV screen when we moved.  Work as much.  Go out a lot more. Etc. Etc.
  4. Don’t complain. The local café, and other such businesses, open their set hours, there is often little choice and folks take their time turning up, especially when you employ them.
  5. Worse still don’t make enemies. What might be done, even encouraged, in the big smoke, could make your life hell in the hayseeds. Drop flipping the bird, loud hooting of the horn, cutting in at the grocery line or stealing parking spots.
  6. On a more positive note, if the weather is good embrace it. The locals do.
  7. Ask the local store owners what’s what and who’s who. Don’t announce your arrival, they can smell the newness on you from a mile away. And this is important, support all their businesses.  It will cost you more but well that’s surely one of the reasons you moved isn’t it, for that sense of community.  If so then you will have to support local things, including business.
  8. Having said that, and to misquote Dylan, “the locals don’t need you and they expect the same”. So, don’t get any ideas – well not too soon – about how you could ‘change the town’. Think them sure, wax lyrical plenty at home but don’t air that shite in public.  This is another sure way to ostracise oneself.   And if you are going to get involved, which is to be encouraged, slowly slowly.
  9. Pay your bills on time and don’t be too much of a pain in the arse if employing tradies, yard help and when receiving deliveries or similar. Yes, the locals want your work and brass, but they aren’t slaves, they aren’t below your standing and, well in small places, the word gets around fast. Spend time talking to them too, ask them who they are, what they know, you they recommend, it will pay dividends in the end.
  10. It will take at least two generations for you to be ‘accepted’ as a local. So, don’t even try. It’s their town, you are a blow in.  You might think you are putting down some roots.  Deep ones even, but the locals will think otherwise.

And once you get all that down pat, you might have some time left to read or listen to some tunes.  Below are some new books and music I enjoyed this year.

Goodbye 2020

Many of us are glad to see the back of 2020.  This year was a good one for us on a personal level, and it wasn’t too bad business-wise either, but it wasn’t a great one – if you ask me – regarding the wider stage.

The initial reaction to Covid19 was understandable.  But as the year rolled on the hysteria, alarm and inanity escalated to the extent that it has now become ludicrous.  We are shutting down places on whims.  And the ‘rules’ of engagement defy science and logic; most are in cloud cuckoo land.

We have also relinquished a lot to keep infections low.

Yes, it would be nice to save every life.  True some 900 people have died with Covid19 this year, yet about the same number died from the flu across Australia last year.  This year, due to social distancing etc., flu-related deaths were fewer than 40.

We could stop up to 1,000 deaths each year but a what cost?

The cost of what we have done, and how the agenda has been hijacked, will be felt for a long time.

Next year should be better, economically – well fingers crossed, and I do think we are putting a lot of pressure on 2021 if you ask me – but beyond the short-term economic bump, we will have to pay the cost of 2020’s hysteria.  And that cost will embrace far more than just things economic.

My biggest concern is how easily we gave away our civil liberties.

To paraphrase Chris Kenny recently from the Weekend Oz: “We are eroding our national character.  Once resourceful, self-reliant and anti-authoritarian we have become timid, afraid, longing for ‘rules of law’ and looking for government indulgence and protection.”

Also, of concern is how the media – in all its forms and across most ownerships – now just amplifies yet rarely interrogates.  Many things this year just didn’t pass the ‘pub test’, yet too many of us accepted what was being said or written as the gospel truth.

I do believe that it was our island nation status, our largely warm and relatively dry climate and our existing health system that had more to do with keeping Covid19 at bay than anything else.  For mine, government efforts (and of course bungles) caused more harm than good.

Dealing with Covid19 (or similar) is really a marathon, not a sprint.  We need to stay calm and carry on.

And on that note have a great Christmas and New Year’s.  Stay safe and spend a bit of it with someone, or doing something, that matters.

The Matusik Missive will be back on Tuesday 19th January 2021.

2021: A sweet spot

Interest rates are super low.  Foreign travel has been ruled out for now, making upgrading or buying a new home more attractive. Aussies are emerging from lockdown and more restrictions are being eased. Higher home prices are boosting purchasing power for other assets. Taxes have been cut. And the government continues to operate wage subsidy schemes and housing incentives.

And as our summary of NAB’s third quarter housing constraints survey shows there appears to be little getting in the way of 2021 being a housing market sweet spot.

Constraints on new housing developments:

  1. Labour availability, improved over last 12 months
  2. Construction costs, little change over the last 12 months
  3. Housing affordability, deteriorated over last 12 months
  4. Sustainability of recent house price gains, deteriorating
  5. Lack of development sites, little change
  6. Tight credit, improving
  7. Interest rates, improving

Constraints on established housing:

  1. Returns on other investment, improving
  2. Employment security, deteriorating slightly
  3. Level of prices, limited change
  4. Lack of stock, deteriorating
  5. Access to credit, improving
  6. Interest rates, improving

Prices are expected to rise during 2021, and maybe more than the talking heads are suggesting.

I have no idea really by how much prices could rise.

I don’t like predictions.  Many want me to put a number on a future outcome. I resist doing such as it really is guesstimating at best. BS more likely. And the last 12 months provides more evidence that such punts aren’t worth much.

I rather limit my endeavours to foresight. I know that sounds quite up myself, but I am into trying to understand the shape of things rather than presuming their exact structure or mould. I think that is more accurate and useful. To understand is better than blind acceptance.

And 2021 looks like it is shaping up to be a sweet spot for residential property. But just as circumstances align well for 2021, the medium-term conditions don’t look as rosy. Economic reality will take hold soon.

Enjoy it whilst it lasts.

PS Now here is a punt, if lockdown was 2020’s idiom of the year, then sweet spot could take the title in 2021.

Overseas migration + foreign buyers

This week lets discuss some things from overseas.

Overseas migration

Overseas migration, like internal migration, involves a net result, being people arrive from overseas, whilst others leave Australia to live elsewhere.

Chart 1 shows that – pre Covid – some 10,000 people each week were arriving from overseas, whilst 6,000 folks were leaving Australia, again each week, resulting in a net overseas migration intake of 4,000 per week.

The number of people leaving Australia has been on the rise.

One could quip that it is mostly youngsters escaping their HECS debts.  But on a more serious note, some one million expats are living aboard.

Australia is the envy of many and our Covid results have increased our appeal.

I do wonder how many expats are now lining up to return.  I also like to muse how many are truly now looking to leave.

Yes 2021 will see a lower net overseas intake, but assuming expats can get back, I do ponder how low this net result will actually be.

Plus 2022, and beyond, could see a boom in overseas arrivals.

Watch this space.  Any negative result here, for mine, is likely to be short lived. Foreign buyers

Developers who largely rely on overseas buyers are lining up now, calling for relaxations in FIRB regulations and reductions in stamp duties for foreign buyers.

Apparently Covid has “decimated” offshore market sales.

Hmmm, well chart 2, shows that overseas buying of Australian housing assets has been on the wane for some time.

Remember it was China that closed its capital account in 2015 which stopped the flow of illegal funds into Australian real estate and ended the buying up of the Aussie middle class.  There is little we can do to revive China’s interest.

I am a strong believer that we should limit the proportion of new stock that we sell to foreign buyers.

I have said that this maximum should be fifty percent in the past.  I am starting to think that even that is too high.  We shouldn’t rely of overseas buyers to make our housing developments work.  Twenty five percent might be more appropriate and only if the developer is headquartered overseas and is bringing new capital and experience down under.

When it comes to resales, we should have a very simple rule, ‘no passport, no buy’.

We should only sell established housing to Australian passport holders.

Foreign buyers should also pay a higher stamps and land tax too.

Fighting words maybe, and if so, dukes up.

Internal migration

Population growth is made up of three components – natural increase (births versus deaths); net internal migration and net overseas migration.

We covered natural increase earlier this year.  To revisit go here.  Next week we will update overseas migration and this week we cover internal migration.

Internal migration involves both interstate and intrastate population movements.  It also involves a net result, being people arrive, and depart, a location.

This post is also a bit data heavy.  But bear with me.  Three charts and three tables are included in this post.

Let’s start with the charts.

The talking heads have been making way too much of Covid19 and its ‘surprise’ impact on capital city populations.   Chart 1 shows that the combined capital cities have been losing population to regional locations for some time.

Chart 2 shows that Brisbane continues to gain internal migrants, whilst Melbourne has been losing internal population growth for years and Sydney, right now, appears to be seeing less people leave the city.

Chart 3 illustrates that the regions in NSW, Victoria and Queensland have all been gaining internal population growth for a considerable time.

It is important to note that the Gold and Sunshine Coasts in Queensland; Newcastle and Wollongong in NSW and Ballarat and Bendigo in Victoria are regarded as regions.

One could debate that these locations are within a daily commute of the capitals and maybe shouldn’t be counted as a ‘region’, like say Mackay or Cairns.

When you include these outer conurbations in the capital city counts, the wider capital cities – despite Covid19 – continue to dominate internal migration movements in Australia.

Now lets look at the tables.

Table 1: Select capitals: Internal migration by location

Location Sydney Melbourne Brisbane
Capitals
Sydney 0% 11% 10%
Melbourne 11% 0% 8%
Brisbane 10% 8% 0%
Adelaide 4% 4% 2%
Perth 4% 5% 3%
Canberra 5% 3% 2%
Other capitals 2% 2% 2%
Total capitals 36% 33% 27%
Rest of state/territory
New South Wales 46% 8% 11%
Victoria 2% 47% 3%
Queensland 13% 10% 56%
Other 3% 2% 3%
Total rest of state/territory 64% 67% 73%
Matusik analysis of ABS data.  June Quarter 2020.

Sydney + Melbourne net departures.  Brisbane net arrivals.

Table 2: Select rest of states: Internal migration by location

Location Rest of NSW Rest of Victoria Rest of Qld
Capitals
Sydney 35% 4% 8%
Melbourne 7% 51% 7%
Brisbane 13% 5% 52%
Adelaide 2% 2% 3%
Perth 2% 1% 2%
Canberra 8% 3% 2%
Other capitals 2% 3% 3%
Total capitals 69% 69% 77%
Rest of state/territory
New South Wales 0% 15% 15%
Victoria 7% 0% 4%
Queensland 21% 11% 0%
Other 3% 5% 4%
Total rest of state/territory 31% 31% 23%
Matusik analysis of ABS data.  June Quarter 2020.  All net arrivals.

Table 3: Internal migration by age group

Age groups      
Capitals Sydney Melbourne Brisbane
0-14 years 26% 23% 15%
15-24 years -5% 5% 39%
25-44 years 31% 32% 37%
45-54 years 33% 30% 3%
Over 65 years 15% 10% 6%
Total 100% 100% 100%
Rest of state Rest of NSW Rest of Victoria Rest of Qld
0-14 years 33% 20% 30%
15-24 years -39% 4% -14%
25-44 years 34% 34% 29%
45-54 years 58% 31% 38%
Over 65 years 14% 11% 17%
Total 100% 100% 100%
Matusik analysis of ABS data.  June Quarter 2020.

Sydney + Melbourne net departures by capitals.  Brisbane + all rest of state are net arrivals.

Table 1 shows that most people that leave either Sydney or Melbourne go to a regional location in NSW or Victoria.  Most new internal residents arriving in Brisbane come from intrastate.  Across all three east coast capitals experience considerable internal population movement between capitals cities too.

Table 2 looks at internal migration across the rest of NSW, Victoria and Qld.  Regional NSW attracts considerable internal population growth from SEQld – largely in northern NSW – as well as from Sydney and Canberra.  Most of Victoria’s regional internal growth comes from Melbourne.  Whilst Qld’s regional markets attract residents from Brisbane, regional NSW and from Sydney and Melbourne.

Table 3 shows that most people leaving Sydney and Melbourne are aged between 24 and 54 years of age.  Many are chasing more affordable housing.  Brisbane attracts a younger profile, due somewhat because of its more affordable housing price points.

 Table 3 also shows that regional markets attract older residents and lose younger residents.  If these regions are going to really ‘kick arse’ – to paraphrase several major media articles in recent weeks – it needs to attract a younger demographic profile.

Regional universities used to help achieve this, but maybe with less overseas students in our capital city colleges – due to Covid travel restrictions and the current China fracas – more regional youngsters might opt to undertake their tertiary education in the big smoke.

Plus, unlike many of the regions, there is plenty of student styled digs to rent in our inner cities.

My final comments are that Covid19 is likely to see more people consider a life outside of the capital city.  But this has been a long term trend.

Most are really moving to the outer conurbation – on the edges of what the official statistics currently define a ‘capital city’ – where housing is more affordable and better suits our demographic, and importantly, psychological makeup.

We are suburban people.  We like a nexus to the ground; we want to own our own bit of dirt and we appear to be prepared to accept the commute (and distance) to get it.

Regional Qld rents

As promised a few weeks back, here is the what is happening with rents across regional Queensland.

Regional Qld: median detached house weekly rents
Location/postcode September Quarters
2018 2019 2020
North Queensland
Cairns $450 $460 $470
Townsville (4812) $380 $405 $415
Thuringowa (4817) $350 $390 $390
Mackay $380 $420 $450
Whitsundays $430 $430 $480
Central Queensland
Livingstone Shire $320 $350 $400
Rockhampton $355 $380 $420
Gladstone (4680) $265 $290 $340
Emerald $350 $375 $400
Bundaberg (4670) $350 $360 $370
Hervey Bay (4655) $375 $380 $400
Maryborough $330 $330 $330
Gympie $345 $350 $370
Darling Downs
Gatton $355 $360 $350
Toowoomba (4350) $390 $420 $450
Goondiwindi $390 $390 $420
Dalby $310 $310 $320
Chinchilla/Miles $275 $295 $295
Warwick $330 $335 $340
Stanthorpe $340 $350 $340
Matusik + Queensland Residential Tenancies Authority.  * Four bedroom houses.

This week’s table outlines the recent and current median weekly detached housing rents across select regional Queensland areas.

Things have improved, and in some locations, substantially, rent wise in almost all of Queensland’s major regional markets.

Covid flight?

Well not really, this is just the usual property cycle if you ask me.

The regions where oversupplied in the mid-2010s.  Since then little new investment housing stock has been built and the regions have also attracted fewer investors than normally would be the case.

Yet population growth still trudged along, and in time, the amount of vacant rental properties declined.  Hence rental growth.  It is really just about supply versus demand.

It does help if a few mines and construction projects start too.

Of course, there has been some Covid impact, but I reckon there will be a fair bit of snapback too.

‘Poverty is nicer in a more remote location’ is maybe overkill but it does have a certain truth to it, and it isn’t a great promotional slogan.  It doesn’t win many hearts and minds.

Yet some of these regions do need to look at their future housing supplies, as their forward book looks very light.

For mine, if the major Queensland regions are going to keep up this type of housing momentum and capitalise on any potential population flight from the major capitals then they need more permanent and sustainable jobs.  This means a different approach to infrastructure provision and decentralisation of state government operations.

Time will tell.  Yet I won’t be holding my breath.

And as I have said here, Working From Home, for most, isn’t a trend, it is a current forced fashion.  Fashions come and go.  Anything forced also usually doesn’t last that long.

Cash rate v house price growth

About a year ago I posted this chart.

I have updated it to include the most recent and reliable annual house price growth – (being for fiscal 2020) – and the recent drops in the cash rate, including today’s drop to effectively 0%.

It is worth remembering that since 1990 the official cash rate has dropped 48 times.

In April 1990 the cash rate was 15.5%.  In early November 2020 it is just 0.10%.

Even before all things Covid, I wrote in late September last year, that I expected the cash rate to keep falling – and at least two more times or by 0.5% in total over the next six months – in order to try and keep the Australian economy growing.

And of course, to help address the slide in housing prices at that time.

The RBA dropped the cash rate by 0.25% in October 2019 and three times during 2020, twice during March.

The chart shows that falling interest rates do – eventually – help instigate house price growth.

I believe that the Australian housing market has now entered a ‘sweet spot’, helped by lower interest rates, easier access to credit and government stimulus.

I also think this will last for about a year, maybe a bit longer, after which the longer term, and larger, trends will start to exert their influence.

So, enough the bump.  Most housing prices should increase.  By how much is a fool’s errand.   But beware that harder economic times are coming once the stimulus stops and inflation starts to raise its head.

More on inflation soon and next week it is regional Queensland rental markets as promised last week.

SEQld weekly rents

I don’t know about you, but I have had enough of 2020.  It’s not only Covid – where I have had to endure six weeks of home lockdown since July – but local and US politics are weighting in big time too.

Plus, my recent missive posts have been somewhat wordy affairs.

So, this week (and next) I have limited my inner self and have posted a simple table with a few comments.

SEQld median weekly rents
Location September Quarters
2018 2019 2020
2 bedroom apartments
Inner city (0km-2km, GPO) $490 $500 $470
Inner ring (2km-5km) $385 $395 $390
Middle ring (5km-20km) $355 $370 $375
Outer ring (20km-40km) $290 $290 $295
Sunshine Coast $370 $375 $400
Gold Coast $430 $440 $450
3 bedroom townhouses
Inner city $565 $600 $565
Inner ring $480 $485 $505
Middle ring $395 $400 $400
Outer ring $340 $345 $355
Sunshine Coast $430 $440 $450
Gold Coast $450 $450 $465
3 + 4 bedroom houses
Inner city $550 $550 $550
Inner ring $465 $465 $480
Middle ring $400 $405 $415
Outer ring* $405 $410 $415
Sunshine Coast* $525 $530 $540
Gold Coast* $500 $510 $530
Matusik + Queensland Residential Tenancies Authority.  * Four bedroom houses.

This week’s table outlines the recent and current median weekly rents across select south east Queensland areas.

In contrast to what you often read, or hear, about the rental market, most areas in SEQld, and across most housing types, have seen an increase in weekly rents over the last couple of years, including 2020.

The few exceptions have been highlighted in the table.

So, the headlines shouting ‘capital city rents are shite’ or words to that affect don’t ring true.

Next week I will look at Qld’s regional rental market.  Let’s see if it really is all ‘boom’.

Toowoomba Land Supply

We were recently commissioned to undertake a detailed investigation into the residential land supply situation in Toowoomba.

We have undertaken several such studies in recent years across many parts of urban Australia and our Toowoomba work this year follows up on a similar document written, and presented, in Toowoomba in late 2017.

Our 2017 document concluded that “the Toowoomba housing market experienced a hard downturn in 2011.  Up until a year or two ago, the market was recovering strongly.  Since late 2015, sales volumes have fallen, yet in most instances, prices continue to rise.  This is especially the case when it comes to vacant land.  A shortage of new development approvals; and in particular for new land estates; is already starting to bite.”

Fast forward to today and our work illustrates that the Toowoomba land market remains undersupplied and despite recent turbulent economic times – bushfires and COVID19 – the Toowoomba land market is in the recovery phase of the property cycle.

In fact, the extent of the undersupply is worse than it was in late 2017.

Yet land sales volumes are again starting to rise, as are land prices.

In addition, the HomeBuilder government package has lifted buyer interest and post COVID19 the appeal of large, well-serviced regional towns and cities such as Toowoomba, within easy travelling distance of a capital city, is likely to grow.

The established housing market, as a result, is also set to improve.

Yet the region faces several challenges including keeping its younger residents and importantly attracting new young people to work and live in the region.

One of the key factors influencing a younger market is affordable housing and appropriate local work.  Toowoomba does not have enough subdivisional land. 

This lack is negatively affecting housing affordability. 

A lack of new development, in turn, adversely impacts on local jobs.

The construction industry accounts for 16% or 2,565 of Toowoomba’s 16,100 local registered businesses.  The construction industry in Toowoomba also employs 13,350 people on a full-time basis or 18% of Toowoomba’s 73,750 full time employees.

Full time local construction employment has fallen by 870 jobs, or by 6%, over the last two years.

Moreover, the local construction industry is worth $14,350 per annum to every Toowoomba resident or $36,000 to each Toowoomba household.  It is an important economic driver and one which adversely affects the local commerce when new housing starts (and land sales) decline.

In fiscal 2019, construction accounted for 23% of the Toowoomba economy.

In addition, the rental market is also now very tight, and more investment stock is needed.

About 170,000 people live in Toowoomba.  It has been growing, and is expected to continue to grow, by some 1,650 new residents per annum.

Our work suggests that there is need to build 600 and 625 new detached houses in Toowoomba each year.  These new detached houses will each require a new residential allotment. 

Using this annual housing demand as our base, the state of new subdivision land supply in the Toowoomba Regional Council area is as follows:

  • Based on current Queensland government estimates there are 3,489 allotments approved but not yet developed. This equates 5.5 years supply.
  • Yet our ground truthing analysis of this government estimate found 2,083 allotments remaining to be sealed across 24 land estates. This equates to 3.3 years supply.
  • However, five of these land estates, holding some 783 undeveloped allotments, are ‘difficult’ and when excluded – as they should be – from the count, the approved supply drops to 1,303 allotments equating to two (2) years supply.
  • The true test of land supply is what is available ‘for sale’. Our survey found just 418 allotments for sale in Toowoomba.  This equates to six (6) months’ supply.
  • Looking forward, the Queensland government states that within the next five (5) years some 2,700 additional allotments could be added to the Toowoomba land supply. Please note that this potential count does not factor in a range of pragmatic constraints that negatively affects land supply.  Assuming all 2,700 additional allotments can be supplied this equates to just 4.3 years supply.

In summary, Toowoomba has just two (2) two years of subdivisional approvals which is below the four (4) years minimum SEQ Growth Monitoring recommendations and the area has less that 6 months’ supply for sale.

In addition, Toowoomba doesn’t have enough broad hectare land available for future residential development over the next five years.

The Toowoomba Regional Council should be fast tracking new subdivision development applications.  They also should be considering expanding their residential zoning to correspond to help facilitate more residential development. 

Both tasks need to be done with haste.

Support?

Whilst most of the housing industry applauds another 10,000 new federal government first home loan deposit scheme placements, some of us continue to shake our heads.

How did it come to this, when it seems okay to place the top loan threshold for a first home buyer at $950,000!

As my chart shows there are less first home buyers per relevant demographic cohort these days despite all of the first home buyer handouts.

Good politics. Crappy policy.

The recent $25,000 Home Builder scheme has also hurt as many new builds, and with that, construction-related businesses as it has assisted.

Pity if you didn’t qualify for Home Builder.  Most of your potential buyers have lost interest in your project.  Many buyers, right now, are simply chasing the $25,000.  The trail of damage here could be wide.

Yet it will most likely be extended and maybe several times.

The new housing industry is now like a junkie.  It needs a sugar hit.  It lobbies to get it and at higher dosages each time.

Covid-19 was a missed chance to make some serious structural changes in this space plus a chance to send new builds to rehab.

Yes it would have been a shakier six months but home building in Australia would have come out stronger for it.

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