Hello,

Above are six recent consultancies.

If you would like my assistance, please give me a buzz by going here.

You may also wish to find out a bit more about how I can help you.

Alternatively, you might wish to book me to speak.  If so go here.

Cheers for now,

In ten year’s time?

Happy New Year.

Earlier this month data released by CoreLogic showed that dwelling values across Australia rose by 67.5% over the past ten years to December 2023.

And despite forecasts to the contrary, last year’s dwelling values rose by 8.1%, on average, across the nation.

Some urban areas did better than others.

My first table outlines last year’s performance by major urban area.  Perth currently leads the pack, followed by Brisbane, Sydney and then Adelaide.  The other capitals are slowpokes.

Much of the difference is due to supply versus demand and rising unaffordability.

For example, whilst Melbourne attracts its fair share of overseas migration, and hence has a high level of demand, new dwelling supply across Victoria is better than in Sydney and across southeast Queensland.

This table also shows that the median dwelling value across Australia currently sits around $758,000.

The release of such results, and especially at this time of the year, has pundits taking a stab at what dwelling prices are likely to do over the next ten years.

Whilst there has been a wide range of predictions, the consensus is that dwelling values are likely to increase by a similar amount – in this case by two-thirds or around 66% – between now and 2033.

That would lift the median dwelling value to $1.26 million by 2023.

All the capital cities, except Darwin, would have a median dwelling value over $1 million and the median regional dwelling price would also be just over seven figures (excluding of course the decimal point!)

But is such growth realistic?  Is it likely to take place?

Well to better comprehend the future it is often said you need to understand the past.

My second table outlines dwelling price growth and inflation by year over the past decade.

Obviously, it shows that dwelling values rose by 67.5% in total since 2013.  By comparison, the general price of things (i.e., inflation) rose by 29.1% over the same period.

So, when removing the cost of money, Australian dwelling values increased – in real terms – by 56.8% over the past ten years.  In essence they rose by about 50%.

This table also shows that 2021 was a standout year, with median dwelling values lifting by 24.5% – or by 21.5% when removing inflation – for that year.

So, some 30% of the Australia’s past decade dwelling price growth performance was due to the Covid year and the associated plunge in interest rates and government philanthropy.

I think that any forecast needs to remove 2021 out of the modelling.  Or in my case the toss of the durrie at the dart board.

Looking ahead

As I have said in several of my recent posts, real estate is all about supply and demand.

At present demand (i.e., sales) is steady when compared to the past ten year average, whilst supply (stock listed for sale) is down, some 20% against the long term trend.

We also have an undersupply of rental stock and new builds.

Unless things go really pear-shaped then, for mine, Australian housing values are likely to rise during 2024 and 2025.  This growth is likely to be around 5% per annum.

The disparities between locations, I think, will lessen in coming years as well, especially as our immigration levels set to settle down to the longer term average and new housing supplies come through.

For mine inflation is likely to be stuck between 3% and 4% for some time, so there is very unlikely to be a lot of real price growth.

Ironically, in an increasing uncertain world, Aussie’s will likely invest even more strongly in real estate.

So it could be that dwelling values rise by 50%, in total, over the next decade but in real terms this increase is likely to fall between 15% to 20%.

That’s my stab at is.

Moreover, if this eventuates it will have an impact on the housing market.

Investors will need to focus more on rental returns and/or improving their dwelling asset, and more intending owner residents will probably choose to rent, particularly if they can secure long term tenure.

Some themes for this year’s Missive posts.

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The Long Goodbye

I apologise for my absence over the past couple of weeks but the current strain of Covid hit me big time and well I have had a fair bit of work to do as well.

And to be honest I am a bit distracted, after all I did buy a boat this year and I have grown weary of the shite that is dished up in the media and how gullible many folks have become.  I don’t think I am alone regarding my last point.

Anyway, I turned 58 this year and as a forewarning this post – my last for this year as we are about to go on an overseas break – might sound, to some, like a grumpy old coot.

Anyway…

Meet the new boss, just like the old boss

The end lyrics from Won’t Get Fooled Again by The Who.

Yes I am showing my age!

In this case I am referring to the RBA’s new head honcho, Governor, Michele Bullock.

Bad decision earlier this month if you ask me.  Inflation isn’t being driven by domestic consumption.  It is from geopolitical tensions, poor government policies and green/red tape.  For example, the latest clutch of housing construction rules adds between $25,000 and $50,000 per new build depending on location and household type.

If domestic consumption was to blame, then why not do something meaningful, like placing the GST on all goods and services and raising the level of this consumption tax, say from 10% to 20%, for six to twelve months at a time.

But that would take some guts, which is sorely lacking in public life these days.

We desperately need serious tax reform in this country.

We also need tough love across the board and not feel good politics.

Some were critical of my comments last post regarding my suggestion that the RBA make longer range decisions.  Many said I was making the same mistake as Philip Lowe.

For mine, the RBA should meet, say, four times a year, and decide about interest rates once every 12 months, in July each year.  They should make big decisions regarding interest rates, like hiking the cash rate by 1%, then resting for a year.

Again, for mine this is what they should have done 18 months ago.

Much has been said about the future direction of interest rates with the RBA head saying that the data will decide where the cash rate goes in the future.  For mine, and given the current state of play, the only statistic the RBA needs to monitor is real wages.  See chart 1 below.

As to where the cash rate goes next, the financial market is thinking they are likely to remain steady for much of next year, with a slight chance of a fall.  See chart 2.

To me, the RBA has gone too far, and by about 1%, and I think the cash rate will fall by about this amount by the end of calendar 2024.  Trusted economic indicators and especially of the job market, suggests that Australia is heading for harder financial times over the coming years.

Big Australia

The ABS has released a new population forecast data set, calibrated from 2022, which suggests Australia’s population could grow between 3.7 million and 4.6 million people over the next decade.

This would see between 30.2 million and 31.2 million would call Australia home.

As at mid 2023, some 26.4 million people lived in Oz.  As at the time of writing – late November 2023 – about 26.9 million live here.

Some 30% of our population is born overseas.  This will lift to 33% by 2033.  It was 27% ten years ago.

Heaps of folks are calling for this growth to stop, especially given the recent disgraceful behaviour, but without it we are stuffed economically.

Now days we live beyond our means, we cannot afford the maintenance, we need many more here to achieve an economy for scale and also, increasingly, for geopolitical balance.

Now I am starting to sound like an old man!

If we didn’t rely so much on income taxation (and had a wider tax base) and used our mineral wealth much more wisely, then we could get away with a much smaller population base.

But that again takes political guts and actual decisions not just words, weasel or otherwise.

We also need immigrants of conviction not convenience and we should be much more selective as to who we allow in and critical when it comes to how they behave.

Worldwide foot falls are heading our way.  We can attract some of the best citizens in the world and we should try and do so.

And as a side bar, this is how Australia’s population is currently growing:

  • One birth every 1 minutes and 42 seconds.
  • One death every 2 minutes and 52 seconds.
  • One person arriving to live in Australia every 42 seconds.
  • One Australian resident leaving to live overseas every 2 minutes and 30 seconds.
  • An overall total population increase of one person every 47 seconds.

I think we should be making plans how we host 50 million residents by 2050 and 100 million by 2100.

That would be a nation building programme worth pursuing.

Housing crisis

I don’t know about you, but I have grown tired of this general conversation.

Chart 3 shows that the rental vacancy rate has been down before.  It will, like in the past, bounce back.

Tenants are going to have to share, like many of us did in our youth, and we need to encourage (not just allow) more of the housing that the market can afford.  In short the “missing middle”, which includes moveable dwellings plus backyard homes.

Land tenure also needs to change, and the town planning metric should be population per hectare not dwellings.

Also, home buying – for both new and old dwellings – should only be allowed for those that hold an Australian passport.  No exceptions.

The housing sector also needs major taxation reform, grandfathered, and including changes to stamp duties, infrastructure charges, negative gearing and capital gains tax, in concert with the implementation of a federal land tax.

We also need one building code, Australia wide, with climatic zonal differences.

New development applications, supported by the appropriate documentation, should be decided in three to six months, not years, let alone decades!

Unless we do this stuff nothing meaningful will happen in this space.

The current federal and select state government largesse in the space will just inflate prices and see very few extra homes actually built.

Housing outlook

Real estate is all about supply and demand.

Demand (i.e., sales) is steady when compared to the past ten year average, whilst supply (stock listed for sale) is down, some 20% against the long term trend.  See chart 4.

We also have an undersupply of rental stock and new builds.

Unless things go really pear-shaped then, for mine, Australian housing values and rents are likely to rise during 2024 and 2025.

Now inflation is likely to be stuck between 3% and 4% for some time, so there will not be a lot of real price growth.  Rents could rise between 5% and 10% per annum over the next couple of years, until the vacancy rate lifts over 2%, which is another 18 months to two years away.

Ironically, in an increasing uncertain world, Aussie’s will likely invest even more strongly in real estate.  So next year, in particular, could be a strong one for Australian housing.

Lies, damn lies and statistics

And on that note, 2024 faces a lot of headwind.  It is a year of elections, both here and abroad.

My end note this year is don’t trust much that you read and hear – my musings included! – and especially if you are getting your intel for free.

I posted a while back my seven rules to help better understand the world.  Revisit it here.  It was written during the height of Covid, but change Covid to Hamas, Putin, Trump and Xi Jinping and you get the picture.  Feel free to add your own despots or pollie, my list is by no means exhaustive.

Merry Christmas

So, spend some time over the Christmas – New Year period with someone that matters.  Do something you want to do.  Smile, better still laugh.  We are only here once.

All the best.

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The Matusik Missive will return soon after Australia Day next year, but in a new format.  Substack here we come.

The Long Goodbye is a novel by Raymond Chandler, published in 1953, his sixth novel featuring the private investigator Philip Marlowe.  I think it is his best book.   It was also made into a great movie in 1973, staring Elliot Gould and an uncredited appearance by Arnold Schwarzenegger.

Moreover, The Long Goodbye has been called “a study of a moral and decent man cast adrift in a selfish, self-obsessed society where lives can be thrown away without a backward glance … and any notions of friendship and loyalty are meaningless.”

Make of it what you will.

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Tuesday 7th Nov at 2.30pm

Imagine for just a few minutes that I am the RBA Governor.  This is what I would be announcing next Tuesday at 2.30pm.

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Thank you for coming.

The RBA board has agreed to leave the official cash rate where is currently stands.

Up until last quarter, domestic inflation has been falling and in an orderly fashion.  

This national trend is in line with most other OCED nations.

The September quarter rise in the Australian consumer price index, was driven by factors that are not influenced by domestic interest rate settings.

Five things drove the slightly elevated September quarter CPI, these included:

  • petrol prices
  • building construction costs
  • housing rents
  • rates and other property charges/taxes, and
  • electricity costs

Raising the cash rate will not slow these drivers. 

Ironically if we lifted interest rates based on the most recent evidence we could see even higher inflation. 

For example, a large part of the lift in housing rents is because of the rise in costs, of which higher interest paid by investors forms a large part.

At our most recent meeting the RBA board also discussed – and with my full support, we are hereby announcing – that the RBA aims to stop much of the jawboning that has taken place, before my tenure as Governor, when it comes to interest rate settings in Australia.  

I believe that such activity undermines confidence, spooks investors and is just plain counterproductive.

As a result, the RBA and its board members have decided to remain largely out of the media – and will not make any comments regarding interest rates – until we are obliged to under our current charter.

To that end we do not intend – at this stage – to change the current official monetary policy setting for the next six to twelve months.

This is not an official forecast – as circumstances might change – but given the longer term inflation trend and, in line with our research and forecasts, – our reading right now is that the large lift in the official Australian cash rate is working to bring down inflation and hence they are on hold for the foreseeable future.

Thank you

Michael Matusik

Governor of the Reserve Bank of Australia

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Matusik consultancy

 Obviously I am not the RBA Guv, so I have to do other things for a crust, and what I mostly do is work on new residential projects.

And if you would like me to help bring your project to fruition – in either the subdivision, apartment or townhouse space – then give me a few details via the get in touch tab on this website and I will come back to you with a quote, timeframe and a recent example report.

I will, of course, discuss your needs and how best to present my recommendations.

I have helped over 1,200 projects across Oz and NZ do so over the past 30 years.

Maybe I can help you too?

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Falling apart?

Some may have noticed that I have been absent for a few weeks, mostly due to heavy work related travel and partially because, I like many of us, well at least the peeps I have spoken to in recent weeks, are pretty peeved with the way the world is heading.

I gave several presentations and a few workshops other the past month, and the general mood in the audience was, well, gloomy.

I am not making light of the recent world events, and I do believe that ‘The West’ has crossed yet another inflection point, but when you take a breather and consider the long view, things aren’t all that bad.

We should be telling our children and grandchildren this, instead of scaring them witless.

It was sad that this great article – from two of my favourite authors – was on page 24 of the Weekend Australia.  Included like an afterthought, or maybe to toss in a titbit of positive balance, given the weekend paper was almost all doom and gloom.

For mine, such content should feature on the front page more regularly and largely is missing from our national discourse.   Let’s talk about what we have done, and do well, and where the real opportunities lie and stop wallowing in pity, doubt and negativity.

PS My apologises for the tea bag stains.  Rooibos for those that are interested.

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Property Clock – Oct 2023

Words just get in the way!

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Follow up #2

As mentioned last week, several questioned a core statement in my recent land banking post being that land values within an active subdivision show limited growth.

Within is the key word here.

Yes land values across a wider area, and especially as a region matures, improves as amenities amass etc., do grow and more often than not faster than house values in the same region.

But this takes time, and much longer, than most subdivisions are active.

Also, given Australia’s projected annual population growth, undersupply of housing – especially new detached homes – plus the government push for more apartments, it is reasonable to anticipate that land value appreciation will accelerate.

A doubling in price (on a rate per square metre basis) and across our major urban area, within the next five to seven years, is possible.

This will see an increasing preference for smaller allotments and many buyers will look to maximise their housing asset by accommodating more residents on their title.

See my table and two charts below.

For your information.

Next week is Property Clock update time and then – as promised a month or so ago – I will complete the series of ‘reallys’ and attempt to answer what is really going on with the rental market.

Oh, I bet you cannot wait.

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Follow up

Welcome back.

Well, that assumes that you have been on a break during the school holidays.

The Missive open rate suggests that many of you have been.

Whilst you were away you might have missed this post about changing housing types.

Quite a few folks that remained on the tools – including those sad sacks that read and replied to their emails whilst on hols – questioned the low proportion of apartment adoption over the past decade.

Many said that there must be a bigger acceptance of higher density housing in our major capitals and coastal regional cities.

So, in reply find two tables below outlining the statistics for the five major Australian capital cities and the five largest urban areas (excluding Brisbane) across Queensland.

Outside of Sydney, detached housing still is the most popular housing form – and by a long shot – across our major urban markets.

Sorry folks.

But please keep questioning.  I might get a bit peeved when you do – well to myself and within ear shot of long suffering Julia (the boss) – but I always think about what has been said and more often than not reply.

And to that end, next week’s post will be another follow up, this time about my recent land banking post.

You might have missed that one too?

PS.  The tables are based on occupied dwellings, not all dwellings.  This is on purpose as I want to show which dwelling types hold residents.  Whilst the 2021 census was somewhat unique (i.e., Covid) it does show that in certain locations, whilst no doubt more apartments were built over the past decade – such as in Perth, Adelaide, Townsville, Cairns and Toowoomba – many of these new apartments don’t hold permanent occupants.  The current focus on building more apartment to help solve new housing supply is a folly.

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Land banking?

I have published the first table in this post before.

It has been updated here, and the message remains the same, in that there is a heck of a lot of apartment and townhouse (mostly apartments) projects across south east Queensland that are approved but have yet to start construction.

As at March this year – the latest figures available – the relevant SEQ figures here are 4,100 projects; 121,000 dwellings or about 16 years supply, based on demand during the 2023 fiscal year.   See table 1.

When I use this type of data during presentations, or in consultancy work, some say that this is because developers are land banking, and by extension, assume that the same trends apply to the subdivision market too.

Subdivision market

Before we get into land banking, table 2 outlines the supply and demand status of new land subdivisions across SEQ.

It shows that some 59,000 lots have planning approval across SEQ, of which about 28,000 or 47% have operational works.  Based on last year’s demand for such housing stock – being 11,250 residential allotment registrations during financial 2023 – the total approved allotments is just five (5) years supply, and when looking at the stock with actual subdivision approval (i.e., op works), this supply shrinks to just 2.5 years.

These figures are also as of March 2023.

Some locations, like Brisbane, the Gold Coast and Redlands have under two (2) year’s supply of land with subdivision approval.

When it comes to the subdivision market there isn’t any land banking going on across SEQ.  The raw land supplies are way too tight.

Those that say there is don’t understand the land development business.

Land values on a rate per square metre basis within an active land estate, on average, increase between 2% and 4% per annum.   In some years land values can also fall.

I have done many investigations on this topic and the outcomes rarely stray outside of the figures outlined above.

For many new land projects, the cost of holding the land plus the price to develop it often exceed the annual potential land value escalation.

Most, if not all land developers – and especially over recent years – would sell all approved land they hold if they could supply the completed allotments in a timely manner and at an acceptable profitable margin.

But they cannot, due to increasing delays in council approvals; rising costs and a lack of labour supply, materials and equipment.

A lack of demand isn’t the issue, it is supply.

Attached dwelling projects

When it comes to the attached housing market, there is a lot more development speculation than in the subdivision market; with out of town developers (more often than not) buying an apartment (or townhouse) site with the intent to flick the site, once it has an amassed DA, to the next sucker for a large profit.

Also, many attached dwellings projects just don’t work.  Their approved product mix and sizes regularly miss the mark.  The buyer value proposition is often way out of whack.  Their locations are also frequently poor and their housing density in cloud cuckoo land.

I know this because much of my commissioned project advice work is helping a new attached dwelling project get the best market match, thereby reducing sales risk and assisting to bring the development to fruition.

Serious surgery is often required.

In addition, the expected dwelling yields for an area with a lot of new attached dwelling development often exceeds 25 dwellings per hectare.

At first glance, this dwelling density doesn’t seem like a lot.

Yet – as shown in table 3 – only a handful of our most densely populated suburbs are around the 25 to 30 dwelling per hectare mark, and on average, our capital cities, hold just 1.3 dwellings per hectare.

Most of us aren’t used to living in such tight confines and when we do, then such density is typically offset by very good locational amenity.

End note

In summary, if you are going to build new dwellings at a high density, you need to get heaps right and it helps plenty if you have a kick-arse location.

Sadly, most approved higher density developments don’t.

And land banking – at least across SEQ – isn’t the reason why there is a shortage of approved allotments and/or land for sale.

Town planning’s opaque approval process and red/green tape are the core problems.

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Gentle density

Two tables this week and few words.

Table 1 shows that three quarters of us live in detached houses.  Another 10% live in townhouses.  Apartments hold another 10%.

In total roughly 97% of us live in a private dwelling.

Table 2 shows two things, firstly the biggest change in the number of people by housing type in terms of percentage variation over the past five years, and then – as shown in the second column, that change in terms of number of residents.

The big percentage growth was in backyard type homes, up a whopping 412% since 2016, followed by folks living in taller apartments buildings (36%).

Yet the biggest increase in terms of the actual increase in residents still remains detached housing – up 1,650,000 – and accounting for 80% of the change in population living in private dwellings between 2016 and 2021.

There was a 147,500 increase in people living in a townhouse over the same period.  Residents in a backyard home was up 33,800.

When it came to non-private dwellings, people in prison were up 9% and those in a nursing home rose by 8%.

The key message here is good luck trying to solve our current housing crisis by advocating the need to build more apartments.

And despite all rhetoric just 260,000 more people – some 13% of the population change – lived in an apartment between 20216 and 2021.

Its gentle density that holds the key.

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Overseas migration

It is little surprise that many are calling for fewer overseas migrants.

This is what happens when over 400,000 people arrive in Australian in one year from overseas.  This is especially the case after a lockdown when the country lost 85,000 residents during 2021.

Chart 1 shows the rise and fall in net overseas migration to Australia from 1864 to 2034.

Some are calling for an annual net intake around 120,000 per annum.  Others want an even lower yearly target.  I think these limits are based on the longer term average, which frankly is never going to fly.  See chart 2.

The Federal government, in their latest budget papers plus their Centre of Population and Intergeneration Report mouthpieces, are forecasting an annual net migration result ranging between 235,000 and 316,000 between fiscal 2024 and 2034.

As shown in chart 2, this decade range, averages about 250,000 people per annum.

Yet, if the trend line between 1995 and 2019 were to continue – Covid impacts aside – we would likely see some 300,000 new migrants settle in Oz each year over the next decade.

Two of the largest diasporas to Australia are from China and India these days.  Also, of note are increasing number of migrants coming from The Middle East and African nations.

Most new migrants settle in, or around, Sydney and Melbourne. There is some spill over in southeast Queensland, Adelaide and Perth.

From a real estate viewpoint, these diasporas buy property and are often repeat housing investors.  Which is good news for some – like sellers and property orientated businesses.  Maybe not so much, at present, for buyers or renters given the current circumstances.

Whilst there is an increasing complaint about increasing traffic; too few dwellings; overcrowding; rising prices; longer queues and so on – many of them upfront and personal – I cannot help but think that there is more than a just a bit of xenophobia at play here too.

We have complained about such things in the past.

It wasn’t that long ago that Americans in Australia (and the UK) during the WW2 were described as ‘overpaid, overdressed, oversexed and over here’.

And maybe the immigration impact on the current housing market isn’t as bad as many are making out.  My table this post shows that most overseas migrants to Australia are on student visas.

The majority of these visa holders undertake tertiary studies in Oz and many live in apartments, some of which are purposed built for them and a lot were left empty during the Covid period as students returned home.

Overseas student’s parents – especially in the case of Asian parentages – frequently own such apartments.

As I mentioned last week there are strong economic and geopolitical reasons why Australia is likely to continue to invite (and attract) a high level of overseas migration.

To many moving here our cities – racial intimidation aside – are bliss when compared to where they have come from.

I believe we are likely to see an overseas net intake between 250,000 and 300,000 per year.  This means Australia is likely to increase by one million people every two and half to three years.

We can hold this intake.  We need to do so.  We also need to spend public monies better.

It’s time to dismiss the ‘bread and circuses’ and start focusing our spend on infrastructure, water supply, food production and security, intelligent energy provision, select manufacturing and relevant technologies.

Moreover, a rigorous discussion about our population shape is needed with the Australian public.

This is needed now before we find ourselves up shit creek via a Brexit like referendum and a similar result.

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