Three things

As the title says, three things this post.

1. Land tax

Below are two media summaries, the first published earlier this year and the second this week.

Victorian Treasurer Tim Pallas and his New South Wales counterpart Dom­in­ic Perrottet are investigating the phasing out of stamp duty on property sales, with stamp duty to be replaced an annual land tax. The NSW government has estimated stamp duty costs the economy $2.35 for every collected dollar, compared to just $0.16 for land tax, while land taxes would provide state governments with a much more reliable revenue stream than stamp duties. Getting rid of stamp duty could boost property transactions in NSW by 25%, according to a 2017 report commissioned by the NSW Treasury.

New South Wales and Victoria have been talking for some months about the possibility of getting rid of stamp duty; the two states get around 25% of their annual revenue from the duty. The property industry contends that now is an ideal time to get rid of stamp duty, given the depressed state of the housing market. Stamp duty would be replaced by an annual tax based on land value, and the ACT government is currently involved in a long-term initiative along these lines. EY’s head of tax policy Alf Capito says any system to replace stamp duty needs to have bipartisan support and needs to be something that is very hard to change once put in place.

To review what I would do go here.

2. Buyer profiles

Much has been written about the apparent fluctuation in overseas apartment buying in recent months.  Also, there seems to be expectation that a bit of magic dust sprinkled over potential property investors will see them toss caution to the wind and buy.  In addition, there seems to be a somewhat widespread belief that first home buyers aren’t active, and they also need further assistance.

Australia – Buyer type

Buyer type 5 years ago Last year Today
New development
First home buyer (owner resident) 15% 33% 36%
2nd and subsequent owner residents 34% 36% 30%
Foreign buyer 16% 6% 7%
First home buyer (investor) 10% 10% 11%
Investors (Australian resident/company) 25% 15% 16%
Established housing
First home buyer (owner resident) 17% 22% 27%
2nd and subsequent owner residents 42% 47% 43%
Foreign buyer 9% 5% 2%
First home buyer (investor) 10% 9% 10%
Investors (Australian resident/company) 22% 17% 18%
Matusik + NAB Residential Property Survey Q1-2020

3. Constraints

Regardless of what you think of NAB, their economic team and the regular email posts are very good.  Mandatory reading if you ask me.  Go here to find out more.

One of the things NAB does well – in the residential research space – is undertake a national quarterly survey about housing constraints.  For March quarter they found the largest constraints by order of magnitude were:

New development

  1. Tight credit
  2. Housing affordability
  3. Sustainability of past dwelling price gains
  4. Construction costs
  5. Lack of development sites
  6. Labour availability
  7. Rising interest rates

Established property

  1. Employment security
  2. Access to credit
  3. High level of prices
  4. Better returns on other investments
  5. Lack of stock
  6. Rising interest rates

End comments

Do first home buyers really need another rebate?  And especially one linked to new construction, when a higher proportion of first home buyers are already buying new when compared to established digs?

If lifting short-term construction employment is the aim, then surely the recently floated ‘renovation grant’ would have more impact regarding helping the building trades secure more work.

But for mine it would be even better to spend this money on building more social housing.

Foreign buyers will return, given Australia’s low COVID-19 infection and death rates, plus as a means of buying future citizenship.  Ditto when it comes to tourism.  We will be stupid, economically speaking, not to plan for this.  But we need a national housing policy, which is clear, concise and enforced.

Rental yields are the new black when it comes to housing investment.

We have an aging demographic, especially when it comes to housing ownership and short-to-medium housing term demand.  We need to free up the ‘sales train’ encouraging older owners to downsize and sell their large homes to younger buyers.

Removing stamp duties will help, but so too will helping these older sellers actually sell their homes.  Many are asset rich but cash poor.

Consideration should be given by developers, especially of completed stock targeting downsizers and retirees, about how they can transact a sale by assisting the buyer sell their current abode.

A sensible COVID-19 government response would be to do likewise.

Up or Out

I am a town planner by qualification and some practice.  I have been employed numerous times to determine forward housing demand and best matched dwelling supply.  I have done this for both private clients and, increasingly, in the public realm of late.

I write this introduction as a segue to advocate that what the official forecasts suggest is going to happen when it comes to new housing supply is often miles off what is happening now and likely to take place in the future.

Housing affordability and dwelling suitability disparities can be misunderstood but more concerning is that environmental, development feasibility and even existing town planning constraints are often not factored into the equation at all.

The press clipping below indicates that my firm was involved in an in-depth housing supply and demand study regarding greenfield land on the Gold Coast late last year.

In short, the official forecasts are way off the mark.

This is major issue facing not only the Gold Coast, but many urban locations across Australia.

The impact of not having enough land available for development negatively impacts local jobs; housing affordability; infrastructure, service and lifestyle provisions and even resident satisfaction.

Supply: Matusik chance ratings

Before I outline what, we found, I need to outline how we analysis potential housing supply in a study like this.  What we do is provide a chance rating.

We score each potential development site based on a high, medium or low chance of development success.  For example, for our Gold Coast work we used the following benchmarks:

  • High = 75% + likelihood of development between 2020 and 2041
  • Medium = 35% to 75% likelihood of development between 2020 and 2041
  • Low = Less than 35% likelihood of development between 2020 and 2041

See the postscript for more detail.

Greenfield dwelling demand

We also need to determine new housing demand.  Here we use annual dwelling registrations and we also break that analysis up by development density – typically by dwellings per hectare – as future housing supply outcomes are often set by such parameters.

On the Gold Coast and over the last five years, there has been a demand for some 2,375 new dwellings each year in the Gold Coast greenfield area.

Importantly most of this demand – some 85% or 2,022 housing starts per year – have been in new estates and projects with development densities under 20 dwellings per hectare.

Supply finding #1

Once you exclude the greenfield sites which are rendered undevelopable due to existing town planning and environmental constraints (this work was done by my study partners Zone Planning and BIOME Consulting) there are 22,673 potential dwellings available to be developed (in theory) across the greenfield areas on the Gold Coast.

These dwellings are hypothetically anticipated to be developed between now and 2041.

It is important to note here that some 23,000 potential dwellings (if you take the higher end of the official Gold Coast greenfield land supply forecast) have been excluded from development.  Much of this is to do with ‘desktop’ environmental constraints which when on the ground become irrelevant.

Of the 22,673 potential dwellings left, only 31% or 7,068 dwellings have a high chance of being developed over the 21 years.  A further 18% or 3,972 dwellings have a medium chance of development and a very high 51% or 11,633 dwellings have a low chance of development during the subject time frame.

Supply finding #2

The 22,673 potential dwellings are spread across 1,478 prospective development sites.

Only 4% or 55 sites have a high chance of being developed between now and 2041.  A further 13% or 188 sites have a medium chance of development.  An extremely high 84% or 1,235 sites have a low chance of development during the subject time frame.

Also, of note is the small size of the development sites, making it almost impossible for developers to amalgamate future sites and at feasible prices.

The high chance sites averaged just 9.3 hectares; medium chance sites averaged a low 0.9 hectares and the low chance sites averaged a piddling 0.24 hectares.

Supply finding #3

 When looking at the dwelling supply by expected dwelling density and limiting our efforts to those sites with a high and medium chance of happening between now and 2041 there are 4,134 dwellings under 20 dwellings per hectare and some 6,906 dwellings over 25 dwellings per hectare.

Our findings

There are 11,040 dwellings across the greenfield expansion area on the Gold Coast that have a high to medium chance of being developed over the next 21 years.

As noted above this breakdown of this potential dwelling supply by development density is 4,143 dwellings under 20 dwellings per hectare and 6,906 dwellings over 25 dwellings per hectare.

Over the past five years, there has been, on average, 2,375 new residential lots registered per annum across this greenfield area.

The breakdown of this annual average dwelling demand by development density was: 2,022 new lots registered under 20 dwellings per hectare and 353 new lots registered over 25 dwellings per hectare.

In summary, the 11,040 potential greenfield housing supply divided by the recent demand for 2,375 new dwellings each year equates to 4.6 years supply.

Yet the future supply of housing stock at development densities under 20 dwellings per hectare is tight (being 4,143) whilst the annual demand for such housing is very high, being 2,022 on average, over the past five years.

This equates to just 2 years supply.

End note

This, to me, is a real problem.

Many in the land development space have already left the Gold Coast and more will follow.  Jobs are being lost.

Many tradies and other Gold Coast employees are forced to live in more affordable and suitable accommodation some distance from where they work.  This means they are commuting long distances on the M1 and other major roads to get to and from work each day.

It seems to be getting worse on a daily basis.

Adding further angst is that much of the ‘real’ greenfield supply is in hands of a few developers and on just a few sites.

Price escalation is likely.  Home builders already face low margins, as the end house and land package price have a definite ceiling, yet land developers can (and are) increasing the price of the land.

The official reply to this issue has been its “up or out” – meaning “its high-rise housing or off to Logan or Ipswich you go” – but maybe that is the wrong attitude.

A better reaction might be to investigate the validity of the existing constraints to new housing supply in the greenfield areas, first, and secondly, look for ways to expand the greenfield land supply.

This should be done, not only on the Gold Coast, but throughout south east Queensland.

I have done enough similar work across this region in recent years to say, and with a high degree of confidence, that similar findings apply to most council areas across the south east corner of Queensland.

To get a copy of our report go here.

…..

Postscript: Matusik chance ratings explained

The high chance sites are either already owned by development companies or are in areas where similar urban development is well advanced.

The medium chance category includes sites that are held in private hands and makes – in our opinion – some economic sense to redevelop.  Of course, this doesn’t take into account the owner’s intent or their expectation as to profit or timing.

The low chance segment includes sites which contain a very high expectation with regards to density.  Such sites are already hard to develop near the beach, along the light rail corridor and/or in existing established urban centres on the Gold Coast.  The economic reality and past track record suggest that high density development across much of the Gold Coast greenfield area is very unlikely over the next decade or two.

Also, sites which have an existing land use – like a shopping centre – have also been placed in the low category.  The chance that an existing retail centre in a greenfield location – and especially one with multiple owners and tenants – will be redeveloped into dwellings is low.

Likewise, sites which have been reduced dramatically in terms of dwelling yield due to environmental and other town planning overlays has also been allocated to the low pile as well, as these are probably no longer economically viable.

New homes

Four charts this post.

Chart 1 tells me new housing approvals across the country are in decline.  They peaked in 2015, with 235,000 permits.  Over the last year, some 172,000 new dwellings were approved.

Chart 2 shows that 60% of the approvals, last year, were for detached houses, whilst 24% were for apartments and 16% were for townhouses and duplexes.  Apartment approvals have fallen from 36%, again in 2015, whilst detached housing permits have risen from 50% over the same time frame.  Whilst the chart scale hides it, new townhouse/duplex supply has almost trebled over the last ten years.

Chart 3 tells me that a third of new apartment approvals haven’t yet started construction.  This equates to some 24,000 apartments.  The proportion of approved detached houses waiting in the wings, so to speak, is just 9% or some 9,000 dwellings across Australia.  The number and proportion of non-apartment starts has risen sharply over the past five years.

Chart 4 outlines that just 1% of the new homes built in Australia last year were supplied by the government or a ‘public’ housing supplier.  This has been the trend since the GFC, where for one year, the proportion of public housing supply – after much hand wringing (like is happening now) – rose to 6% in 2010.  Back in Whitlam’s short rule, it jumped to 17%, and during the 1980s, it averaged 10%.

My comments

Over the next decade there will be an underlying demand to build some 150,000 new homes each year.We are still overbuilding – mostly the wrong housing stock, hence the increase in approved apartments not starting construction – and housing demand is likely to be less over the next 12 to 24 months due to COVID-19 related restrictions.

But the want to visit and live Downunder is likely to be even higher in the future, and we will need these extra young heads too.

Our forecasts suggest that detached homes will make up half of the housing demand over the next decade, whilst apartments and townhouses will have a 20% market share. Our research shows that 10% of the new demand – it maybe more now due to the coronavirus – will be satisfied by renovations, extensions and backyard housing solutions.

Personally, the “stay put and maximise our existing asset” mindset is likely to hold a 20% market share of ‘new’ housing supply in coming years.

Many of the non-start apartment projects need a major design and pricing overhaul. Regardless, lots of them are very unlikely to be built and especially in their approval timeframe, and hence shouldn’t be included in government new housing supply targets.

In addition, if we are to believe the COVID-19 commentary, then the demand for centralised workspace and accommodation is set to wane, replaced by bigger suburban homes (and yards), each with dedicated workspaces and drone landing pads.

Hmm once and hmm again.

There is little doubt that we have major problems with housing affordability. The debate here – I am guilty too – often is focused on deposits needed/interest payments required etc. by the middle-class and not where the want is the most acute, being those on minimum wage and government payments like Jobseeker.

Also, of importance is not only affordability, but suitability also.

A one-bedroom apartment might be affordable for a family of four with a parent on the minimum wage or Newstart (now Jobseeker) payments, but it is not suitable.

A March 2020 Anglicare survey found 70,000 places to rent across Australia, but just nine – that’s not a typo – were affordable and suitable for a one income household receiving the Jobseeker payments.  And doubling the Jobseeker payment or having two adults receiving the payment lifts the rental supply to just 1,000 places.

This has been a problem for some time, and the impact of the coronavirus, will most likely make it worse.

Maybe some good might come out of COVID-19 – shining a light on the need for public and social housing.  But we need more than a quick fix.  A bump in public housing starts for a year or two isn’t the answer, we need a long-term housing strategy.

Rental market outlook

Much has been written – with little doubt more to come – about the Australian rental market of late.

The themes most discussed include the potential impact of eviction and rental increase bans; the fall in international student numbers and their effect on rental demand; the rise in unemployment (especially in those industry sectors which employ numerous renters) and its likely negative impact on rental need plus increasing new rental supply.

New rental supply is rising because some tenants are quitting their leases and are either moving back in with their parents or bunking in with friends or other relatives.

Some renters, if not many, will find this way of living to their liking, especially if the right accommodation arrangement is available.  Not all parents, on the other hand, would agree.

Also, many short-term accommodation spaces are now being offered for longer occupation.

Many are quick to say that weekly rents will fall, with some suggesting a bollocking.

A few – amazingly to me – are forecasting rental growth.

The usual talking heads are saying that the rental investment landscape has changed, and significantly, due to COVID-19.

Before I reply please review the two tables below.

Table 1: Three-bedroom detached houses – current asking rent + change

Location Asking rent Change
Last month Last year Three years
Sydney $655 -4.1% -4.3% -9.8%
Melbourne $530 -1.5% 0.3% 4.0%
Brisbane $430 -1.2% 1.0% 2.0%
Perth $410 -2.3% 0.4% 1.4%
Adelaide $400 -0.1% 3.7% 9.0%
Canberra $585 -1.0% 1.6% 10.7%
Hobart $430 -3.1% -1.0% 21.1%
Darwin $400 -0.1% -2.9% -11.4%
Newcastle $405 0.9% 1.8% 5.1%
Wollongong $440 0.5% 0.1% -2.0%
Sunshine Coast $460 -2.2% 1.0% 6.5%
Gold Coast $565 -4.3% -1.0% -1.4%
Australia $440 -0.7% 0.0% 3.5%
Matusik + SQM Research.  As a 4th May 2020.

Table 2: Two-bedroom apartments – current asking rent + change

Location Asking rent Change
Last month Last year Three years
Sydney $495 -2.0% -4.3% -8.2%
Melbourne $420 -2.2% -1.6% 4.0%
Brisbane $365 -0.5% 2.4% 3.5%
Perth $340 -1.5% 4.6% 4.2%
Adelaide $305 -0.5% 2.7% 5.8%
Canberra $490 0.9% 1.6% 12.2%
Hobart $380 -3.2% 4.4% 16.0%
Darwin $345 -0.4% -2.5% -11.4%
Newcastle $365 4.8% 6.1% 8.5%
Wollongong $390 1.8% 2.2% 2.4%
Sunshine Coast $410 1.8% 10.0% 14.4%
Gold Coast $460 -2.8% 2.2% 7.5%
Australia $365 0.0% -1.9% 4.0%
Matusik + SQM Research.  As a 4th May 2020.

Table 1 outlines the current average weekly asking rent and the change in that rental amount over the last month (as at early May, so relevant as it includes the first month of the Australian lock-down restrictions); last year and past three-year period for three-bedroom detached houses.

Table 2 provides that same detail for two-bedroom apartments.

These tables tell me – outside of a few select areas – that weekly rents haven’t changed that much over recent times.

The rapid rise in weekly rents in Hobart and on the Sunshine Coast are associated with economic growth, whilst in Adelaide and Canberra rental growth over the past three-year period was mostly due to tight rental supply.

Rents have actually been falling in Sydney, due to affordability constraints plus a lift in supply, specifically evident when including granny flats in the supply equation.

A key message here is that there has been little rental growth of late and that the future outlook for such growth is slim.

Slimmer now, maybe, because of COVID-19 but it was always looking slim, nonetheless.

The reasons behind this leaner rental future are limited wage growth (actually wages are falling in real terms and when measured against the inflation rate of household necessities rather than luxury items or irregular purchases) coupled with an increase in the proportion of lower paying jobs in our recent, and importantly, projected future employment mix.

Many of these lower paying jobs are held by the rental market.

A second message is that the number of households renting has been rising steadily over the past two decades.

The trends above, coupled with low housing affordability, lacklustre dwelling price growth, deflation and our changing demographic mix is likely to see renters make up 40% of the Australian housing market by our next Census in 2021.

That proportion could be higher because of COVID-19 but it is already growing and set to potentially cross the halfway mark sometime within the next two decades.

So, if you are a residential investor there are two solutions here:

  1. either provide what the rental market really wants and will pay a premium for,

and/or

  1. provide housing stock that really enables tenants to share accommodation.

For mine, nothing much has changed with regards to the rental market’s future shape.  It might just arrive, now, a bit sooner than expected.

In short, multiple rental occupants per title is the new black and the number of households renting will continue to rise. 

Both trends even more so post COVID-19.

Births v deaths

This concluding post in the population missive series includes two charts and two tables.  Click on these links if you missed part 1 and part 2 of this short series.

Chart 1 tells me that Australia’s baby boom, albeit at a slowing pace, continues (see the red line and left-hand scale on chart 1) despite the removal of the baby bonus a few years back.  Deaths are also rising (grey line and right-hand scale) due mostly to our aging population.  As a result, natural increase – see chart 2 – is on the slide.  Natural increase is simply births minus deaths.

Table 1

Australia: Population growth by state/territory

State/Territory Total population Annual population growth
Total population growth Natural

increase

New South Wales 8,089,817 109,649 45,557
Victoria 6,596,039 134,020 37,343
Queensland 5,094,510 85,086 29,882
South Australia 1,751,963 15,436 5,335
Western Australia 2,621,509 27,328 18,064
Tasmania 534,457 6,159 1,159
Northern Territory 245,929 -1,129 2,524
ACT 426,704 6,325 3,409
Australia 25,365,571 382,883 143,281
Matusik + ABS.  Fiscal 2019.

Table 1 tells me that natural increase is largely concentrated in our bigger urban areas – the Sydney region, Melbourne, south east Queensland and Perth.

Table 2

Top 25 Australian LGAs ranked by natural increase

Local Authority Area, State and Rank Annual population growth
Total growth Natural increase % total growth
1 Brisbane (C) Qld 23,044 8,244 36%
2 Blacktown (C) NSW 8,373 4,380 52%
3 Wyndham (C) Vic 15,120 4,039 27%
4 Casey (C) Vic 13,429 3,823 28%
5 Canterbury-Bankstown (A) NSW 4,431 3,518 79%
6 Logan (C) Qld 7,864 3,465 44%
7 Gold Coast (C) Qld 13,990 3,121 22%
8 Moreton Bay (R) Qld 10,009 2,897 29%
9 Cumberland (A) NSW 4,922 2,871 58%
10 Hume (C) Vic 9,048 2,698 30%
11 Ipswich (C) Qld 8,739 2,570 29%
12 Parramatta (C) NSW 6,132 2,483 40%
13 Liverpool (C) NSW 4,560 2,478 54%
14 Whittlesea (C) Vic 6,891 2,270 33%
15 Wanneroo (C) WA 4,628 2,212 48%
16 Penrith (C) NSW 4,030 2,187 54%
17 Melton (C) Vic 8,177 1,985 24%
18 Campbelltown (C) (NSW) NSW 3,013 1,799 60%
19 Sydney (C) NSW 6,241 1,594 26%
20 Swan (C) WA 4,020 1,557 39%
21 Camden (A) NSW 7,408 1,531 21%
22 Stirling (C) WA 905 1,501 166%
23 Brimbank (C) Vic 779 1,495 192%
24 Townsville (C) Qld 1,013 1,371 135%
25 Moreland (C) Vic 3,987 1,364 34%
Matusik + ABS.  Fiscal 2019.

Table 2 outlines the top 25 local authority areas across Australia ranked by natural increase during fiscal 2019.  Most of these areas are outer suburbs or in the outer conurbations of our four largest cities.   Townsville is a rare exception.

My comments

Australia’s fertility rate is currently 1.7, which is below 2.1.  Here 2.1 is commonly referred to as the replacement rate.  So, without overseas migration Australia’s population would, in due course, start to shrink.  Many might think that is a good thing.  Sadly, our economy – as it is currently structured – won’t like it at all.  Nor would most people’s bank balance.

Maybe part of any COVID-19 recovery package should include the reinstatement of the baby bonus?

If not, then further pressure will build to increase our overseas migrant intake.  As outlined last week we will need immigrants to help keep our economy afloat and to help cover our debt.

Whatever the outcome, most births will continue to take place in our suburbs and increasing young families will live further away from downtown.  There is nothing wrong with this.  What’s wrong is trying to change this trend.  How we plan for, and handle this growth, is what really matters.

Overseas migration

Like last week, this post features a chart and two tables too.

Chart 1 tells me that net overseas migration has lifted substantially when compared to a generation ago.  But in recent times it has slowed down.  Like interstate migration, net overseas migration is also a cyclical occurrence.

Table 1

Australia: Population growth by state/territory

State/Territory Total population Annual population growth
Total population growth Net overseas migration
New South Wales 8,089,817 109,649 86,155
Victoria 6,596,039 134,020 84,479
Queensland 5,094,510 85,086 32,373
South Australia 1,751,963 15,436 14,059
Western Australia 2,621,509 27,328 15,715
Tasmania 534,457 6,159 2,992
Northern Territory 245,929 -1,129 718
ACT 426,704 6,325 3,110
Australia 25,365,571 382,883 239,602
Matusik + ABS.  Fiscal 2019.

Table 1 tells me the New South Wales and Victoria – read Sydney and Melbourne – receive the lion’s share of net overseas migration to Australia.

Table 2

Top 25 Australian LGAs ranked by net overseas migration

Local Authority Area, State and Rank Annual population growth
Total growth Net overseas migration % total growth
1 Brisbane (C) Qld 23,044 13,446 58%
2 Melbourne (C) Vic 8,638 8,597 100%
3 Parramatta (C) NSW 6,132 6,720 110%
4 Sydney (C) NSW 6,241 6,471 104%
5 Monash (C) Vic 2,635 6,168 234%
6 Gold Coast (C) Qld 13,990 5,540 40%
7 Canterbury-Bankstown (A) NSW 4,431 5,445 123%
8 Cumberland (A) NSW 4,922 5,380 109%
9 Wyndham (C) Vic 15,120 4,689 31%
10 Bayside (A) NSW 4,178 4,543 109%
11 Blacktown (C) NSW 8,373 4,303 51%
12 Whitehorse (C) Vic 2,466 4,264 173%
13 Randwick (C) NSW 1,504 4,138 275%
14 Greater Dandenong (C) Vic 2,061 3,915 190%
15 Casey (C) Vic 13,429 3,840 29%
16 Georges River (A) NSW 1,188 3,692 311%
17 Moreland (C) Vic 3,987 3,548 89%
18 Inner West (A) NSW 2,975 3,293 111%
19 Hume (C) Vic 9,048 3,221 36%
20 Brimbank (C) Vic 779 3,168 407%
21 Darebin (C) Vic 2,531 3,118 123%
22 Whittlesea (C) Vic 6,891 3,065 44%
23 Fairfield (C) NSW 1,278 2,813 220%
24 Ryde (C) NSW 3,931 2,735 70%
25 Glen Eira (C) Vic 2,591 2,734 106%
Matusik + ABS.  Fiscal 2019.

Table 2 outlines the top 25 local authority areas across Australia ranked by total net overseas migration during fiscal 2019.  Most of these areas are in either Sydney or Melbourne and most occupy inner city or middle-ring locations.  In many instances net overseas migration is the only reason these areas are experiencing an increasing headcount.

My comments

There has been considerable debate in recent weeks if overseas migration will fall as a result of the coronavirus.

I think that in the short term – over the next 12 to 24 months – that is very likely, if for no other reasons than limitations on international travel and overseas student intakes.

But once these things become unrestrained – and they will – it is reasonable to accept that the recent high levels of overseas migration will resume.

In fact, I will go further and say that the net levels of overseas migration to Australia are very likely to rise, and maybe substantially, over the decades to come.

Why?  Some statistics first.

The median age of a recent overseas migrant to Australia is 26 years old, whilst that number for an Australian citizen is just under 40.  More telling is that 61% of overseas arrivals to Australia are currently aged between 18 and 34 years, whilst this segment holds just 27% of the overall Australian population.

In short, Australia will need their tax dollars – and most likely lower wage costs too – in order to pay for, and recover from, our current largesse.

Interstate movements

One chart and two tables this post.

Chart 1 tells me that population movements between states and territories was on a rapid ascent before COVID-19.  The chart also shows that interstate population movements are cyclical.  Moves are influenced by the economy, demographics and also perception.

Also, the chart shows that when things get hard, economically, interstate movements slow down as we assumingly bunker down until things monetary wise improve.  Chart 1 also shows that the bounce back is often as steep the previous decline.

Table 1

Australia: Population growth by state/territory

State/Territory Total population Annual population growth
Total population growth Net interstate migration
New South Wales 8,089,817 109,649 -22,063
Victoria 6,596,039 134,020 12,198
Queensland 5,094,510 85,086 22,831
South Australia 1,751,963 15,436 -3,958
Western Australia 2,621,509 27,328 -6,451
Tasmania 534,457 6,159 2,008
Northern Territory 245,929 -1,129 -4,371
ACT 426,704 6,325 -194
Australia 25,365,571 382,883 0
Matusik + ABS.  Fiscal 2019.

Table 1 tells me that Queensland, Victoria and Tasmania currently attract more interstate arrivals than departures, whilst in the other states and territories more people leave than arrive.

Table 2

Top 25 Australian LGAs ranked by total internal population growth

Local Authority Area, State and Rank Annual population growth
Total growth Internal migration % total growth
1 Wyndham (C) Vic 15,120 6,392 42%
2 Sunshine Coast (R) Qld 8,591 6,047 70%
3 Casey (C) Vic 13,429 5,766 43%
4 Camden (A) NSW 7,408 5,573 75%
5 Gold Coast (C) Qld 13,990 5,329 38%
6 Ipswich (C) Qld 8,739 5,317 61%
7 Moreton Bay (R) Qld 10,009 5,186 52%
8 Melton (C) Vic 8,177 4,849 59%
9 Greater Geelong (C) Vic 6,705 3,796 57%
10 Cardinia (S) Vic 5,042 3,204 64%
11 Hume (C) Vic 9,048 3,129 35%
12 The Hills Shire (A) NSW 5,630 3,048 54%
13 Logan (C) Qld 7,864 2,549 32%
14 Swan (C) WA 4,020 1,808 45%
15 Armadale (C) WA 3,190 1,616 51%
16 Whittlesea (C) Vic 6,891 1,556 23%
17 Port Macquarie-Hastings (A) NSW 1,463 1,418 97%
18 Brisbane (C) Qld 23,044 1,354 6%
19 Wanneroo (C) WA 4,628 1,326 29%
20 Maitland (C) NSW 2,062 1,222 59%
21 Fraser Coast (R) Qld 1,264 1,198 95%
22 Mitchell (S) Vic 1,784 1,197 67%
23 Ballarat (C) Vic 2,181 1,187 54%
24 Serpentine-Jarrahdale (S) WA 1,635 1,126 69%
25 Shoalhaven (C) NSW 1,380 1,071 78%
Matusik + ABS.  Fiscal 2019.

Table 2 outlines the top 25 local authority areas across Australia ranked by total net internal population growth during fiscal 2019.  Many of these areas either hug the coastline and/or in the outer conurbations of our four largest cities.  Only a couple are inland regional towns.

My comments

Once the current restrictions are lifted it is reasonable to accept that movements between states and territories will continue.

It is also rational to assume that – and if the household has the means – the want to live in a more desirable location has risen over recent weeks.  This might be more impulse or reaction rather than a sustainable trend, but such action could add further momentum to the recent escalation shown in chart 1.

It is also fair to accept that any continuance regarding interstate migration will follow the same established settlement patterns as shown in tables 1 and 2.

Foresight – 2020 Easter Message

It is very hard to predict a moving target.

Yet many are trying to, calling the current situation the ‘new normal’ and predicting all kinds of changes, almost all of which go against (and in some cases radically), long term trends.

Some of the talking heads – it appears to me – haven’t stopped for a second, looked in the mirror and said to themselves, does this really apply to me?  Will I do what I am saying once this episode passes? Will most (or any) of my work colleagues, friends and family do what I am suggesting?

Many of the more common suggestions – working from home, social distancing to stay, radical changes in jobs, finance and in short, the way we live – are against human nature.  Most of us are village people.  We need social interaction and not just the digital kind.

I, for one, cannot wait to get back down to our local café and the corner pub.  I am a loner by nature, but I am missing meetings, face to face conversations and even arguing.  Well if I am honest, I miss the faceoffs the most!

I also 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.

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.

So, I will say, for example, that house prices could rise – because of these reasons (list them) and the quantum is likely, based on evidence at hand, to be between 3% and 5% over the next 12 to 18 months.  But I won’t try and be more exact than that.  I won’t say anything like prices will rise by 4.9%; yet many of my contemporaries do.

The decimal point – which seems to feature glaringly in such gibberish – I always find quite amusing.

In short predicting is a mugs game.  And more like a fool’s errand given the current circumstances.

So, when will this be over?   Will the economy recover?  What shape (an L, U, V or W) will any recovery take?  I really don’t know.  All I know is that this too shall pass.

All I want to say to you at this juncture is the following:

One, have a safe Easter.  Enjoy it the best you can.  Spend some time – online no doubt – with those that matter.

Two, my Missives, following the Easter Bunny or The Resurrection (take your pick) will continue to focus on foresight; the important housing market trends, which I believe will continue to shape the housing market and our urban landscape once this respiratory illness is better controlled.   I won’t be leaping to any short-term conclusions or joining the COVID-19 noise.

Third, I am open for business.  That business has several heads these days.  We can help you with your housing market and residential project deliberations.  Foresight remember not predictions.  And to find out more go here.

Forth, some of you want some fiscal certainty at this time of flux.  When it comes to things economic, I have a lot of time for Michael Knox.  Michael’s most recent outlook paper – relax peeps it is short, to the point and it is in plain English – is available here.  Michael is into foresight too, not just plucking numbers out of thin air.

Fifth, you are likely to have some spare time on your hands over the coming weeks.  When it comes to foresight, may I suggest the following titles.  They are well worth the read or listen.

The Optimist’s Telescope: Thinking Ahead in a Reckless Age

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist 

21 Lessons for the 21st Century

Australia Reimagined: Towards a More Compassionate, Less Anxious Society

The 100-Year Life: Living and Working in an Age of Longevity

Factfulness: Ten Reasons We’re Wrong About the World

12 Rules for Life: An Antidote to Chaos

All the best to you and yours.

Michael

Future rental demand

I wrote about demographics about a month ago – back when the world was a far less turbulent place.

That post featured a table showing the total size of the Australia market by housing buyer segmentation.

Several followers asked me if I had similar figures for the rental market.

And yes, I do.

See the table below.

Australian rental housing demand
Age range* Past decade Next decade Change
15-24 9,700 18,500 90%
25-34 16,250 8,500 -50%
35-44 2,800 10,750 290%
45-54 2,000 4,250 115%
55-64 3,900 4,000 5%
65-74 5,900 7,250 25%
75+ 3,250 7,900 145%
Total 43,800 61,150 40%
Matusik + ABS 3101.0. and 3222.0.  * Age range of the primary rental bond holder.

Past decade 2009 to 2019.  Next decade 2020 to 2030, medium series.

There is a need to build more rental properties over the next decade than the last ten years.  That lift is close to 40%.

This demand has also shifted.

We will need more rental accommodation to cater for young renters, people in their mid-30 and mid-50s and also for those in the last stage of life.

The young want to live near the action but will share accommodation.  The demand for communal rental housing solutions is already on the rise and this need is expected to grow.  More build-to-rent product is on its way.

Many of the older renters will want better quality digs.  They are after this type of stuff.

Some of our aged folks who need to rent might be best housed ‘at home’ with their children.   The same applies to many younger renters too, this time renting from their parents in either an investment property or at home.

There will be the need for more granny flats and backyard home solutions.

Working from home?

The COVID-19 coronavirus outbreak has forced many employers to consider encouraging, or even forcing, their employees to work from home.

Some are saying that this is a new trend, with many more of us – once the respiratory illness is under better control – working from home.

An in-depth survey by Roy Morgan has found that just over a quarter (29%) of Australian workers do undertake some work from home.  This is up just 1% from ten years ago.

Other surveys suggest this figure varies from 25% to 32% of the Australian workforce.  Again, this reflects people working sometimes from home.

Yet it is estimated that under 10% of the Australian workforce work at home on a permanent basis and this proportion has fallen – despite the rise in digital technology and widespread internet access – over the last decade.

Many jobs simply cannot be done from home and these include numerous retail positions, transport services, warehousing, manufacturing and most recreational and personal service occupations.

There are two industries for which ‘doing some work from home’ is reported by almost half of the workforce including finance, property and business services and communications.

I am one of the rare birds that work from home.  I have worked from home – on a permanent basis – for just under five years now.

It takes a certain type to work effectively from their home.  Let’s just say that I have no problems self-isolating.  But most do.

For mine once this black swan event eases, most – if not almost all – will go back to the previous long-term work patterns.

We are social creatures and our infrastructure (and who owns it) is centred around expensive physical assets and almost all of it involves people working together in concentrated urban centres.

Plus answering some work emails or returning a few calls – between Netflix and SBSonline binging – isn’t really working is it?

Besides imagine how much water cooler, but more likely these days, café, chit chat one would miss if they didn’t turn up to the office or other workspaces.

More importantly not turning up might even accelerate the end of one’s employment.

Many human jobs are under the pump when it comes to technology.  To many, turning up might be a sounder option than being ‘out of sight and out of mind’.

Plus, and despite reassurances to the contrary, the current climate of low growth in wages (and the economy) increasingly appears to be structural rather than cyclical.

Job opportunities are increasingly shifting to personal services and whilst a lot of personal services can be based at home they almost always involve some physical human contact outside of the home.

In addition, workers in these sectors do not get paid very much and this will see more people looking for more work.

Many will be forced to go where the jobs actually are.  Almost all of them will not be sourced or conducted from one’s home.

Don’t get me wrong more of us working from home has big urban advantages, but I just don’t see us – collectively – changing our entrenched patterns of behaviour that much once we get a grip on this respiratory infection.

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