Matusik Missive

Oh, what joy!

The new Draft Southeast Queensland Regional Plan has just been released and well it is riveting reading!

Big promises, based on false pretences.  Get ready SEQ to start living on top of each other.  Sardine cities here you come and at top prices.

Well, a simpler way to make more of what you have got is to encourage smaller residential allotments in new estates and as part of the infilling of the inner, and especially, middle-ring suburbs.

Our two tables this post shows that Queensland doesn’t do small lots, nor does the southeast corner of the state.

Small lots and infill works.  Go here for a real live Brisbane example.  So do backyard homes.

A key to making them work – other than of course allowing them to be developed – is changing the infrastructure charge.  The first change is to levy these charges at settlement or completion; and secondly to charge a percentage of purchase price or land value, not a flat fee.

I suggest 2.5%.

This will see more developers, and home owners, maximise what they already have and deliver more affordable housing to boot.

 

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A quicker read this week.

Four tables are included.

Tables 1 and 2 cover past and projected population growth plus the underlying demand for new dwellings by state and territory and for Australia on the whole.

Table 3 covers past dwelling commencements.

Table 4 provides a balance reading between new housing supply and housing need.

Some observations

• Annual population growth is expected to increase. I do think that Victoria’s official forecast is too high, and Queensland’s is too low.  See table 1.
• As a result, the need to build more new homes has risen too. On average the need for new dwellings over the past five years was around 147,000 per annum.  Over the next half decade this underlying demand is likely to reach 227,000 each year.  This is an 80,000 increase or a 54% boost.
• The 227,000 annual demand is the equivalent of building a Canberra or Newcastle each year. And the 80,000 increase from the previous annual five year average is like building another Hobart every year.
• In addition, the need for new housing builds during 2022/23 is 273,750 or about equal to building another Gold Coast! These are big numbers.  See table 2.
• And for those that are into such stuff, the annual demand for new homes is based on the number of adults per dwelling (which is 1.92 for Australia) and there are on average 0.58 children per household. Some of my colleagues use 2.50 people per dwelling to help determine underlying new housing demand.  This is wrong.  You need to remove people children from the equation as they – in over 95% of cases – live with adults.  Revisit table 2 and the first row.
• There have been only 171,500 dwelling commencements (my estimates based on the second half of calendar 2022) during 2022/23 – so the new housing market is undersupply, by some 102,000 dwellings or by 38%. All states and territories are undersupplied this year.  See tables 3 and 4.
• Yet table 4 holds some interesting information. When looking at housing demand versus new supply (i.e., housing commencement) the last couple of rows in table 4 suggests that New South Wales, Victoria, the Northern Territory and to a lesser extent South Australia and the ACT have had enough new builds over the past five years.  Whilst Queensland, Western Australia and Tasmania remain undersupplied.
• Let’s unpack this a bit.
• Firstly, given the fall in housing need during 2020/21 (Covid immigration restrictions) which saw annual population growth across the country fall to just 32,790 and hence new housing demand was around 18,000 in fiscal 2021, yet new housing commencements were 213,700 that same year.
• This mismatch was largely due to the HomeBuilder initiative and record low interest rates. Yet some 15% of these new housing starts (≈ 33,000 dwellings) – and despite them being from financial 2021 – have yet to be completed, due to the building strife that is currently plaguing Australia’s building industry and some state government’s building programmes.  This is especially the case in Queensland given the 2032 Olympics.
• In addition, there has been a large volume of new housing starts during fiscal 2022 (≈ 208,000 across Australia) of which some 16% (≈ 34,000) have not yet been completed. Ditto above.
• So, in summary there are just under 70,000 new dwellings that have started construction but are yet completed in the Australian new building pipeline. Assuming these dwellings are delivered, this will help alleviate housing supply – but these 70,000 new dwellings –– equate to just 25% of the 2023 demand.
• Almost a lot of the new housing in New South Wales and Victoria is purchased by offshore interests. Quite a bit of this stock – my estimates is that it is as high as 30% – is locked up, and if used, it is only occasionally.  This is an issue that needs to be addressed and that is a topic for a future Matusik Missive.

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This post started as a dwelling price table but has morphed into something more.

Part of the reason is in reply to the nonsense that the RBA has been babbling on about in recent weeks – in this case about the need to get the unemployment rate up (?) to 4.5% – as this mark is what the RBA calls ‘full employment’ (go figure!) – resulting in some 140,000 people needing to lose their jobs in order to help bring inflation back to the RBA’s 2% to 3% annual CPI target rate.

This – to me – is just jawboning giving the RBA cover to lift interest rates again.

Yet this current BS is from the same mob that quoted the use of the Sahm Rule – earlier this year – as a better indicator as to when Australia has entered a recession rather than the use of two negative quarters of negative growth (GDP).

Today’s Matusik Missive holds three tables and four charts.

Bear with me, it won’t take too long to digest, however, there is a definition or two, which will shine some light on why the ABS unemployment figures are a crock and why we are already in a recession.

1.  Dwelling values

Table 1 shows that median dwelling values haven’t fallen that much since interest rates started to rise – down just 2% across the country since March this year – and during the June quarter they have risen by 2%.

This is partly because some 27% of home buyers over the past twelve months, haven’t borrowed money.

According to the tax office some 58,000 people have downsized over the past five years and have placed monies – on average $250,000 – into their superfunds.

Another reason for the tight housing market is that the supply of homes for sale remains tight.  See table 2.

The third, big reason, is strong demand.

This was fuelled initially by the pandemic – if you restrict people’s movements, they end up spending most of that time at home, and for many their abode has now become something more, resulting in the want to have something better and/or to keep what they have – and now, by higher overseas migration.

Before we move on to the next topic, here is a nugget of intel worth remembering – on average, and when using a decade long sliding scale (it took some work to figure out peeps!) – for every 100,000 new immigrants to Australia dwelling values rise by around 1%.

Given these three drivers it is little wonder rising interest rates have had little impact on Australia’s housing values.

2.  Unemployment

According to the ABS labour force data, Australia’s current unemployment rate is 3.6%, with a further 6.4% people ‘underemployed’ – i.e., those people who are in part-time work or ‘freelancers’ who are looking for more work.

Yet the business sections of the national newspapers these days are chockfull of businesses placed in administration; staff layoffs and hiring freezes.

I know quite a few people – down in Tassie and also on the mainland – that are looking for work (and/or more hours) but cannot even get an interview.  True most are over 50 years old, but still.

There is plenty of evidence to suggest that AI – the algorithm – used by many recruitment firms and the bigger companies are tossing aside qualified candidates.

Maybe it is time to go back to the past and ask for – in one page – why a candidate would be good at the advertised job.  And then the employer – yes, a human – actually reads the applications.

If you do this, I reckon you will find staff.

But I regress.

Table 3 – for mine – shows the real state of play when it comes to Australia’s unemployment and underemployment rates.

This data is from Roy Morgan – the only national labour force figures – again for mine, that you can trust.

Their latest data suggests that Australia’s unemployment rate is 9.1% and underemployment is 9.3%.    Moreover, some 400,000 are worse off, employment wise since interest rates started rising in May last year.

Now that passes the pub test.

But I will let you make up your own mind.

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The Roy Morgan survey on Australia’s unemployment and underemployed is based on weekly interviews.  Some one million people have been interviewed since this poll started in 2007, and their latest survey covered about 6,000 telephone and online interviews in June 2023.

According to the Roy Morgan survey a person is classified as unemployed if they are looking for work, no matter when.

Households selected for the ABS survey are interviewed each month for eight months, with one-eighth of the sample being replaced each month.

The ABS classifies a person as unemployed if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week and if they were available for work in the reference week.

The ABS classifies a person as employed if, when surveyed, a person worked for one hour or more during the reference week for pay, profit, commission or payment in kind, or even if a person worked for one hour or more without pay in a family business or on a farm.

And it is for these reasons why the ABS unemployment estimates are different from the Roy Morgan unemployment estimate.

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3.  Inflation

Inflation is already falling, rapidly in fact, not only here but across many other countries.  See chart 1.

The inflationary pulse is over, with most the pandemic supply chain issues resolved.

Yes, there is still price gouging going on, plus there is way too much ‘greenflation’ and also excessive government spending but the current drivers of inflation have little to do with consumer exuberance.

Most people have pulled back their discretionary spending, and those that haven’t are not impacted that much – if at all – by rising interest rates.

Some are now talking about a wage price spiral.  Oh, give me a break!  The current wage increases are a lag indicator – they are catchup (and they won’t get there) – for past inflation.  See chart 2.

We are very unlikely to go back to the 1970s, which some economic talking heads are waxing lyrical about of late.

The long-term, wider view of inflation is that it is likely to fall due to technology, globalisation and demographics.  This why inflation was so low before the pandemic, and I think we will go back there sooner than many think.

On its way down, inflation might get stuck at around 3% to 4% for a period of time, but I think we will be back to very low inflation rates within the next five years or so.

We will need access to money and affordable rates to change our businesses (and keep people employed) given the onslaught of AI, immigration and shifting demographics.

The next big and consistent movements in interest rates – again if you ask me – is likely to be down.

4.  Recession

According to the Roy Morgan unemployment data and when using the Sahm Rule we are already in recession and have been so since the beginning of this year.

Any further hikes will just dig the Australian economy into a deeper hole.

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The Salm Rule identifies the start of a recession when the three-month moving average of the national unemployment rate rises by 0.50% or more relative the its low during the previous twelve months.

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Chart 3 suggests – again using Roy Morgan’s unemployment survey results – that Australia has been in recession three times over the past decade.  Chart 4 shows the Salm Rule but using the ABS unemployment results.

Chart 3 also passes the pub test, chart 4 not so much.

End note

RBA enough already, stop rising interest rates!

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Most of the time – well almost always – when you hear about a change in dwelling values it reflects prices achieved at sale.

Homeowners often misinterpret what this means to them.

Many think, that, if say – the median value of dwelling sales fell by say 5% over the past twelve months (for example) – that their home is worth 5% less.

Yet, over the past twelve months there was about 490,000 dwelling sales across the country, which represents a turnover of about 4.5% of Australia’s dwelling stock, which as of March this year totalled just over 11 million homes.

On average – over the past decade – about 5% of Australia’s dwellings sell each year.  It fell to just under 4% during the initial Covid period and rose to 6% in late 2022 (the last housing market peak).

So, when the various housing price results are released, they firstly are based on the price achieved at sale compared to a corresponding previous time frame plus, secondly, they are based on a small proportion of the total dwelling stock.

Table 1 and chart 1 show the most recent ‘full’ results of this nature – that is a change in value based on sales activity.

This suggests that dwelling values fell by 7% across our capital cities over the past twelve months and they didn’t move much apparently across the regional markets when the results are compiled into one value.

Across the country, using the sold method, housing values fell by $34,250 to $665,000 median price or down -4.9% when compared to twelve months ago.

Yet there is another way to measure what is happening with housing values and this involves a price estimate across all dwellings, not just that those that have sold during a survey period.

See table 2 and chart 2 for the most recent dwelling value estimates for all dwellings by state or territory across the county.

This indicator suggests that all dwelling values fell by just -3.7% over the past twelve months.  Revisit table 2.

Chart 2 shows that the estimated average value of all dwellings across the country is currently $896,000, which is down from $930,600 in March last year.

For mine, the all dwellings results, are more meaningful to far more of us – especially those that aren’t looking to sell in the near future, than the narrower sales results.

Moreover, the RBA and the banks should be using the all dwelling indicator during the deliberations and assessing financial matters.

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Few words this week, just two tables and a chart.

Enjoy the break!

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A few weeks back I wrote about how older Australian’s are behind much of the increase in spending over recent years.

A few peeps took offence, but most that replied to that Missive agreed.

Since then, further studies show a similar trend, and one bit of interesting data is that around a quarter (27%) of new dwelling purchases over the past twelve months did not involve a mortgage.

Older and in general wealthier Aussie’s are buying homes (and also, largely, driving inflation).

Without wanting to sound like a broken record, but lifting interest rates will do little to reduce inflation without smashing the whole economy.

Rising rates further is akin to using a sledgehammer to crack a nut.

But enough already!

This week’s post is data heavy, comment light.

There are two tables this week.

The first table shows you what $1 AUD million buys you at the top end of the apartment market across a range of selected world cities.

The second dataset outlines past – and my projected potential annual growth rates (guesstimates really) – for top end apartments across five Australian cities.

Also – for those interested – I last wrote about the top end of town here and here too.

Postscript

We are talking about the top end of the apartment market, not an average apartment in a massive “me-too” tower block.  Think boutique project, one or two apartments per floor, absolute waterfront or park front and prime 4Fs – fixtures, fittings, finish and facilities.  Statistically the top 5% of apartment sales by sales price in each location.

 

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I work on several annual retainers for housing related businesses across Australia.

Whilst there are some caveats and restrictions on trade, my bank account tells me it is worth the handcuffs.

A couple of these gigs are confidential – that is I supply my analysis and opinion undercover – whilst two in particular are more of an open affair.

These two include Harcourts across Australia and Kollosche on the Gold Coast.

This missive holds the 16 charts I used at my Australia housing market overview presentation at the recent annual Harcourts conference on the Gold Coast, where I did catch up with the folks at Kollosche too.

With permission, Harcourts has allowed me to share these 16 charts with you.

 

Not that long ago there were two Australia’s.

The Haves and The Have Nots.

Tall Poppies and the Rest of Us.

But now there appears to be three Australia’s.

There are roughly one-third of Australians who are tenants suffering from double-digit rental increases, while at the same time are experiencing sharp falls in real wages.

Then there are the roughly one-third of Australians who are mortgage holders that are being hammered by the recent aggressive interest rate hikes, who are also suffering from falling real wages.

This group has seen their average variable mortgage repayments increase by around one half, shaving tens of thousands of dollars in annual disposable income from their budgets.

Finally, there is the lucky one-third of households – mostly older Australians – that own their homes outright who are unaffected by the RBA’s recent interest rate increases.

And it is the older generations that are driving Australia’s household consumption and somewhat forcing the RBA to continue to lift interest rates, which is negatively affecting the other two Australia’s.

Many of this lucky-third are also benefitting from higher inflation in rents given they dominate the ownership of investment properties.  Lot of these investors also own their investment properties outright.

In addition, older Australians on the aged pension also have their incomes indexed to CPI (unlike workers’ wages), meaning they are largely protected from the inflation shock.

According to an analysis of seven million CBA customers’ purchasing habits, those aged under 35 increased their spending by only 3.4% in the year to March, which was less than half the rate of inflation and indicates that the average young person is buying less goods and services.

The age group most under pressure was 25 to 34-year-olds, whose spending remained nearly flat in value over the previous year despite a 7% increase in prices.

By contrast, spending among the over 65s climbed at a faster rate than inflation over the past year, with CBA customers over this age increasing their spending by approximately 12%.

All growth figures – as shown in our table below – are provided per person, so they are not exaggerated by the current immigration surge.

Baby boomers continue to shape our destiny and economic make-up.

It is little wonder that a Sydney beachside café can get away with charging $10.90 extra for a serve of avocado.  And that excludes the toast!

Flat chat of late with consultancy work, so a bit of a filler this week.

A blue note on my office cork board – yes, I am old school – is good, as it means money, with each tag being a consultancy job.

But I digress.

I have been holding onto the next chart for some years and it seems to be amazingly accurate.

It was apparently made by some yokel by the name of Samuel Banner, who was a farmer from the 1800s and he wanted to understand how market cycles worked.

In 1875, he published a book forecasting business and commodity prices.  He identified years of panic, years of good times, and years of hard times.

The top row shows that SB somehow predicted the Great Depression, WW2, the dot com bubble and even the Covid crash.

When I reviewed the middle row – years of good times – against the Australian housing market, it is also very accurate with 1980 (so far) being the only miss, but not by much.

One wonders if I am wasting my time!

Looking forward, 2023 is apparently a good time to buy.  See the bottom row.

And despite the Queensland government’s efforts to the contrary, 2032 – i.e., the Brisbane Olympics – is projected to be shite, money wise.

And Samuel thinks that 2026 will see higher prices.

I do think that SB might be correct on that call.

But, unlike Samuel’s “sure thing” signoff, I reserve the right to be wrong.

And of course, the usual T and C’s apply.