Matusik Missive

Well, the RBA really does need a broom through the joint.

There was another 0.25% lift in May – making it 11 hikes in just 12 months – all on some pretence that doing so will somehow reduce inflation.

Inflation isn’t being caused by the consumer but largely by a range of ill-conceived government policies and actions.  The May federal budget will add further fuel to the fire.

If consumer largess was the main culprit, then why not lift the rate of GST and apply the GST on all transactions, including established real estate?

When you survey Australia’s employment situation correctly – and not the hogwash that the ABS peddles – the number of unemployed people across Australia has lifted by 326,000 or 27% since the first interest rate hike this time last year.

The number of under-employed folks is up 178,000 or 15% since May last year.

Overall, some 500,000 Aussies are worst off – job wise – since the RBA decided that hypocrite was too big a word for them.  Remember no rate rises until 2024!

Before today’s surprise decision, some 10% of Australians were unemployed and another 9% work but would like more hours.

More, now, will join the jobless queue and work less hours in the months ahead.

On a more positive note, looking ahead, the financial markets are betting that official interest rates will fall.

PS. Between a Laugh and a Tear, by John Mellencamp

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There has been several new population studies released over the past couple of weeks.

Frankly, reading them is like watching paint dry.

So, I have summarised – including some estimates from my end – the big picture in two simple tables.

The first table shows a few things:

• The annual population growth rate over the next decade is likely to be higher than the past decade: 391,500 per annum between 2011 and 2021 versus an estimated 487,000 each year between 2023 and 2033.
• There is very likely to be a rapid increase in the number of children and the size of the upgrader lifecycle segment over the next ten years. In contrast the size of the market aged over 60 years is projected to growth slower than it has in the past.

If this comes true, a lot more urban infrastructure will be required and the type of housing most needed will change from recent supply trends.

I have been advocating such for quite a while now, and these updated population projections add further grist to the mill.

To view some of my past posts go here:

https://matusik.com.au/2018/07/17/missing-middle/

https://matusik.com.au/2023/03/21/building-cycle/

https://matusik.com.au/2022/06/21/housing-demos-by-tenure/

https://matusik.com.au/2022/04/05/affordable-housing-2/

The second table shows:

• Most of the population growth over the next decade is likely to continue to take place in our capital cities, with most of this growth settling in Sydney, Melbourne, Brisbane and Perth.
• The 2022 Population Statement I think is wrong when it comes to projected annual growth for Melbourne, it is too high and recent trends supports my claim, and Brisbane (and SEQld) is too low.
• I think we could easily switch the annual numbers for Melbourne and Brisbane – i.e., circa 133,000 versus 56,000 – as shown in the second table and up the growth rate for the rest of Qld, from about 47,000 to around 60,000 per year.

Interestingly, Melbourne this week – apparently – overtook Sydney as the most populous city in Australia after the Australian Bureau of Statistics opted to include the area of Melton, in the city’s north-west fringe, to Melbourne’s population.

It boosted the total number of people in the Melbourne Significant Urban Area to 4,875,400 in June, which is 18,700 more residents than Sydney.

But of course how big something is, depends on what is being measured, and more on that in a future post.

Nevertheless, regardless of which is bigger, one thing is for sure and that’s the capitals (and immediate urban areas) are likely to continue to attract most of the population growth.

Honestly no surprise here.

Again, I have been banging on about this for yonks.

Like it or not, a bigger Australia here we come!

To read more on this go here:

https://matusik.com.au/2022/04/26/race-to-the-regions/

https://matusik.com.au/2021/10/05/pop-update-covid/

https://matusik.com.au/2021/01/27/pop-growth/

https://matusik.com.au/2023/03/28/pop-update-sept-qtr-2022/

Postscript

Often when I present such things, someone asks me about Big Australia and is it a wise thing?  Maybe it would be best to grow at a much slower rate?

My first reaction is to generally agree and mention that for every thousand new residents in Australia some 776 extra cars are added to our road networks.

So, population growth has its downside and many of us feel it every day.  And it is one reason why we moved to a little hamlet south of Hobart.

But then I widen the conversation to state that economic growth is based on three things:  debt, productivity and growth.  We have way too much debt; our productivity is limited (in fact gains in recent years have been poor) and so we are left with growth.  Australia’s economic wellbeing – all things being equal – heavily replies on more bums on seats.

We could change this by taxation, far less public spending (on things that really don’t matter) and working smarter/better for the same pay and in the same working hours.

But that is easy to say, much harder to do and also impossible to implement given our current political system and mindset.

We could improve things but like most things of import these days we need a serious crisis to get the ball rolling here.  Covid didn’t do it, so I wonder what would.

So bigger Australia here we come.

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The housing market is currently doing much better than most talking heads said just a few months ago.

I have been relatively bullish for some time now.

Why?  Because housing supplies remain tight.

Demand – i.e., sales – is somewhat depressed at present but stock listed for resale and digs available for rent remains skin-tight.

Sales volumes typically improve in line with rising confidence and also when there are more bums on seats.

Interest rates impacts confidence and high immigration levels equates, in time, to more sales.

Three indicators from a recent client presentation accompany this week’s post.

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Words we just get in the way!

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No words are needed.

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Short and sharp this week.

Australia’s population growth has now returned to pre-Covid levels.

If fact it is currently breaking recent growth records (i.e., last decade) and if the current uplift in net overseas migration continues, Australia’s annual population growth for calendar 2022 will likely be the highest in the country’s history.

And 2023 – when the official population stats come through – looks like it will hit all previous highs out of the ballpark.

Chart 1 shows that annual rate of Australia’s total population growth, whilst chart 2 shows that change for net overseas migration.

Table 1 outlines that population components by state or territory and also for Australia for the year ending September 2022.

Like it or not, Big Australia here we come!

 

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HomeBuilder saw a surge in detached housing approvals yet little change in attached dwelling applications.

Rising costs, labour shortages alongside fixed price contacts has stuffed up a lot of building businesses, with many facing the wall.

Some major construction firms are now thinking of pulling out of the residential sector altogether.

Working for the practice isn’t fun for anyone and even when there is a profit it is increasingly negligible making it hardly worth the risk.

Once again government largesse; and the RBA’s overreach; were largely blame for these blowouts.

And as one might expect, overly aggressive interest rate hikes are now having the opposite impact, rapidly reducing the demand for new dwellings.

Whilst there are quite a few new dwellings in the construction pipeline, some buyers are now saying they will not be able to settle, causing further angst for the home builders and developers exposed.  See charts 1 and 2.

In addition, things also aren’t looking that rosy when it comes to the banking industry.  Even if we have seen the end of local interest rate hikes – which I think we have – it will be harder from most to get a home loan given the rising financial insecurity abroad.

Yet all states and territories – with the exception of Victoria and the ACT – aren’t building enough new dwellings to cater for underlying demand.  See charts 3 and 4.

Table 1 shows that this under build rate is 18% across the nation, which means that over the past year we approved some 187,000 new dwellings but we needed 220,000 or 33,000 more.

Some locations are woefully undercooked when it comes to new housing.

And this is before we have factored in the big uptick upwards in net overseas migration.  But more on that topic next week.

Adding further pressure is the rising costs to build a new dwelling, which now averages $415,000 across Australia.

This cost excludes the land, it is just the gross building cost.  And such costs have risen by 17% over the past twelve months.  See charts 5 and 6.

History shows that building costs, on average, have risen by 4.3% per annum over the past decade.  And looking back to the early 1980s, there are very few occasions – and all of them short lived – where housing construction costs actually fell.

Therefore, it looks like high building costs are here to stay.

So where does that leave us?

In short, up shite creek without a paddle.

Well, almost, there are paddles but they realistically remain out of reach.

I think it needs to get a whole lot worse – think rising rents; increasing homelessness; adult children with kids moving back into with their ageing parents; more builder bankruptcies; and eventually rising construction-related unemployment – before the government and the relevant powerbrokers actually do something about it.

For mine, the next federal election and state elections in coming years will be won or lost over this issue.

And when we finally wake up to ourselves, we will need to build more alternate housing stock.  Gone, again for mine, is the dominance of the traditional detached house when it comes to new builds.  See table 2 and the Missing Middle image below.

Oh, and as a footnote, we don’t need thought bubbles here – like say rental caps – nor do we need a series of housing summits, but practical solutions and implementable actions.

The need for a second housing summit – in Queensland’s case next week – speak volumes.

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I will be running a Master Class on Friday 19th May in Brisbane.

Event details:

• Location: Regatta Hotel, Toowong
• Time: 8.30am to 12.30pm
• Number of participants: 25 to 30
• Investment: $385 including GST

Outline:

I have changed it up a bit from recent workshops.  This year a focus will be on understanding what buyers want and how to get your stock sold and for a profitable price point.

Like usual you get to ask questions.  Answers are given.  It is an interactive session, not just me droning on. Handouts are supplied.  An invite to attend a ‘Dutch’ lunch at The Boatshed is also extended to all.

We will cover:

• Market dynamics
• Housing market outlook
• Housing wants by lifecycle segmentation
• Pricing premiums
• Design recommendations
• Interactive Q+A session

Who should attend?

• Small to medium sized developers + home builders
• Property professionals including financiers, real estate agents, loan brokers, architects, town planners, engineers + project marketing folk
• Property investors looking to expand their existing portfolios
• Property economic, town planning + architectural tertiary students

Book your seat/s here.

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In response to the heading a critic might reply; “What just one?”

But as the newsprint article above outlines the Queensland government – and the industry happy clappers – think that some kind of magic uplift in new housing starts will happen as a result of making it a bit easier for older apartment buildings to be redeveloped by reducing an owner’s right.

For mine all that will happen is that older apartments will be harder to resell.  Pity as many of them are good buys, often being larger than most new product; are usually in good locations and are relatively affordable for buyers and renters too.

The evidence at the end of this post outlines why this development play is really a folly.

Table 1 shows that very few apartments across Queensland are actually demolished to help make way for new housing development.

That might change with the new ruling, but I remain very sceptical as last year just 160 apartments – across the whole state – where removed to make way for a new housing project.

This made up just 3% of the net apartment approvals across Queensland during fiscal 2022.

Charts 1 and 2 outline some 2,750 Queensland apartments – being 23% of the recent apartment building approvals – have yet started.

Taking a longer view Table 2 reveals that some 117,000 attached dwellings across southeast Queensland have development permits for a material change of use but have not yet been built.  This figure was up 7% on last year.

If these dwellings were built some 220,000 additional Queenslanders could be housed.  This would greatly improve the currently tight rental vacancy rate and housing affordability.

Some 48,500 or just over 40% of this unbuilt potential attached housing stock is in the Brisbane City Council area.

One might think it would be better if the Queensland government assisted more approved apartment projects to actually get built.  Lots of potential ways how here.

For mine a practical solution to the chronic shortage of affordable housing across the country – and of course including Queensland – is for the government to build more homes.

Charts 3 and 4 show that Queensland doesn’t even bother anymore.  Just 300 public apartments were built over the past 12 months in Queensland.  This was just 2% of the newly built apartments across the state last year.

Australia should also hang its head here too, as just 3,325 public apartments were built across the country last year.  Yet, Queensland’s market share was a pitiful 9%.

Maybe less money should be paid on unnecessary infrastructure to support once off events like the Olympics and more brass is spent on building more civic housing.

As charts 3 and 4 indicate we have done it before.  Now is the time to start it again and keep it going.

Me thinks that a 15% to 20% annual civic housing target rate would be good policy and politics too.

After all, we are currently dominated by Labor governments.

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Another short post this week.

This week I have explored the impact our regular census survey has on estimated population counts.

I first wrote about this around August last year.

That article looked at the rebased population counts for Australia’s top 50 major urban areas and the biggest changes for LGAs across the country.

Since then, quite a few folks have asked me for a similar list by state and territory and for Queensland suburbs.

See tables 1 and 2 below.

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