The #1 driver of property prices IS EMPLOYMENT not just population growth!

You may have already heard the news that Australia’s population has hit the 25 million mark according to projections from the Australian Bureau of Statistics (ABS). How things have changed heh – when I was sixteen we only had half that number!!!

According to the ABS stats, at current growth rates in another 35 years or so Sydney & Melbourne will each be home to around 8 million residents. 16 million of ‘us’ in just those two cities or 64% of our current population.

To be sure … there will be issues that this concentration of people will cause. The impact – on ourlifestyle, transport, employment opportunities, housing, infrastructure, schools, energy, environment and health – will be significant.

But, do you know what that 25 million means for our property markets here in Australia? Since the mid 2000’s, low interest rates, strong population and employment growth has played a dominant role in housing price growth.

Housing affordability in Australia’s three east coast capital cities has however gone backwards at an even greater rate. Why?

There are many factors that drive house prices. However contrary to what others say employment is the #1 driver. Most talking heads simply (incorrectly) cite ‘population growth’ as the key driver of demand. This is simply not true and 24yrs in the finance sector taught me the following valuable lesson:

no income = no loan
no loan = no purchase
no purchase = no sale
no sale = no market

I think you get the picture?

Millions of property markets (in fact our entire economy) have been ARTIFICIALLY supported by government intervention (immigration, government debt & infrastructure spending) fed of course by the RBA’s historically low interest rates.

If you’ve ‘followed’ me for a while, you’ll know I’ve also banged on about supply & demand. Because in the housing sector, this supply vs demand ratio is only driven by population growth. There’s no other metric applied by government here – it’s a sheer numbers game, whether the people are of working age or not; nor whether they actually work.

Here’s a challenge: whichever city you’re reading email in – take a few minutes right now to reflect on your local property markets. What’s your #1 driver? Is it population? Or is it really employment?

For instance, here in Byron Bay there’s been a massive year-on-year increase to inbound tourism over the past 3yrs and an equivalent shortage of dwellings to buy – or rent. It’s insane really: people live in tents, cars, and for $400 a week even in spare garages. But there’s no strong underlying employment, just plenty of underemployment. The local economy is strong – however it’s based almost entirely on the back of tourism.

Many long term home owners in this area believe that they’re entitled to capital growth, that property prices always double every 7-10 years … and that property values never drop. How quaint! RP Data statistics suggest however that those people are deluded.

One well-known national television identity fell into that same trap in January this year when she paid $3.0m for a ‘small’ weatherboard house in Byron’s so-called ‘golden grid’. It had been renovated & styled for sale – my guess at a cost of maybe $250k.

Source: CoreLogic

 

 

 

 

 

 

 

 

 

 

 

Source: CoreLogic

 

 

 

 

 

 

 

 

 

 

 

The vendors purchased it in February 2016 for $1.55m (it had been on the market at this price on and off for three years or so). After the makeover, they re-listed it in Sept 2017 with ‘offers between $2.8 and $3.0m’.

Let’s do the math: $1550k + $250k = $1800k. Add a hot market for 18 months = $1.3m profit.
There are 3617 residential properties in the Byron shire and since January 1st there’s been 98 sales – 13 of those sales were over $2m.

But you know what? The backside fell out of the top-end market up here in late April.

Since mid-May this year there’s been just ONE lonely sale over $2m – someone who must know more than the market does, paid $3.35m for a rundown 1 b/r house at Watego’s Beach in a speculative play if ever there was one.

That great Aussie pastime of “speculating on house price growth” looks increasingly like a very dangerous game. From this point forward it’s a game which our newly arrived Aussies might stay well clear of?

Our friends @McCrindle Research are always keen to share their insights and have released an infographic outlining the latest population map. I found some very interesting facts in their stats:

  • We added an extra million people in just 31 months
  • 62% of our population growth was imported
  • There’s 5.1 million baby boomers still to retire & leave ‘the system’
  • last year 538,000 immigrants were offset by 262,000 permanent departures
  • even with total population growth of 405,000, we have a massive tax base problem on the horizon because most baby boomers are still in the workforce as income earners & tax payers
  • conversely our 538,000 immigrants were men, women & their kids = families. Maybe 1 to 1.5 tax payers per family?

I read somewhere recently that 35 cents in every tax dollar now goes out on welfare payments; if that’s accurate then ‘Houston, we have a problem’ seems appropriate. Reading between the lines, you might just see that the biggest game in town is one of ‘smoke & mirrors’.

Happy 25 Million Day!

 

2018-08-09T00:32:16+00:00