Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he's one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written, yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data & charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, author of the New York Times bestsellers 'End Game' & 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - author of Things That Make You Go Hmmm, one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, 'MacroBusiness'.

Thursday, 16 October 2014

City versus country - the widening jobs gulf

Capital cities outperforming

Forged and heavily influenced by our experiences of the thriving London economy versus the mayhem across the rest of the UK, we have argued strongly over the years that capital city property markets in Australia, and particularly well located suburbs therein, will fare consistently better over the long term than regional markets.

Regional markets will have their moments, but as a risk-adjusted bet, we'd take the capital cities.

This is partly related to the artificial scarcity of available land close to the centre of capital cities where most of the Australian population wants and often chooses to live.

Another key reason is that developed economies such tend to become more and more services based with financial services and other capital city industries increasingly dominating the economy,

As a result jobs growth and population growth is increasingly focused upon locations within 30 minutes of the centre of Australia's capital cities, as found by recent independent studies by the Grattan Institute and the Reserve Bank

On the flip side economies which are focused on traditional industries such as manufacturing (and, at this stage in the commodities cycle, mining) are more likely to feel hurt.

Today's data

The ABS release its detailed Labour Force figures today which confirmed the alarming shift towards the total dominance of capital cities in driving Australia's economy.

While Sydney and Melbourne have continued to add jobs to the labour force, regional New South Wales and regional Victoria are continuing to shed positions in aggregate, which can only hurt regional property markets in aggregate (click charts to expand).

While over the long run the capital cities have added around 70 percent of jobs in Australia, over the past five years that ratio has leapt to nearly 80 percent and the trend is getting stronger.

This is what we expect to see happening in a modern developed economy.

In the two largest states, the capital cities of Sydney and Melbourne have added a staggering 85 percent of jobs in the past five years.

While it might seem logical for Aussies to relocate to cheaper regions, they will not do so en masse without jobs to lead them from the metropolitan areas to the country (as lamented by the RBA's Luci Ellis herself).

Part-time jobs!

The regional trend is actually much more worrying than that due to the casualisation of the work force.

The numbers of full time jobs in regional New South Wales and regional Victoria are now lower than in 2006, which is ghastly news for many regional property markets - please email me if you want copies of the full data set of part-time/full-time jobs charts.

Other states

The same trends are playing out in Perth versus Western Australia, and to some extent Tasmania, the Northern Territory and the Australian Capital Territory.

South Australia is a slightly different beast because the capital city of Adelaide isn't adding any jobs to its economy either, and thus there is no gulf between Adelaide and the regions of South Australia - instead there is only a general state employment market malaise.

For regional economies there has been one bright spot over the years, that being the sunshine state of Queensland which does have some growing and thriving secondary cities away from Brisbane, as evidenced by healthy jobs growth over the long term.

The chart below shows the growing gulf between the capital city economies and the rest, with the five year data the most telling of all.


The ABS unemployment data isn't always the most useful indicator since, as has been the case in Britain and the US, for example, it fails to capture discouraged workers accurately or completely.

However, what the data does show is that the numbers of unemployed officially recorded as looking for full-time work in Australia are in a steady uptrend in most locations. 

It is not likely to be a great period ahead to be a vendor of property in illiquid regional markets, which as a general rule have materially under-performed capital cities in the years since household debt level speaked out (as again confirmed recently by Residex).