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Thursday, 31 March 2016

Overseas born Aussies hit a 120 year high

Internal migration

A quick browse through the ABS Migration data for financial year 2015 confirms what we already knew: that Melbourne (+6,600) and Brisbane (+3,985) are now the greatest beneficiaries of net internal migration.

Adelaide, on the other hand, lost a painful 3,985 persons to net internal migration in the financial year.

As usual the biggest absolute drain was away from Sydney at a net loss of 15,867, many of whom moved outwards to regional New South Wales. 

That said, the harbour city more than compensates by attracting tens of thousands of immigrants per annum from overseas, and Sydney also experienced a net internal gain in 15 to 24 year olds, partly due to the array of education opportunities on offer.

In total New South Wales attracted a huge 167,150 net overseas arrivals for net immigration of 66,086. 

The migration figures confirmed that total net overseas migration of +168,200 was about 10 per cent lower than in the preceding financial year, with total population growth steadying at around 313,000 towards the end of 2015.

Population born overseas

The share of the resident population born overseas increased again in the 2015 financial year to 28.2 per cent, which is up from 24.2 per cent a decade earlier and the highest share since the 1800s, being the period following the Eureka Stockade and the Victorian gold rush!

Following the end of the White Australia policy - and particularly since the turn of the century - the percentage has been solidly increasing for a decade and a half now, and if you include those with a foreign born parent, the total percentage rises more sharply still.

With the share of foreign born residents increasing, Australian may soon surpass Switzerland and possibly even New Zealand to be second only to Luxembourg on this measure. 

While British born residents (at 1,207,000 or 5.1 per per cent of residents) and New Zealand born residents (at 611,400 or 2.6 per cent of residents) still make up the greatest numbers of those born overseas, the trends are changing rapidly towards residents of Asian origin.

Indeed, the number of Aussie residents born in China has more than doubled over the past decade to 481,400, while Indian-born residents have almost tripled over the same time period to 432,700. 

Moving forward the share of Asian-born residents is set to increase, partly at the expense of their European-born counterparts. 

Notably, unlike migrants from say, Italy, the median age migrants from countries such as India has declined from 37 years to 33.4 years over the past decade.

If housing market trends are of interest to you, it may be profitable for you to follow the flow of Asian capital. 


Not the worst commute in the world.

Cities mop up population growth as regions stall

Cities dominate population growth

If you've been reading this blog for a few years now, you may recall that although it wasn't the central hypothesis or base case, I have previously highlighted a possible scenario whereby a dearth of employment opportunities and infrastructure investment could see population growth in regional Victoria fall to zero over the next few decades.

Well, we aren't quite there yet, but strewth we're getting pretty close, and much sooner than had been anticipated. 

The big picture for Australia is that according to the ABS Population Prowth is steadily becoming more capital city focussed over time, with the share of our resident population accounted for by the capital cities hitting its highest ever level in financial year 2015.

The respective capital cities accounted for a remarkable 92 per cent of population growth in Victoria, 92 per cent in Tasmania, 93 per cent in South Australia, and an incredible 94 per cent in Western Australia.

Australia is centralising

By contrast regional population growth has slowed to just +0.7 per cent, and virtually all of this growth was seen in inner regional areas, with outer regional and remote areas witnessing flat or falling populations in aggregate.

In short, Australia is centralising. 

Greater Melbourne recorded the fastest absolute population growth at +91,300 or +2.1 per cent in the year to June 2015, although with population growth of +83,300 Greater Sydney wasn't all that far behind, and as such the harbour city will win the race to 5 million at a canter.  

In fact, Sydney's population will pass 5 million within a matter of only weeks from today.

Greater Brisbane and Greater Perth each recorded population growth rates of +1.6 per cent, well ahead of Adelaide and Hobart which added a total only +13,800 heads between them.

All up capital cities accounted for population growth of +261,300 which was 83 per cent of the Australian population growth, while more than three quarters of the increase in headcount was to be found in the four most populous capitals. 

Eight of the ten most densely populated areas are now to be found in Sydney and five of them around the harbour city's Central Business District, and with Ultimo-Pyrmont the densest population of all at 15,100 per square kilometre. 

Regional population growth is stalling

While New South Wales has some regions that are growing such as Wollongong, Newcastle & Lake Macquarie, and the Hunter Valley, at the SA4 level none of them is growing as fast in percentage terms as Greater Sydney. 

Meanwhile population growth in regional Victoria has continued to slow from more than +15,000 per annum in financial year 2010 to just +7,778 in 2015, with the population already in outright decline in a number of regional areas.

In fact, if you strip out growth of +1.9 per cent or +5,224 in Greater Melbourne's "nearby" city of Geelong, then regional population growth in Victoria is already pretty much close to zero, although the wider Bendigo and Ballarat regions did record a small amount of growth.

The story is largely one of stagnation rather than anything more dramatic than that.

The population of the Creswick-Daylesford-Ballan region increased by one (1) in financial year 2015. Maryborough-Pyrenees saw its population fall by one.

The entire Shepparton region, once a hub for robust employment and population growth, increased by 91 heads. The total population of Mildura fell by 3 (three), thereby contributing ever so slightly to an overall population decline of 1,030 or -0.7 per cent in North West Victoria.

Meanwhile the Warrnambool and South West region saw its population decline by 822 or -0.7 per cent, and Deakin University is considering closing its local university campus, a potentially devastating blow for regional students and the local community (especially given that population increase for the remainder of the decade is projected to be driven largely by international students). 

On the other hand Greater Melbourne is becoming a veritable magnet to regional Victorians and folk from interstate alike. 

Note that if you drill all the way down to the individual suburb level, some attractive capital city locations will naturally experience a slight "decline" in population, but you shouldn't be sucked into believing reports that these equate to "declining" demand for housing therein - often it is quite the opposite, in fact, these subtle shifts in household formation are simply a part of the life cycle of mature and well established suburbs.

Queensland coast thrives

Only one state records reasonable population growth of +1.0 per cent in its regions, that being Queensland (compared with +0.8 per cent in New South Wales, and +0.6 per cent in Victoria, while in the regional Northern Territory population growth was negative).

The migration data broken down by median age implies that both the Gold Coast and Sunshine Coast are attracting families to live in their attractive conurbations, with some electing to commute into Brisbane for employment, while these regions are also enjoying a welcome boost from tourism and the lower Aussie dollar. 

While it is hard to envisage today, and planners claim it cannot or will not happen - if you could build a time machine and travel forward to a point in the not too distant future - Greater Brisbane and south-east Queensland may be something akin to one 200 kilometre long coastal city stretching "from Noosa to the Tweed".

In other words, Gold Coast and Logan could become indistinguishable, and the Sunny Coast may be linked to Brissie and Ipswich by urban sprawl. I'm assured that this could never happen, though!

Regional slowdown

While population growth rates remain furiously strong in the largest capital cities, the slowdown continues in most regional locations.

We can expect this trend to continue over the next few decades, and if you want to know the reasons why, I recommend taking a read of Infrastructure Australia's latest reports. 

Slow population and employment growth is one thing, but if you want to see a demographic and property market disaster in action, take a look at what has been happening to the demogrphics in many of our mining and resources regions.

Population is actually in full on decline mode in resources regions such as the Pilbara and Goldfields in Western Australia, as well as in the Queensland Outback.

Significant demographic challenges have been unfolding in parts of the Central Highlands of Queensland, just south of the Bowen Basin, where population growth has been in freefall, and in parts of the Bowen Basin North where population growth has collapsed.

For property salesmen and marketers some of these small towns can be a classic sucker play - rising population and dwelling prices through a resources construction phase can lead to over-enthusiastic development, and then as the population and demand flows away again what is left is overvalued and illiquid property, but few people ready and willing to buy or live in it.

Wednesday, 30 March 2016


Inner ring tightens

The Sydney property market has become something of a dichotomy.

It was reported last week by the Real Estate Instititute of New South Wales (REINSW) that residential vacancy rates in inner ring Sydney had fallen by 0.6 per cent to just 1.3 per cent in February.

Vacancy rates in Sydney's middle ring also tightened to 1.6 per cent. 

On the other hand, vacancy rates in outer Sydney look to be a bit looser at 2.1 per cent.

To some extent this reflects what we have seen in auction clearance rates in 2016, with the inner ring suburbs often recording exceptionally strong results, but sentiment waning in the outer and in the Hills District.

Of course, it is a truism to say that monthly readings can jump around quite a bit, particularly in the regional areas where sample sizes are smaller.

However, if we smooth the data on a 3mMA basis, we can see that outer Sydney vacancy rates are potentially setting themselves to rise quite sharply, just as they did at towards the end of their growth cycle late in 2003. 

It's probably a bit too early to call a trend on this with any certainty, but it's definitely one worth watching.

I noted here yesterday how labour market conditions appear to have improved somewhat in Newcastle and much of the Hunter region, which also seems to be reflected in steadily tightening rental markets.

On the other hand, residential vacancy rates have all but doubled in Albury since August of last year to 3.7 per cent.  

Asking rents up

There have been some early suggestions that parts of the inner Sydney property market are tightening. 

The regulator APRA has certainly been successful in hosing down investor demand since a frenzied investor market around April and May last year.

And so with population growth in Sydney remaining very strong, there is a possibility that the rental market could be tightening again. 

SQM Research's latest asking rents index shows an annual increase of +5.5 per cent for Sydney units and +5.6 per cent for two bedroom units in the harbour city. 

Source: SQM Research

Of course, at this stage in the residential construction cycle, the supply of new units can on average command higher rents than much of the older or obsolete stock, which might skew indices north a little.

Asking rents for units in Brisbane are also up by +2.6 per cent, and in Melbourne by +4.1 per cent. 

In any case, the answer will become clear in the next few months. 

Tuesday, 29 March 2016

Jobs - where and what?

Where are the jobs?

The latest Detailed Labour Force figures showed that Greater Sydney (+83,100) and Greater Melbourne (+75,000) continued to lead total employment growth over the year to February 2016.

For this reason, it's no surprise that population growth has been following suit, hitting up the largest capital cities, as I looked at here.

After years of no growth, jobs are also finally beginning to be created in regional New South Wales (+58,600), such as in the Illawarra, Shoalhaven, Newcastle, and the wider Hunter, for example (where the unemployment rate has fallen lately, which is pleasing to see).

Unfortunately the same cannot be said for regional Victoria, where total employment has fallen over the past year (-17,900).

Greater Brisbane (+31,100) and the remainder of Queensland (+21,100) have added a solid number of jobs, while Greater Perth (+2,200) now seems to be flat-lining.

On the measure of total employment, while we definitely wouldn't want to jinx it, Greater Adelaide (+10,400) may just at long, long last be turning a corner?

That said, the quality of employment in Greater Adelaide remains a worry.

Total full time employment hasn't increased in South Australia since 2007, while Adelaide's unemployment rate hit an alarming 8 per cent in February.

The small areas labour market figures for December 2015 showed that the unemployment rate in Elizabeth is out of control, rising yet further over every quarter of 2015 to hit a seriously depressing 33.6 per cent.

Davoren Park is following the same trajectory and now has an unemployment rate of well over 20 per cent, while the unemployment rate in Elizabeth north rose above 24 per cent.

It goes without saying that something needs to be done about this.

Possibly the weakest performing labour market in New South Wales was Cessnock, where the unemployment rate increased through 2015 to 17.4 per cent, with youth unemployment has remained a concern.

I looked at the capital city unemployment rates in more detail here, which showed that unemployment rates are trending down in Sydney, Melbourne, and Brisbane.

Unfortunately it appears that having threatened a recovery, employment in Greater Hobart is now in decline again, having decreased over the past year from 105,600 to 103,600.

Piecing that little lot all together. Sydney, Melbourne, Brisbane and regional New South Wales have accounted for the bulk of employment growth of late.

And what are the jobs?

The Detailed Labour Force Quarterly data is also released each, erm, quarter, and thus the February figures also provide insight into which industries are thriving, surviving, or diving.

Total employment increased in seasonally adjusted terms by +240,000 in 2015, or in trend terms by +275,000.

This is a pretty strong result in historical terms, particularly given that so many experts predicted a recession in 2015, and perhaps the below chart gives a hint as to why - mining is not actually that big an employer in headcount terms, with total employment actually increasing by +5,300 in 2015 to 232,000.

Manufacturing recorded a solid bounce in the February quarter, but still managed to shed another 20,500 jobs in 2015, to continue a long, sweeping structural downtrend that has been in place for 25 years.

Healthcare and social assistance suffered a blip in February, but has created by far and away the most new jobs over recent decades, including another +59,600 last year.

However, healthcare was not to be crowned king of employment growth for the calendar year, with that title going to retail trade which added some +60,700 new positions.

Transport (+45,350), administration and support (+40,300), professional services (+37,500), finance (+16,000), and real estate (+13,000) all saw solid employment growth.

And despite resources construction now being in freefall, total construction employment added an impressive +35,600 positions, as residential construction more than picked up the slack.

It had been argued, wrongly, that apartment construction is not labour intensive - but since brownfield sites are far more challenging locations upon which to construction dwellings, the industry is both labour intensive and productive.

The wrap

Some solid jobs growth for the three largest capital cities was seen in 2015, but there are still question marks as to whether further monetary easing or government spending will be required to guide Australia through the resources cliff.

It seems unlikely that construction and mining employment could add another +40,000 jobs in calendar year 2016, for example, which will leave a hole to be filled.

The answer will lie in the strength or otherwise of the services sector.

Markets still see a fair chance of another interest rate cut by the early 2017. It will be interesting to see what news the budget brings.



Monday, 28 March 2016

Are Aussies getting richer or not?

Are we getting richer?

In 2013 a "Global Wealth Report" prepared by Credit Suisse found that thanks in part to the mining boom Australians had become the richest people in the world with a median wealth per adult of more than US$200,000.

When measured on an average basis Australians came in second only to the Swiss with an average wealth per person of more than US$400,000.

Such reports are interesting to a point, although of course they will always mask a large number of underlying trends, including generational, regional, or racial inequality, for example.

I saw an interesting debate on Twittersphere this week which obliquely referenced the question of whether Australians are getting richer or not.

And although I figured that households in aggregate must surely getting wealthier given that we haven't had a recession for 25 years, I realised I hasn't recently updated by charts.

One of the things worth noting about reports by guys like Credit Suisse is that by necessity they are denominated in US dollars, and thus without looking at an equivalent report for 2015 I'd hazard that with our dollar falling from around parity to around 75 US cents, then we wouldn't score quite so highly on Credit Suisse's measures today.

But what about when wealth is priced in our local currency?

Fortunately the ABS released its Household Finance & Wealth data for the December 2015 quarter last week, which might just help us to nut out the answer...

Aggregate household balance sheet

For the December quarter, the household balance sheet showed that net worth increased only moderately by around $119.4 billion in the last three months of 2015.

Over the year, household net worth increased by +8 per cent or $645 billion to a fresh high of $8.62 trillion, with solid increases in residential land and dwellings (+9 per cent to $5.86 trillion), but also total household liabilities (+7 per cent to $2.2 trillion).

Given that equities-based wealth and financial assets should grow substantially over time with a swelling population and compulsory superannuation contributions, total financial assets grew by an underwhelming +7 per cent over 2015 to $4.31 trillion.

In fact, this has been a recurring them over the past decade.

The commodities index has performed so dismally since 2008 that it has dragged our domestic share market performance down to the extent that our local index has barely budged for a decade.

That said, thanks to the power of compounding dividends have still delivered returns of around 56 per cent over the past ten years.

Net worth per capita in 2015

Largely driven by land and dwellings, household net worth has increased by $3.9 trillion or +84 per cent over the decade to December 2015.

Of course, as the population grows and the cost of living increases, then so too must household net worth in order for living standards to be maintained.

During the week I looked here at the latest population growth figures which showed that by December 2015 the population of Australia was nudging 24 million.

Using these figures we can plot an average net worth per capita in Australian dollar terms, which totals A$359,000, up from A$231,000 in December 2005, for a +54 per cent increase over the decade.

Much of this increase has been driven by property ownership, and after adjusting for cost of living increase the improvement or otherwise in wealth and living standards is largely determined by how households have fared in terms of the housing market.

The impact of the housing market slowdown in Q4 2015 is clearly visible even on this aggregate measure.

Winners and losers

One thing Australia has excelled at in recent times is to insist upon compulsory superannuation contributions for employees, which encourages people to invest from a young age, even if total returns from share market performance have not been so enthralling of late.

The reality is that headline numbers can only tell you so much, and there have as always been winners and losers over the past decade.

My philosophy has always been that you don't sell well-located property in cities such as London or Sydney, because one day in the future you will likely look back and regret having done so.

There was a lot of social media campaigning for a house price crash in Australia around 2008 - and in the end a serious correction did actually transpire in a number of resources regions - however, interest rate cuts have cushioned the shock for most homeowners.

As the mining boom hit its straps the Reserve Bank had ratcheted up the cash rate from 4.25 per cent all the way up to 7.25 per cent by 2008, which stored up a decent amount of ammunition for when the resources construction boom when into reverse gear.

With the cash rate now at only 2 per cent, homeowners in most capital cities have enjoyed a combination of rising house prices and lower repayments.

Gearing and serviceability ratios

The ABS also provides plenty of data on debt and gearing.

By the end of 2015 households held around $1.59 trillion of mortgage debt against $5.6 trillion of property assets (total residential land and dwellings are worth somewhat more than this, but the asset class is not entirely owned by Aussie households).

Dwelling price growth had evidently slowed by the fourth quarter of the year as credit was rationed.

As a result of slowing price growth the debt to land and dwellings ratio ticked up to 28.4 per cent, while the household debt to total assets ratio was steady at 20.4 per cent.

The interest payable to income ratio is now back down at the same level it was at around the turn of the century.

By the way, there's no need to message me to "verify the source data" for the "claims" I make on these metrics this quarter.

Instead I've just copied the ABS chart below - go and check the source data for yourself, it's here: Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0) Table 20. Household Income Account, Current prices).

Source: ABS

The wrap

Household wealth sits at record highs of $8.62 trillion, while in per capita terms average wealth of around $359,000 per capita is also a record high having increased by +6.3 per cent in 2015.

However, when priced in US dollars, both our average and our median wealth goes less far than it once did should we travel overseas or repatriate funds elsewhere.

Furthermore, with land and dwellings representing by quite a margin the largest asset class at $5.9 trillion, how households have fared in terms of dwelling ownership has inevitably in turn had a significant bearing on where they score on the household net worth measurement.

Sunday, 27 March 2016

UK city prices accelerate

City prices +11 per cent

Reports Hometrack in February.

UK city house prices recorded an unseasonal acceleration as prospective landlords rush to get in before stamp duty and other tax changes to be implemented on April 5.

City house price inflation surged to +11 per cent, well ahead of the national average.

London (+13.8 per cent) marginally squeezed out Cambridge (+13.6 per cent) to record the fastest price growth.

Over the last two years London (+25 per cent) and Cambridge (+23 per cent) have clearly been the standout performers, they indeed have been for the past couple of decades. 

Prices are now falling in Aberdeen following the crash in oil prices.  

Hometrack noted that the surge was not all down to an investor rush, with 80 per cent of sales recorded going to homeowners.

While property owners continue to enjoy almost unbelievably cheap mortgage rates, the  prospect of a "Brexit" vote may temper sentiment as 2016 progresses.

The full Hometrack report can be found here.

Adelaide unemployment rate hits 8 (eight) per cent

Adelaide unemployment hits 8 per cent

Worrying news for Adelaide as the unemployment rate hit 8 per cent in February according to the Detailed Labour Force figures for February 2016.

The monthly data are volatile and so here I plot them on a 12mMA basis, showing Greater Adelaide at 7.43 per cent and rising hard.

It's great to see that low interest rates are biting in the three largest capital cities.

Sydney is the best placed capital city on this metric, inching down to 5.04 per cent from 5.2 per cent one year ago, while Melbourne is also in a tidy 14 month downtrend.

Brisbane is in a beautiful freefall with the 12mMA unemployment rate fall dropping from 6.29 per cent to 5.74 per cent over the past fifteen months.

The uptrend in Perth is still intact, but only just, ticking up only very marginally to 5.99 per cent over the past four months.

Adelaide, on the other hand, is a problem child.

I warned on this blog a few years back that with employment growth stalling completely in Adelaide, sooner or later the unemployment rate would hit uncomfortable levels or population growth could even go backwards.

That hasn't quite happened yet, but interstate migration from South Australia has now hit negative 4,100 per annum, a level last seen in the financial crisis.

The uptrend in the Adelaide unemployment rate has been in place for fully 48 months now, with the shutdown of the General Motors Holden plant also looming large in 2017, a devastating blow for the working suburb of Elizabeth.

Saturday, 26 March 2016

Pain or gain

Interesting research from CoreLogic-RP Data shows how much higher the proportion of loss-making property sales is in regional Australia than in capital cities.

Report here.

Source: CoreLogic-RP Data

Tax data reveals interesting new rental market trends

Investment property ownership

The release of the 2013/14 financial year taxation statistics by the Australian Taxation Office (ATO)will no doubt add further fuel to the ongoing debate over the who, what, where, and why of rental property ownership.

Since I work in the industry and view properties more or less all the time, I don't need to look at any stats to know that investment properties are owned by a wide range of Australian income earners, largely "middle Australia".

I know, because these people include my clients, because I can see it for myself every time I go to viewings, and most significantly, because I'm a property market insider.

The genuinely wealthy generally have better things to do with their cash then invest in low-yielding residential property.

Nevertheless, I would hopefully call out others on their useless anecdotes, so I shall do so on myself.

Here are the headline numbers!

The figures show that 15.7 per cent of those lodging a tax return or 2,033,973 individuals owned a rental in FY2014, with the vast majority owning only one or two properties.

The long run numbers speak for themselves, with rental property ownership becoming increasingly popular and accessible, and showing a fivefold increase since 1980, or a near-fourfold increase as a share of the total number of taxpayers.

So much for rentals only being for the rich - there are now, quite literally, millions of landlords.

Happily for landlords, fewer of them declared a net rental loss in financial year 2014.

Rental market trends - how much?

Adding a bit more texture on what happened to the rental markets and negative gearing deductions in financial year 2014, the ATO Taxation Statistics for 2013/14 showed that net rental income losses fell by more than half from $7.9 billion to $3.7 billion over the last two years. 

The total rental loss claimed fell from $12.04 billion to $10.97 billion, but remember that negative gearing losses are a timing difference only, and as such these are not amounts which could be "saved" from the budget.

The share of those 2.03 million folk who own a loss-making investment property fell from 64 per cent to 62 per cent.

OK, so that's the summary data.

But what does it actually mean?

In terms of what this means in reality for the typical individual owning a property, the average rental loss has declined from well over five grand at $5,096 in the 2008 tax year to just $1,828 by FY2014, a whopping decline of more than 64 per cent. 

Furthermore, with the cash rate falling several times further since 1 July 2013, average net rental loss will decline for the next two or three tax years to come (just ask any capital city based landlord about their 2015 tax returns).

Rental market trends - who?

The Tax Office also served up some interesting data on who is recording net rental losses. 

In terms of additional investors in the financial year, the numbers of individuals with a rental interest and a taxable income between $37,000 and $80,000 increased, if only moderately, with those within this taxable income bracket racking up a total of 707,000 taxpayers with a net rental interest. 

However, the greatest increase in volume of overall investors was reflected in an extra 42,400 individuals in the taxable income bracket of $80,001 to $180,000.

By way of contrast there were only an additional 9,000 individuals with an interest in the $180,000 to $250,000 taxable income bracket, and an additional 5,000 individuals in the $250,000 to $500,000 bracket.

Looked at another way by income, 767,000 of those declaring a taxable income of under $80,000 accounted for 61 per cent of total net rental losses.

With the largest increase in net rental interest over the year, and it does confirm that to a substantial extent "middle Australia" is buying into residential investment property, and so doing is not only "for the rich".

It is worth highlighting here, however, that the "taxable income" declared on tax returns is reduced by negative gearing losses. 

Thus for example it should be acknowledged  that a person declaring a net rental interest and taxable income of under $80,000 could theoretically have income of $81,828 before an average net rental loss is deducted.

The overwhelming majority of landlords continue to only own one or two rental properties. 

Naturally when analysing the figures by age younger investors remain the most likely to rely upon negative gearing, with 82 per cent of all property investors aged between 18 and 29 declaring a net rental loss.

As the population ages it is little surprise to discover that more than one fifth of investors are now aged over 60, a share that will likely increase over time.

It goes almost without saying that the top 20 per cent of income earners owe the bulk of investment housing debt, a point highlighted by the Reserve Bank of Australia as favourable for economic stability, since these investors are also best placed to service their debt.

Finally, one other interesting trend was the surge in sundry rental deductions, suggesting that with the rental market softening and becoming more competitive landlords have had an increasing propensity to spend on property improvements, which has been of significant benefit to the trades sector. 

The wrap

Overall, the figures again showed that rental properties are owned by a broad range of Australians by income, comprising a total of well over two million taxpayers.

The good news from a budget repair perspective is that net rental losses have declined by well over half over the past two tax years alone.

What's more, with interest rates since falling to record lows, we can look forward to seeing further declines over the next few years of data.

Weekend reads: Must see articles of the week

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Friday, 25 March 2016

Interstate migration is rising again - but why?

MEL-SYD dominates population growth

I looked in detail here at the different components of Australian population growth, which appears to have bottomed out at a sturdy +313,200 per annum and is projected by the Department of Immigration and Border Protection (DIBP) to strengthen forthwith, largely driven by the issuance of visas to international students.

Population growth is plenty slower than it was at +1.3 per cent per annum, but still robust and comfortably ahead of earlier forecasts.

Since the demise of the resources construction boom, net overseas migration (NOM) into Western Australia, Queensland and the Northern Territory has quickly dried up. However the same is not true in the two most populous states, which are now accounting for more than three quarters of NOM.

Interstate migration hammerhead

Having slowed considerably over the past decade, interstate migration is now tentatively rising again. The net interstate migration (NIM) chart below forms an intriguing shark pattern, with New South Wales and Queensland tending to dovetail over time.

Typically at this stage in the housing market cycle we might expect to see folk relocating from New South Wales to Queensland to enjoy a lower cost of living. And this is now beginning to happen some extent, with Queensland enjoying a positive annual inflow from NIM of +6,900, while New South Wales records a corresponding annual outflow of -7,450.

Interestingly, however, the biggest beneficiary of interstate migration is now Victoria at +11,200. Notably for such a small state in population terms, South Australia suffered an annual net outflow of -4,100 -  a level last briefly touched upon through during the financial crisis - reflecting underemployment and persistently weak conditions in the local economy and private sector labour force.

Grand totals

Totting this all up, and after accounting for the natural population increase (births and deaths), New South Wales and Victoria each notched up supremely strong population growth of more than +102,000 in the year to September, not far below their respective historic highs recorded in 2014. Most of this population increase is being experienced in Greater Melbourne and Greater Sydney.

Queensland (+55,200) and Western Australia (+32,500) accounted for the bulk of the remaining growth in headcount, and you can just about throw a wet blanket over the rest, with South Australia (+0.7 per cent), Tasmania (+0.4 per cent) and the Northern Territory (+0.3 per cent) all recording population growth rates substantially below the national average.

Penultimately, when looking at state population growth trends on a rolling annual basis the impact of the end of the mining boom on the resources states becomes clearly apparent, while lately population growth in Sydney and particularly Melbourne has been resurgent.

Finally, the estimated resident population figures by state and territory over the long run reveal that over the past quarter of a century the Australian population has increased by 8.9 million or 59 per cent, with well over 90 per cent of that increase having been experienced in the four most populous states.

The wrap

These figures are corroborative evidence for the sub-regional data which suggest that population growth has become more capital city focussed since the denouement of the resources construction boom. 

In aggregate regional population growth has sunk well below the national average, with the honourable exceptions of a handful of peri-urban locations. Meanwhile the largest capital cities are creating the greatest number of jobs, and accordingly are mopping up the lion's share of economic and population growth.

As for why net interstate migration slowed over the past decade, before a recent rebound? There are a number of factors which discourage interstate migration within Australia, including relatively higher house prices and therefore inefficient stamp duties in this era of lower interest rates, and prohibitive trades licensing (I need a separate licence for every state I operate in, for example).

However, the timing of the surge and decline of net overseas migration through the construction phase of the resources boom - and in particular the partial divergence from the rate of net interstate migration from around 2004 - imply that demand-driven immigration initiated by employers may in turn have stymied the opportunities for interstate migration.

After all, most of us won't relocate interstate if gainful employment opportunities don't exist. Arguably fears have also abounded regarding job security since the onset of the global financial crisis, further inhibiting interstate mobility, which only really began to dissipate last year.

As for what to expect going forward? Current trends suggest more inbound interstate movements to Melbourne and Brisbane, and outbound movements away from Sydney, Adelaide and Perth.

CBA reporting "unprecedented volumes" of mortgage applications

Record mortgage applications

I've heard from several different sources now that Commonwealth Bank is experiencing mortgage applications at a pace never before seen.

BDMs are advised brokers that it will take 8 business days for applications or queries to even be looked at, with no exceptions other than bank error.

Under no circumstances are applications being escalated to credit teams, due to their "experiencing unprecedented volumes".

You could read several things into this.

It could simply be that CBA is under-resourced over the Easter period.

But I don't think it's that.

I take their comments at face value: over time low interest rates have caused demand for property to rise to levels that have never before been seen in Australia.

We shouldn't be all that surprised by this, given that the cash rate is at 2 per cent, yet the unemployment rate has now been in a downtrend for 28 months, and the economy has not stalled in the face of its resources investment cliff as feared.

We already know that APRA has had to tap lenders on the shoulder to slow the thunderous pace of investor lending, which was threatening to spiral off the charts.

After a bit of a reshuffle, many would-be borrowers are now resurfacing in the guise of homebuyers.

It could also to some extent be the case that Commonwealth Bank is flexing its muscles in order to win back market share in what has become a very competitive lending market.

Australia's largest mortgage aggregator Australian Finance Group (AFG) reported within its March 2016 data that its flow of business to Commonwealth Bank increased from 17 per to 23 per cent over the quarter.

Meanwhile Commonwealth Bank's subsidiary Bankwest also saw a jump taking CBA's market share up to 31 per cent.

CBA's share of fixed rate lending in particular soared from 13.8 per cent to 24 per cent.

At the state level, CBA is now the top lender in Queensland, New South Wales, and South Australia.

Source: AFG

Overall, it should be expected that investor lending will steady in 2016, but there seems to be huge demand for home loans with term deposit rates so uninspiring and the share market delivering underwhelming returns.

Thursday, 24 March 2016

Population growth steadies at +313,000

Population growth steadies

The ABS released its Australian Demographic Statistics figures for September 2015 which confirmed the expected steadying of population growth at an annual total of +313,200, with government projections showing a fresh increase expected through 2016.

Net overseas migration has slowed significantly since the end of the mining construction boom, though it is now flattening out. In fact, it never really pulled back at all in the largest cities, but the slowdown has been felt in the resources states.

The talk of population growth "dropping off a cliff" was all a bit dramatic, with the estimated resident population of Australia having now fizzed past 24 million, just at a slightly less breakneck pace than before. Compare the rate of population growth to forecasts made in 1999, for example.

There had been an issue related to the collation of data for births in New South Wales, but it seems that data entry staff got up to speed in the June quarter, so this anomaly should now wash through. No revisions were made to the quarterly data, however, so it all looks like a bit of a tennis ball in a hosepipe.

While alas we expect the number of "departures" to increase over time, the rolling annual deaths total has declined across the past two quarters, while the blip in the births figures is also visible here.

With population growth of around 82,300 in the September quarter, it seems that the rate of population growth has now steadied in line with DIBP forecasts.

The annual rate of population growth is bottoming out at around 313,000, roughly in line with projections - which project an increase in 2016, largely driven by a higher intake of international students.

The big picture is that population growth has remained tremendously strong in the largest capital cities, but has slowed dramatically in resources states and many of the regions. Next up, I'll take a look at the state by state trends.

Brisbane house prices steadily increased over 2015

Brisbane records steady gains

Reports Domain here (or click image).

It seems that some people, including people like me in fact, are getting a little hung up on the idea that unit prices will underperform house prices in Brisbane over the near future, probably not helped by quotes from, um, people like me.

In general terms and at the macro level, yes, I expect house prices in Brisbane to outperform units, as I noted in the above article.

However, property prices don't go up (or down) because the dwelling type is a detached house, townhouse, apartment in a boutique block, or high rise unit.  

Prices move when there is sustained demand for a property type from a buying demographic in a location where that type of supply is constrained.

In particular, since prices are ultimately a derivative of land values, properties with a high and appreciating land value content are likely to outperform over time.

For example, I'd rather own a quality townhouse or apartment in a boutique block in New Farm or Tenerriffe, than a crumby house in a fringe location with dim prospects.

After all there is virtually no new land on the peninsula to be developed, and with that area becoming ever more sought after over time land values are realistically heading in only one direction.

I also expect townhouses and some boutique attached dwelling types in middle ring locations to do well over time.

Affordability is not quite as big an issue in Brisbane as people like to pretend it is.

It's not that hard to find properties in prime, commutable, middle ring locations selling for well under their "as new" prices from early 2009.

And, by the way, the cost of borrowing money has halved since then.

Of course capital cities always seem expensive, not least because we have a tendency to look at homes in areas which are just tantalisingly beyond our reach (remember all the articles from around 2008 noting that Sydney prices couldn't rise any further?).

On the other hand, as discussed here many times before, there is indeed masses of construction of high density dwellings in some inner city locations, including at Brisbane's South Bank for example, with the ratio of new to existing apartment stock too high for comfort.

It remains to be seen how much of this new stock ends up in the hands of foreign buyers and never makes it to the rental market, or how much of it ends up being international student or "short stay" accommodation.

Either way, when lenders are striking out suburbs as no-go zones and even the central bank has highlighted systemic risks, it's probably time to be setting your sights elsewhere!


The capex cliff progressed another $50 billion or so towards ground zero as Woodside (ASX: WPL) announced yesterday that it will shelve its Browse LNG project off the Kimberley Coast, citing the unfavourable economic environment.


Stacks of interesting information out this morning, although most of it is not market moving, including demographic statistics for Q3 2015, detailed labour force figures, and the household finance and wealth data from the national accounts.

Lots to look at there, so stick around. 

Wednesday, 23 March 2016

London house price passes £550,000

London & Home Counties lead

The UK Office for National Statistics released its latest House Price Index for January 2016 which showed England prices surging by +8.6 per cent over the year to an all-time high of £306,000. 

By contrast prices were either broadly flat or falling in Scotland, Wales and Northern Ireland in the year to January. In Northern Ireland the index remains 42.9 per cent below the August 2007 peak.

At the other end of the spectrum London prices are now +53.4 per cent higher than at their pre-crisis peak, and London's mix-adjusted average house price has given me a fresh y-axis headache in blazing off the top of the chart to £551,000. 

Over the year to January 2016 the price growth was heavily focussed on the capital city and the Home Counties, with London (+10.8 per cent), the East (+9.8 per cent) and the South East (+11.7 per cent) all recording strong growth. 

The six remaining regions saw price ease in the month, with prices generally not that much changed from their 2007 peak. 

Tuesday, 22 March 2016

Brisbane racks up 14th consecutive quarterly gain

Prices steadier in Q4

The December 2015 Residential Property Price Indexes figures confirmed the expected slowing in the final quarter of last year, although more timely private sector indices suggest that nationally prices began to rise again in the first quarter of 2016, perhaps by around +1.5 per cent. Let's look through the macro trends from the 2015 figures in three concise parts.

Part 1 - Market steadier in summer

The total value  of dwelling stock increased only marginally to $5.9 trillion in the December quarter, rising by $482 billion or +8.9 per cent over the calendar year. This was broadly in line with capital city dwelling price growth of +8.7 per cent, plus a bit more reflecting the value of the new supply of new dwellings.

The total value of dwelling stock has increased by a third or $1.5 trillion since December 2011, now tallying 3.5 times the size of nominal GDP. 

The weighted 8 capital city average indexes showed that both house and unit prices steadied in the last quarter of 2015, with house price growth (+9.3 per cent) outperforming the market attached dwellings (+6.7 per cent) over the course of the calendar year, a triumph for scarcity over affordability. 

Part 2 - City by city

While Sydney showed the expected moderate final quarter correction and Darwin prices tumbled, Perth saw its prices increase by +0.5 per cent leading a number of commentators to call the bottom on Perth's market cycle and to project moderate gains for 2016.

Melbourne prices rose by +1.6 per cent to record strong growth of +9.6 per cent for the year, second only to another immense calendar year for Sydney at +13.9 per cent.

Canberra went on a tear with prices leaping by +2.8 per cent in the December quarter (for +6 per cent growth in 2015). while Hobart prices also spiked by +2.5 per cent for an annual result of +3.5 per cent, mirroring more timely reports from other private sector data providers.

The most steadily consistent performer has been Brisbane, notching up another solid +1.6 per cent increase for its 14th consecutive quarterly gain and a +4.2 per cent annual increase. Since June 2012 dwelling prices have increased steadily by +17.1 per cent in Brisbane. Adelaide has followed a very similar trajectory with somewhat more suppressed nominal price growth. 

Over the past three years the total value of Australia's dwelling stock has increased by $1.33 trillion, with New South Wales (+$682 billion), Victoria (+$377 billion) and Queensland (+$143 billion) accounting for the bulk of the increase. 

Since December 2008 growth in property prices has been driven overwhelmingly by Sydney (+79.8 per cent) and Melbourne (+53.5 per cent), while Brisbane has recorded considerably less price growth (+22.1 per cent) over this timeframe. In fact since that time both Darwin and Canberra have fared better, although the Top End is now in correction mode.

The ABS also now provides some interesting insights into the unstratified median price of established dwelling transfers, which also inferred a slowdown in Sydney house prices (in fact Sydney unit prices rose more than established house prices on this metric, jumping by +11.4 per cent to $685,000).

This data series is most instructive in depicting just how far Sydney and Melbourne house price growth has outpaced that of its respective regional market counterparts. 

There are myriad ways to look at house price data, some of which involve inflation adjustments and carefully selected data points, while others use hedonic regression analysis, but the simple long run data from March 2002 shows the median transfer price of established houses to be as follows:
  • Sydney up from $365,000 to $910,000
  • Melbourne up from $241,000 to $621,000 
  • Brisbane up from $185,000 to $499,800 
At the state level the mean dwelling prices tell a broadly similar story to the capital city narrative for the past year, with New South Wales (+$76,300) and Victoria (+$56,100) once again recording the greatest gains in calendar year 2015, while the ACT (+$35,000) and Queensland (+$17,600) also saw notable increases.

Part 3 - Supply response mixed

Finally, the data denoting the total number of dwellings at the state level shows how New South Wales added just +7,400 dwellings to its total stock in the December quarter. Nationally the total number of dwellings increased solidly by +162,900 or +1.7 per cent in 2015 to 9.62 million, having now increased by +578,600 or +6.4 per cent since December 2011. 

Over the past four years, while the less densely populated territories of the Northern Territory (+10.2 per cent) and the ACT have added substantially to their stock of dwellings in percentage terms, the same has not been true everywhere. 

Of the most populous states Western Australia (+8.9 per cent) and Victoria (+7.8 per cent) have co-ordinated the most material supply response as a percentage of established dwellings. However, the percentage increases in Queensland (+6.8 per cent) and in particular New South Wales (+4.6 per cent) have been less marked, reflected in their respective shallower gradients in the below chart. 

This seems likely to in part to reflect stock obsolescence and demolition in the larger capital cities, where older dwellings are often pulled down in order to make way for new apartment developments. However, in some locations there does remain an elevated volume of apartment construction in the pipeline, which you can doubtless see for yourself if you frequent the inner city hubs.

The wrap

Overall this historical data reflected already known market trends with the restraints on investor lending propitious in tapering price growth towards the end of the calendar year. At the macro level we can expect price growth nationally in 2016 to be lower than the +8.7 per cent seen in 2015, with investor lending have been successfully curbed and more supply due to come online. 

House price growth has resumed in 2016 in parts of Brisbane and Melbourne, Sydney's market has become a bona fide dichotomy, with many of the inner ring suburbs firing, but the outer ring now recording funereal auction results. Naturally at the sub-regional level results are far more mixed and trends more nuanced,