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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Monday, 25 April 2016

Townsville unemployment at 13 year high

Regional Victoria stalls

It's very much true that monthly figures often don't tell you a lot, and even annual figures are often quite misleading.

But over a period of years now we have seen Melbourne come to utterly dominate population and employment growth in Victoria, directly at the expense of the state's regional centres.

Over the past year Greater Sydney (+67,200) and Greater Melbourne (+59,700) have both added a healthy balance to their total employed figures respectively, while Greater Brisbane added a solid (+34,900).

And after some years of stagnation regional New South Wales (+60,900) has now at last come to the party, adding jobs in the state's regional centres both to the north and south of the harbour city.

However, mirroring what I already discussed in more detail here when analysing the latest population growth figures, regional Victoria added just 900 jobs over the year.

In fact, if you strip out Geelong which added nearly 20,000 jobs over the year to March 2016 to see its unemployment rate fall to just 5.2 per cent, the rest of state has been going backwards as Greater Melbourne powers along. The most recently available population growth figures painted a very similar picture.

It is true that annual figures can sometimes be misleading, but population and employment projections are becoming increasingly lopsided towards the capital city in Victoria to the extent that regional Victoria could actually soon even soon be seeing its population decline in aggregate.

In fact, regional employment growth has been generally very weak in aggregate across all states outside of the Premier State, despite some tourism-related gains in Queensland's coastal regions.

Regional employment fell year-on-year, for example, in both South Australia (-900) and Western Australia (-15,900), the latter's labour force having been severely dampened by the end of the mining construction boom.

Totting it all up we can see just how skewed employment growth has been towards a few capital cities, and certain parts of regional Queensland.

Unemployment rates

Low interest rates are working their magic in the three largest capital cities where rolling annual unemployment rates are having been trending down nicely, in Greater Sydney, in Greater Melbourne, and in Greater Brisbane.

Elsewhere it's not such a pretty picture, particularly in Adelaide which now has by far and away the highest unemployment rate of the capital cities.

Greater Perth's rolling annual unemployment rate now seems to be holding firm at just under 6 per cent.

Sydney continues to have the best placed economy, reflected in generally low unemployment rates, especially in its inner suburbs.


Sydney and to a somewhat lesser extent Melbourne have seen their property markets take off since 2012 in response to low interest rates, but where will that growth ripple to next?

In my opinion, we could easily see a spike or "pop" in house prices in Hobart and Adelaide, following so many years of subdued property price growth and a relatively moribund construction industry which has seen rental markets become fairly tight in some cases.

In fact, this "pop" in prices may already be happening to some extent.

However, with low employment growth, slow population growth, and slow economic growth, more sustainable property price increases will be much harder to come by.

Over the course of the next cycle, Brisbane probably has the best property market prospects due its relative affordability.

Despite slower net overseas migration than it previously experienced Queensland benefits from interstate migration (as opposed to, say, South Australia, where a brain drain represents the opposite dynamic).

The unemployment rate has also steadily been trending down in Brisbane, helped by a construction boom.

True, the economy has hardly been firing, even if things are broadly tracking in the right direction.

But the initial trigger for rising property prices is simply likely to be rising property prices, with the cheapest available cost of borrowing having not far off halved since the last time the city saw any price growth in real terms, and interstate investors struggling to see so much value elsewhere.

In fact, dwelling prices are already rising quite fast in some areas of Brisbane, reflected in year-on-year median price growth of above +6 per cent for Brisbane and Gold Coast (CoreLogic-RP Data), but the market is quite multi-speed, particularly with the volume of construction going on.

Regional headwinds

Brisbane offers something that Sydney and Melbourne no longer do, being cheap entry prices.

And if you're looking for cheaper entry prices still and higher initial rental yields you may be tempted further afield.

However, remember that yield and income are not the same thing, and in the field of investment a higher yield can often be reflective of higher risk.

In particular a once-in-a-century commodities and resources construction boom must eventually experience a corresponding decline, and so regions with a concentrated exposure to a narrow range of industries may see a spike in unemployment, which tends to result in slowing population growth, falling property prices, and rising vacancy rates (which is the ultimate risk for leveraged investors).

I don't know much about how Townsville's property market is tracking lately, but do note that unemployment just hit its highest level in 13 years this month after the commencement of the Yabulu lay-offs.

Granted monthly unemployment readings at the sub-regional level are incredibly seasonal and are about as reliable as a beat up Datsun. But this is not a coincidental result with Townsville having witnessed nearly 10,000 jobs lost in just the past year alone, the high profile Nickel industry closure being the latest casualties of the bust.

The latest ABS figures record some 13,100 unemployed persons in Townsville, the highest since a brief spike in February 2003 for the most troubling regional unemployment rate in Australia at 12.4 per cent.

These types of trends tend to be reflected in rising vacancy rates as population growth dries up.

It never pays to over-dramatize, but Warwick Powell (to my knowledge not a man prone to making wildly exaggerated statements) said recently that "the region is on the precipice of a great depression", while economist Colin Dwyer lamented that Townsville is "the insolvency capital of Australia".

The ABS data shows that employment in Townsville has fallen by an extraordinary 20,342 or 18 per cent in only the past year. Let's hope to goodness that is a rogue figure, but it doesn't much look like it from the trend.


A smattering of interesting data due out this week, including private sector credit, and particularly the inflation or CPI figures for Q1 2016.

While interest rates will be left on hold in May, another soft core inflation reading of 0.5 per cent or lower would comfortably leave room for another interest rate cut later in the year should it be deemed necessary.