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

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Saturday, 24 February 2018

Sydney 2046

Infrastructure vision

Like many getting-a-bit-long-in-the-tooth Sydneysiders, I've increasingly been having recurring daydreams about selling a place at Bondi or in the inner west and trading it for a mansion at Maroochydore (or sometime it's a mooring at Mooloolaba). 

Probably about once a fortnight I have these fantasises, on average, I reckon. 

And then reality bites.

I wake up and find that Infrastructure Australia (IA) has released another report, which always brings me back to earth and reminds me why I invested in inner-Sydney property in the first place. 

Future cities

As ever, IA's Future Cities report presents a range of scenarios.

There's a decentralised scenario which incorporates acres of building and hundreds of thousands of new homes in the south-west.

And then there's a centralised scenario where everyone crams like crazy into zones close to the Central Business District (CBD), and to a lesser extent Parramatta.

And then there's the medium-density scenario, which is a realistic mixture of the two, incorporating population growth across the city and on balance the most likely outcome. 

The scenarios have one thing in common: none of them envisages a Sydney in 2046 with a population of under 7.34 million. 

Although people are expected to live all over Sydney, the share of employment will remain heavily skewed to the CBD and city fringe, and to a secondary extent Parramatta. 

And there's a great deal of consideration of how people will get around with millions of extra people in essentially the same amount of space (as an investor, I've always gone for train links to the City or walking distance from the Sydney CBD). 

Nobody can predict the future, but one thing I will hang my hat on is a massive ongoing demand for rentals close to the middle of Sydney. 

From the horse's mouth...

'Between 2017 and 2046, Australia’s population is projected to increase by 11.8 million people. 

That’s equivalent to adding a new city, roughly the size of Canberra, each year for the next 30 years. 

About 75% of this growth will occur in Sydney, Melbourne, Brisbane and Perth.'

Population growth is a central driver of this change. 

In the next 30 years, Sydney’s population is projected to increase by 2.4 million people, growing to be a city of 7.4 million. 

Over the same period, Melbourne is projected to grow by 2.7 million people, to be a city of 7.3 million. 

Between now and 2046, Brisbane is projected to grow by 1.6 million people and Perth by 2.2 million people, delivering cities of just under 4 million and 4.3 million, respectively.

This means the Brisbane and Perth of tomorrow will become cities the size of Melbourne and Sydney today. 

While Melbourne and Sydney will become cities comparable to the current size of some of the world’s most significant urban economies, operating more like the Hong Kong, New York and London of today.'

More jobs & growth

More jobs

We've seen plenty of evidence that the labour market is picking up through 2017.

And that continues in 2018, with the trend skilled vacancies now heading up for 16 consecutive months. 

Skilled vacancies increase by +10.6 per cent to 183,600 over the year to January 2018, according to the Department of Employment after notching yet another monthly gain. 

The index is now +31.4 per cent or +43,900 vacancies higher than at the October 2013 low point and rising solidly. 

There were robust gains around the states, although the trend for South Australia has been meandering a bit. 

Easier to find work

The median duration of job search also now looks to be falling. 

The fastest city to find a job in has been Sydney for some time (now down to 9 weeks in January), but Melbourne (9 weeks) and Brisbane (9 weeks) also joined Sydney this month. 

Job search figures are highly seasonal, so this will be a trend to watch as 2018 rolls on. 

At the other end of the scale, while it took under 5 weeks to find a job in Perth at the peak of the mining boom, that number has been rising over the past decade towards 19 weeks on an annual average basis. 

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Friday, 23 February 2018

Brisbane Biz - Bubbles, Budgets, & Betting | An Exclusive Interview

Brilliant video with Dan Petrie of DataDigger and Stephen "the Kouk" Koukoulas of Market Economics. 

Best earnings growth since 2014 (led by NSW & QLD)

Pay gap closing

It's been a pedestrian half-decade for salaries, especially if you're a man.

And that continued in 2017, with the average pay for males growing by about +2 per cent for ordinary time earnings. 

An awful lot of energy is directed to blaming immigration for this, but as with many other data releases the figures have generally followed a pattern of being very upbeat before the peak of resources construction, and then far more modest as we've come down the other side. 

That's particularly been the case in the resources states such as Western Australia, South Australia, and Queensland where average earnings growth was very strong up until 2012, and then cooled. 

This dynamic is perhaps most evident in full-time male total earnings. 

At the sectoral level, unsurprisingly mining was the weakest performing industry, with earnings essentially flat over the year to November 2017 - or down in real terms - although mining remains the highest paid sector of the economy with an average wage exceeding $134,000. 

The next highest paid roles tend to be in IT, where the average wage is now approaching six figures, and finance & insurance at just over $97,000. 

Pay gap closes

There was somewhat brighter news for female earnings, which grew by about +3 per cent, helping to close the pay gap slightly. 

Consequently the ratio of female to male earnings is now at the highest level in almost a dozen years, although clearly the gap remains substantial. 

Healthcare & social assistance pay was a significant part of this story, but females also saw real pay increases in financial services, science & tech roles, real estate, mining, and construction. 

The wrap

Earnings growth was still modest for males, but the increase in female earnings lifted the overall growth in average weekly earnings to +2.4 per cent over the year to November 2017.

That's the best result since late 2014, which represents further evidence of a steadily improving outlook, with the average wage rising to $81,619. 

The encouraging earnings growth was seen in New South South Wales (+3.3 per cent) and notably Queensland (+3.1 per cent), where wages are now rebounding. 

In South Australia the average wage declined in nominal terms as the state has struggled to create productive employment and is suffering from a brain drain to Melbourne. 

Thursday, 22 February 2018

Sydney unemployment rate keeps falling

Sydney tightens

Sydney's annual average unemployment rate fell to just 4.58 per cent in January 2018.

The annual average has been lower, in 2008, when the unemployment rate briefly snuck below 4.2 per cent. 

In Adelaide the annual average fell to 6.49 per cent, in Perth it fell to 6.14 per cent, and in Melbourne to 6.1 per cent.

So there have been some improvements. 

However, only Sydney has anything remotely approaching a tight labour market on this evidence. 

The good news for Queensland is that both hiring and participation are picking up.

And it's happening not just in Brisbane, but right across the state.

Cairns and Townsville in particular are also now recording stronger rates of employment growth, after the downturn.

Meanwhile the coastal Queensland locations such as Gold Coast and Sunshine Coast have been improving for some time on the back of the lower dollar. 

Queensland high-rise boom unwinds apace

Apartment building slowing

Residential building work done for non-houses dropped by some 25 per cent in Queensland in 2017.

And this construction trend will continue in 2018 as the sector continues to rebalance towards equilibrium.

Not quite so many cranes expected in 2018 then, at least in the residential sector! 

As construction slows Brisbane's apartments are gradually filling up, as I looked at in a bit more detail here, but it's taking time for the stock to be absorbed.

The figures for engineering construction have been all over the show across recent quarters with some wild spikes in Western Australia due to the import of LNG platforms.

Looking at the smoother trend figures brings positive news.

Post-mining boom engineering construction is no longer dragging back the economies of Western Australia and Queensland, paving the way for an economic recovery for the resources states. 

Good to see.

At the national level residential building work done fell by about 5 per cent in 2017 as supply and demand look to swing back into balance.

However, this was more than offset by the rebound in engineering construction and a range of infrastructure & other non-residential projects

Overall, total construction work increased by a just under 5 per cent to sit at more than $50 billion last year. 

Wednesday, 21 February 2018

Wages improve at a painfully slow rate

Wages up a bit

Wage prices - one of the most keenly anticipated releases of the year! Let's take a run through it in half a dozen charts. 

Firstly, quarterly wages growth came in above market expectations at +0.6 per cent.

And the annual rate of wages growth rose for a second consecutive quarter to +2.1 per cent. 

So that was a mild positive. 

Yet it says something about how low expectations have fallen when the Aussie dollar cheered a result within which private sector wages increased by just +1.93 per cent in 2017. Ouch.

Public sector wages growth was notably stronger at +2.44 per cent. 

Both sectors have picked up from previously softer levels, while public sector wage prices have outpaced the private sector since 2013. 

At the state level Victoria is now in pole position with wages growth of +2.4 per cent.

This doesn't fit entirely squarely with the meme that immigration is to blame for low wages growth (since Melbourne has by far and away the highest rate of population growth in the country), albeit the rebound was largely driven by pay deals in the public sector. 

Wages growth in Western Australia is off the mat and lifted a little to +1.5 per cent, but the Northern Territory is sagging with wages growth dropping to just +1.1 per cent as the growth in both the real economy and the population of the territory stagnates. 

Wage price growth in Queensland (+2.2 per cent) and New South Wales (+2 per cent) was back in the pack.

The big picture is that in nominal terms wages are growth at about half the rate we saw before the financial crisis. 

Interestingly, Western Australia also saw electric wages growth when its population was booming, and the state has recorded the strongest wages growth over the two decades of available data. 

At the industry level mining sector wages (+1.4 per cent) are still acting as a downdraft, while retail trade and real estate wages were also very soft in 2017. 

Healthcare and social assistance, which has been the major growth sector for employment in recent years, saw the strongest wages growth at +2.8 per cent. 

Finally, wages growth has comfortably outpaced the cost of living increase for a long period of time, but lately the figures imply that this may not have been the case for many workers in the private sector. 

The wrap

While a second consecutive lift in annual wage price growth will generally be greeted as a positive sign, there is no getting away from the fact that private sector wages growth continues to track at extraordinarily soft levels. 

I guess if you were being optimistic you'd say that things are looking up, and the numbers do support that view, but it looks to be a bit of a slog ahead. 

3 mottos for a growth mindset

Find them here (& why the growth mindset is critical).

Tuesday, 20 February 2018

Vacancy rates drop in January

Rental vacancies tighten

I've noticed many rental properties letting much more quickly in Brisbane in recent weeks.

Whether or nor this is the beginning of a trend for 2018 remains to be seen. 

SQM Research reported that nationally vacancy rates tightened from 2.5 per cent to 2.3 per cent in January, partly due to the seasonal variation over the Christmas period. 

In Sydney the vacancy rate fell from 2.6 per cent to 2.3 per cent in the month of January.

However, that's still higher than the 1.9 per cent recorded a year earlier.

Indeed, smoothing the numbers on a 6mMA basis you can see that Sydney's rental conditions have been easing, and rental price growth may now moderate from here. 

Hobart's vacancy rate increased to 0.4 per cent in January, but a severe rental shortage in the Tasmanian capital is putting continued upwards pressure on rents. 

Canberra also recorded a tight vacancy rate of 0.9 per cent in January, with Adelaide at 1.5 per cent, and Melbourne at 1.8 per cent. 

The trend in Perth's vacancy rate, although still elevated, is also improving. 

Monday, 19 February 2018

Filling up (Brisbane apartments)

Cranewatch redux

I've done lots and lots and lots and LOTS of posts about the statistics behind Brisbane's apartment building boom.

When all's said and done Brisbane construction and apartment pre-sales are slowing up, while population growth into Brisbane is picking up strongly.

All that remains to be seen, then, is how quickly or otherwise the new flood of supply is absorbed. 

Here's a short blog with no statistics at all, just some photos from a major construction hotspot: Newstead. 

What was previously a great big planning hole, is now home to apartments, a supermarket, shopping centre, bars, and restaurants, all within easy walking distance of the Teneriffe ferry terminal, and a very short distance of the Central Business District (CBD) of Brisbane. 

I go to Newstead for a coffee most mornings these days - there's quite a bit going on around the gasworks area, not least in terms of cranes and construction! 

While other cities already have many attached dwellings, this style and scale of development is relatively new for Brisbane, and is resulting in a record uplift to apartment stock. 

There is still a fair amount of construction work ongoing, although the bulk of the new volume is either now completed or close to being completed. 

The large tower block in the centre of shot - Haven Apartments - only completed in October, so there are still plenty of rentals available here.  

Some of the apartment construction still underway - to the right of shot, Aveo, has yet to complete.

That said, Aveo is targeted at a different demographic, being retirement living, and arguably there is far more of a need for this type of development as opposed to the generic investor stock.

As an aside, isn't that one smug-looking Baby Boomer?!

There are some other more boutique blocks yet to finish around the old gasworks.

And Mirvac has its Unison/Waterfront stages close to the Brisbane River with some of its 2- and 3-bedroom apartments yet to be sold.

As suggested by the faded signboards, these stages have been a little while coming.

In saying that, there are many things to worry about in Brisbane's apartment market, but Mirvac's developments are not one of them.

Mirvac has earned a well-deserved reputation for delivering high-quality stock with great appeal to homebuyers, and this location will doubtless be no different.

Filling up

You can study charts and statistics until the ink falls off the page, but there's nothing quite like going for a look around, especially the old 'lights on' test. 

Some photos, then, from Sunday night at 7.30pm.

Of course, the nature of apartment living at weekends is that not all lights will be on, as people eat out more than they used to, and so on. 

But it's not a bad indicator, especially when you compare to blog posts from a year or two ago, when all I was shooting was essentially empty balconies with no furniture, or indeed any signs of life at all. 

As you can see to the left of shot, Haven still has some empty apartments on the rental market.

But for a block that settled only a few months ago, it's clearly filling up. 

Zooming in the shot a little, the occupancy rate looks to be in reasonable nick, all things considered. 

The 2016 Census showed that second only to Sydney, Brisbane had the lowest rate of vacant dwellings on Census night, which might surprise a few people.

Hang on that's a statistic, and I said I'd avoid those for this post. 

We know from previous cycles in other cities that when there is a surge in completions then vacancy rates can spike, the question is how long for? 

Haven apartments from the front.

Spinning the shot around 90 degrees or so to the left, the dark matter to the right of shot is Aveo, yet to be completed. 


As for the amenities, they are absolutely buzzing with activity, even quite late on a Sunday night.

Restaurants, cafes, bars...all packed out.

I visited a couple of bars last night (for research purposes only) and they were absolutely pumping with activity, with families, older types, and actual real-life young people out enjoying themselves. 

More than anything else this cements in my head that Newstead will be a success over the next couple of years, at least as a concept, even if apartment rents and prices are soft.

Haven from the rear.

New mid-sized blocks yet to complete (more dark matter).

The old gasworks, lit up Brisbane-stylee.

Overall, this has become something of a place to be.

The wrap

While Brisbane's apartment market is generally discussed in negative terms, there is also much to be positive about here. 

It's absolutely true that too much generic investor-targeted stock has been built, including 60 square metre apartments, or blocks built close to busy highways and sold to interstate or international investors. 

But in saying that, city-wide apartment rents have eased, and both young and older people are clearly centralising. 

Brisbane has more than its fair share of decrepit housing stock, and in turn the new construction is forcing landlords either to improve what they offer to the market or hand over their rentals to homebuyers (or to developers that will invest in improving it). 

There are so many people relocating up to Brisbane now or immigrating from overseas that the apartment market looks set to rebalance as new unit construction grinds to a halt. 

With apartment rents starting anywhere from the high $300s/week, it's not that much of a surprise that folks are shunning older stock in suburbia for walkability and proximity to the city lights. 

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