QLD scraps land tax plans

Land tax wheeze shelved

Most of the local notice boards these days (Sunshine Coast) have been taken up by new arrivals seeking accommodation, with discussions ranging from over-crowded hostels and campervans to sofas and tents.

In this context, it was a relief to hear that the Queensland government has shelved its plans to tax interstate landlords out of the market at a time when Australia's temporary visa holders numbers are set to rebound by 600,000 or so. 

There won't be a quick fix, however, with housing investor applications seeing the taps really turned off over the past 8 or 9 weeks. 

This won't be apparent in the official figures for a few months yet, given the lag in processing times, but today's financial aggregates figures from the RBA point to what's coming.

Housing credit tightens

Overall, credit growth held up in August on heavy business borrowing, albeit private capital expenditure 'growth' is actually negative at the moment, with more building and development firms shuttering by the week (especially in Queensland, for various reasons). 

Personal credit growth - which seems to be much harder to measure these days - has also been in positive territory over the past couple of months, holding up the annual result. 

But, that having been said...

Broad money growth declined to 0.3 per cent in August. 

Monthly investment housing credit has already slowed markedly since July on this financial aggregates index, and will be in further decline over the months to follow. 

Total housing credit growth is already at the lowest level in 7 months, with sharp declines yet to be reported.  

And the housing credit impulse is already in negative territory for a 2nd consecutive month. 

Borrowing capacity has been tightened considerably over the past six months, so there will be some sizeable declines to be reported in these numbers over the months ahead. 

Of course the rapid tightening in policy will see a reduction in the demand for credit from businesses and households going forward. 

The wrap

In summary, in these figures there was simply confirmation of a sharp fall in housing credit, with building approvals having already collapsed, and many apartment projects being scrapped outright.

Economists are calling for a further 50 basis points hike in interest rates from the RBA next week, even though it's clear that in real time activity is already slowing markedly from the hikes delivered to date. 

Overall, then, good news on the land tax being scrapped in Queensland, but there's no end in sight for rental shortages on these numbers, as the hurdles for investors coming into the market continue to rise. 

---

Skilled job vacancies appear to have crested around June 2022...except perhaps in Victoria?

---

When will rate hikes end?

Inflation expectations in the US continue to break new lows now by the week.

As a very distant and outside observer it looks as though the US housing market (and thus in due course the economy) is being absolutely crucified by the pace of interest rate increases. 

And actually there has been a slight easing in Federal Funds rate expectations of late, although the upwards trajectory still remains in place for the time being. 

Pending home sales were down nearly 25 per cent over the year to August, and many of the US housing figures being reported are amongst the worst on record. 

In brighter news, container prices have plunged back to January 2021 levels, while ocean freight rates dropped another 13 per cent this week alone...so inflation pressures are set to come off.

This is an unbelievable -74 per cent decline from the highs, and takes shipping costs back to August 2020 levels. 

10-year inflation expectations have already plunged from above 3 per cent to an 18-month low of 2.19 per cent. 

30-year breakevens have also seen some spectacular downward moves to new lows. Gosh!

For a whole range of reasons, inflation is going to plunge, then, it's just a matter of how soon, and how quickly. 

We might not be at peak interest rate panic just yet...but hells bells, we must be getting close.

Have a super weekend! 

PW

Australia's inflation 'problem' eases

Inflation easing

3 charts from Gareth Aird of CBA, demonstrating how Australia's inflation 'problem' is not getting worse.

Interestingly, Westpac has downgraded its inflation forecast for next quarter all the way down to 0.7 per cent, partly due to energy rebates in September (although the trimmed mean reading is still expected to be 1.5 per cent). 

CBA is still expecting 1.6 per cent headline inflation, but even that result would be lower than the preceding two quarters.

Of course, we still haven't seen the full impact of the 225 basis points of interest rate hikes delivered to date, so there will be further declines ahead too.

Source: CBA

Punters aplenty are making a big deal about the Aussie dollar trading at 65 cents against the US dollar, and the potential impact of this on inflation. 

However, Aird notes that the Aussie dollar has held up just fine on a trade-weighted basis, so there will be minimal impact on imported inflation.

A neat graph from CBA shows manufacturing supplier delivery times and work backlogs also easing, following some big spikes last year. 

And globally supply chain pressures continue to ease, with the container index now in a beautiful freefall. 

Indeed, supply chains easing will become a strong deflationary force next year. 

Overall, Aird's point appears to be that there has been a lot of monetary tightening delivered very quickly already, the impacts of which have yet to flow through, so it's time to throttle back to 25 basis points next month and take stock of the situation.

Inflation to ease over time

In short, supply shocks delivered a nasty spike in inflation, but in real time we're through the worst of it now. 

Fuel price inflation soared alarmingly to 43 per cent over the year to June, but over time annual inflation from fuel prices will naturally now ease its way back to zero (and below).

New dwelling purchase inflation peaked at a punishing 22 per cent in July, but annual inflation in this sector is now also on its way back down to zero as the building boom goes into reverse gear, and as materials become more readily available. 

Fruit and vegetable prices spiked in recent months following the destructive floods in some parts of eastern Australia, with annual inflation peaking at 19 per cent in July...yet now we have an abundance of supply and prices have dropped right back across all manner of produce. 

Going forward the main ongoing inflation pressures are likely to be seen in utilities and rents - with the government floundering on both of these fronts - but overall Australia doesn't have a major inflation or wages spiral problem. 

Indeed, as immigration hits a record high next year, we'll be back to moaning about low wages growth again soon enough. 

Job vacancies (and inflation) easing from highs

Job vacancies head down

Following on from what's already been reported by private date providers, job vacancies fell by -2.1 per cent or 10,000 from record levels to 470,000 over the 3 months to August 2022, according to the ABS figures. 

Although there was an increase in the number of unemployed persons reported in August, the ratio of unemployed to job vacancies is still pretty close to 1:1. 

The quarterly decline in job vacancies was led by Western Australia and Tasmania, with 4 of the 8 states and territories recording a drop over the 3-month period.

New South Wales and Victoria, on the other hand, saw record job vacancies, with NSW clocking in at over 150,000 vacant positions for the first time. 

Importantly, the labour force has increased by 567,000 since September last year, and by well over 1 million from the pandemic lows, and with immigration now ramping up again the peak of the pressures should now begin to ease as housing construction drops away quickly. 

The below graph appears to imply that the unemployment rate could yet tick below the cycle lows of 3.4 per cent seen in July, though the traditional relationship between job vacancies and the unemployment rate has been jiggered by the absence of temporary visa holders. 

There were some 59,100 job vacancies in accommodation and food services in August, and a further 46,100 in retail trade.

So there was still a major shortage of staff in these lower-paid customer-facing industries, but the return of international students and backpackers will begin to steady the ship from here. 

The ABS also released its first Monthly CPI indicator, which showed annual inflation slowing from 7 per cent in July to 6.8 per cent in August. 

There was a big spike in the price of fruit and vegetables in August, noted in the ABS.

Fruit and vegetable prices were highly elevated in August after flooding earlier in the year, but prices have since fallen sharply as an abundance of supply has hit the market in September. 

This confirms suspicions that the retail turnover increase in August was all about food prices - which have since reversed - and not at all about volumes. 

Obviously if there was more flooding later in the year then price pressures would return, but not now.

Excluding volatile items - fruit, vegetables, and fuel - the annual rate of inflation was 6.2 per cent. 

Wages growth in Australia is currently tracking at 2.6 per cent. 

Retail turnover up 0.6pc

Food holds up retail

Retail turnover increased by a slower 0.6 per cent in August, according to preliminary estimates.

The monthly increase was mainly driven by food sales and food industries, including cafes, restaurants, and takeaways.

Non-food retail was mixed, however, and contributed very little to monthly growth.

We'll have to wait and see how much of the increase was due to food prices, rather than sales volumes.

Policy tightening

Not sure this is what will play out, but given the very significant lags in play related to monetary tightening, I reckon there's a decent case for slowing the pace of interest rate increases from here to 25 basis points per month (with an aggressive stance stretching out into the future if needed). 

A lot is being made of the movement in the Aussie dollar against the US dollar. But that's only one currency, and analysis by Westpac shows that a 10 per cent decline in the currency (TWI) doesn't have as a big an impact on inflation as you might think (through food, fuel, clothing and footwear, international travel etc.). 

Unlike the US we don't even have strong wages growth in Australia, let alone the risk of a wage price spiral. 

In fact wages growth at the last count was fiarly limping along at 2.6 per cent, while average ordinary time earnings increased by only a measly 1.9 per cent over the year to May 2022. 

Also unlike the US, most Aussie borrowers are on variable rate mortgages (or in some cases short-term fixed rates) so the transmission mechanism of monetary policy is very different here. 

Net overseas migration into Australia recently hit a record quarterly high according to the latest available population statistics, and the lifting of the permanent migration cap to 195,000 in tandem with the return of hundreds of thousands of temporary visa holders will hugely increase the labour supply over the next year, putting more downwards pressure on wages growth.

So many of the forward-looking indicators in the US (freight costs, crude oil, lumber contracts, other commodities, rents, money supply etc.) are pointing to disinflationary momentum ahead, but having been somewhat humiliated by the spike in inflation the Federal Reserve is continuing on its mission to crush demand for the time being. 

It's increasingly looking like a potentially serious policy error given the brewing housing market shitstorm over there...so hopefully the same mistakes won't be repeated in Australia.

Borrowers in Australia are also currently being assessed with a historically high 300 basis lending assessment points buffer, which is not remotely helping with the chronic pressures in the rental market.

---

For what it's worth, Westpac takes the view that the Reserve Bank will hike by 50 basis points next week to 2.85 per cent, taking the cash rate target above the assumed "neutral" rate of 2.50 per cent, meaning that the slowdown in the pace of hikes will instead follow from the November meeting. 

Michael Murray: Glorious Byron Bay and the Northern Rivers

Property Pod

This week, I was joined by Michael Murray from Byron Property Search, to discuss Byron and the Northern Rivers, how it has changed, why it has become so popular, and the outlook for the years ahead.

We also discussed the recent flooding, and future development implications. 

Tune in here (or click on the image below):

You can also tune in at Apple podcasts, Spotify, and elsewhere.

And you can also tune in at Youtube here:

State of the market Webinar

Webinar rego

Reminder that we're running a free 45-minute state of the property market webinar this week.

Register here (or click on the image below):

Credit Suisse Wealth Report: bumper 2021

Global wealth surge last year

Credit Suisse released everyone's favourite document, the Global Wealth Report for 2021!

Global household wealth increased by a revised estimate of 8.6 per cent in 2020, although this was somewhat inflated by the US dollar. 

In the end, 2021 also proved to be a bumper year for household wealth (using smoothed exchange rates):

The biggest gains in US dollar terms were seen in New Zealand, the US itself, and in Australia.

Of course, some of these gains are being unwound in 2022, and the US dollar has been immensely strong too. 

Not a year goes by without the median wealth per adult figure causing a spate of online fury.

Variously it is argued that Australia's wealth is tied up in superannuation (true), housing (true), and that access to housing is restricted (true). 

There's some truth in all of those points, of course, but contrary to most predictions from a decade ago, the median wealth per adult in Australia has ascended to sit at the top of the pile.  

Australia's mean wealth per adult increased by US$66,350 to US$550,110, but we'll probably never top this table.

Switzerland, with its raft of multi-multi-billionaires, checks in at a mean wealth per adult of US$696,600. 

Australia saw its number of USD millionaires increase by 390,000 to 2,177,000, but the number of ultra-high net worths (>US$50 million) ranked Australia as only the 8th highest country.

Holding on

It's worth noting that there has been a tremendous surge in the number of first homebuyers in Australia over the past couple of years, so the access to housing has been there to some degree, aided by first homebuyer concessions. 

Credit Suisse noted Australia's "stellar performance" way back its 2011 Global Wealth Report, during the headiest of the resources boom years.

The tenor subsequently switched to "resilient" and then later "still resilient" over some of the years that followed. 

It's likely that with the Aussie dollar down at around 65 US cents - and with stock markets and housing prices both down this year - the top spot might well not be held on to next year.

Still, the past decade has shown have even the end of the mining construction boom and the global financial crisis didn't bring the Aussie economic miracle unstuck.

Commodity prices are riding high, too, so if the RBA can navigate the next year successfully the future still looks pretty bright.

Population growth surges back +124k in Q1

Population surge

Some interesting stats from the Australian Bureau of Statistics (ABS), with population growth in the first three months of 2022 roaring back to +124,200.

Source: ABS

In the September 2020 quarter Australia actually saw its population in decline for the first time since the ABS data series commenced 40-odd years ago.

The ABS also went on to report that net overseas migration over the year to March 2021 was negative (-94,300), with tens of thousands more departures than arrivals. 

These have been unprecedented drops in the Aussie population through the pandemic. 

Take a look at the pandemic plunge in temporary visa holders, for example.

As recently as the September 2021 quarter, Australia's total quarterly population growth was still only around +15,000.

But as the borders opened, quarterly growth rocketed back to +124,200 in the first three months of the calendar year - driven by a renewed burst of migration - taking total population growth over the year to March back up to +239,800 (or +0.9 per cent). 

Source: ABS

To date the population pressures have largely been centred upon Queensland, driven by record net interstate migration and a portion of the workforce seeking lifestyle and flexible working arrangements, freed from being tethered to the offices of the Big Smoke. 

The peak of the Queensland upstate migration frenzy has since passed, however, and some of the recent 'blow-ins' and other punters are returning to the southern states now. 

Going forward population growth hotspots will largely be driven by net overseas migration, principally into Sydney and Melbourne, with some COVID refugees also choosing to return from the regions to the cities. 

The wrap

In summary, a surprisingly big surge of entrants came into the country in the March quarter, after the hotel quarantine restrictions had been dropped in New South Wales. 

If you were to annualise the quarterly rate of growth in March then Australia's population growth would very quickly hit 2 per cent, which would represent a scary record high of around ½ million.

That's probably not going to happen, however...at least, not just yet.

The cooler months through the June and September quarters can tend to be somewhat quieter periods of the year for migration into Australia, though the commencement spring term does bring a burst of international student enrolments and arrivals.

Furthermore, many Aussies have headed to Europe over the past few months to get their long overdue travel fix.

That having been said, the return to free travel does suggest that we're about to see some thumping population growth of around ¼ million over the next six months ahead of us, between now and the end of March 2023. 

This has a couple of important implications.

Firstly, the labour force capacity constraints created by the abject lack of arrivals (and huge drop in temporary visa holders) over the past 2½ years will now begin to ease.

And secondly, since new arrivals into Australia are overwhelmingly renters, there will be chronic pressure on rental markets, not least because lending assessment buffers for would-be landlords are still set at a minimum of 300 basis points. 

No wages spiral here...

Salary growth easing

SEEK has developed a nifty new index for advertised salaries this year, looking at the growth in advertised salaries for jobs posted in Australia. 

Annual growth showed a broad-based decline in August, from 4.1 per cent to 3.8 per cent.

Source: SEEK

The slowdown was most in evidence in consulting, sales, and public sector roles, according to SEEK.

The wage spiral appears to be over before it even began in Australia...still sticky.

Antonia Mercorella: This is why QLD needs to repeal its new land tax

QLD land tax

This week I interviewed the CEO of the Real Estate Institute of Queensland to discuss the prospective land tax in the state, how it has been modelled, and how it might be enforced.

Tune in here (or click on the image below):

You can also tune in at Apple podcasts, Spotify, and all the rest.

And, you can listen at YouTube here:

Hitting the buffers

Assessment rates

Cameron Kusher from REA group muses the growing problems associated with the 300 basis points lending assessment buffer. 

An unusually wide assessment buffer might well have been a useful tool when mortgage rates were at record lows and borrowers were piling in with abandon.

But now with 225 basis points of hikes already delivered - and with borrowers acting with an abundance of caution - the buffers have become a hindrance, stymying the flow of credit.

Agreed. I'm currently on the phone to mortgage brokers trying to finance the purchase of a simple rental in Sydney, which is proving to be insanely difficult for what should be a straightforward loan. 

Meanwhile, rental listings continued to fall to a new record low last week, with tightening now being driven the reversal to Sydney and Melbourne, with Brisbane also seeing rental listings drop...while Perth, Hobart, and Adelaide are tightening further to chronically tight levels. 

Source: SQM Research

Immigration is now expected to return population growth towards 400,000 per annum.

As discussed and noted previously, it's time to drop the 300 basis points buffer, as the assessment rate is too high (especially for investors, but also for homebuyers). 

How immigration is impacting Australia's property market

Immigration rebound

I discussed what's going on in the housing market on ausbiz TV here today (or click on the image below): 

Unemployment rate rises to 3.5pc

Employment slows

Employment, full-time employment, and monthly hours worked came in below where they were back in June. 

The unemployment rate increased to 3.5 per cent in August, while the underutilisation rate was flat over the month. 

Once again, there were still a massive 760,000 folks working reduced hours in August due to sickness, which is about double the number you'd typically expect to see at this time of year. 

Hopefully this unwelcome trend is now nearing its end. 

There were 71,000 international students arrivals in July, up from zero a year earlier, so it's clear that net arrivals will begin to alleviate labour market constraints from here, and in due course.  

The latest arrivals and departures figures showed clearly why there will be fewer problems ahead.

The Melbourne Institute also reported today that inflation expectations dropped by 5.9 per cent to 5.4 per cent last month.  

The wrap

The peak looks to be in for the strongest of the labour force data, and the economy will now slow markedly from here given the sharp monetary policy changes working their way through the system. 

Trading updates point to the road ahead, which is to say a sharp slowdown in spending and activity, reflecting low consumer confidence. 

Consensus may be that the RBA needs to pare back the pace of interest rate increases.