I'll tumble 4 ya...

No inflationary pressures

The iron ore price hits its lowest level in 4 months in light of new restrictions in Tangshan on sintering and pulverising. 

Now trading at just $58.75/tonne, the 62% Fe Fines benchmark spot price for iron ore has been crunched by 27 per cent since the August highs. 

Another soft indicator!

With index re-weighting threatening to pull core inflation further below the target range, cash rate futures markets are gradually waking up to reality.

And with Amazon and other international entrants set to disrupt the Australian market forthwith, significant price pressures in the retail sector appear most unlikely to materalise over the years ahead.

Over-estimating the rate of inflation has not only been plaguing Australia's central bank in recent years, it's been playing out all around the world.

Still, it'll be very interesting to see how the Reserve Bank pitches its inflation forecasts in light of last week's soft report.

I looked at the report for the September quarter in just a little bit more detail here.

Even the moderate rate of inflation had little to do with wages picking up, being lifted by electricity and gas prices, and taxes on tobacco. 

Futures markets are still pricing the next move in the cash rate as being up, just not for quite a while. 

Down payment blues

Construction

It's been a remarkable few years for dwelling construction in Queensland, especially for high-rise apartments, but the boom times for development are drawing to a close. 

The amplitude of this cycle has been on a par with Queensland's dwelling construction boom of 1994.

Back then about a quarter of dwellings built were multi-units, but the ratio has twice as great this time around, accounting for more than half of the total by 2015. 

With lenders now tightening deposit requirements for apartment buyers across a swathe of inner Brisbane postcodes, as well as developer insolvencies peppering the newswires, there's no doubt that dwellings starts for apartments will continue to drop precipitously from the latest reported numbers. 

On the positive side, the most timely population estimates suggest that both interstate and net overseas migration are swinging sharply in Queensland's favour, so this should help to mop up the excesses over time. 

Tenants are centralising and moving in too, slowly but surely.

Still, it's clearly going to be a renter's market in 2018, and, if my inbox is any kind of worthy indicator, there's going to be some material discounting on unsold new apartment stock. 

Investors with the means should keep a watchful eye out for bargains next year. 

Empty nests

There's been plenty of spirited debate concerning how many apartments in Australia have been deliberately kept empty by investors from the Chinese mainland. 

No doubt this has been a factor in today's markets, with the Census confirming that nearly 1.1 million dwellings were empty on Census night (about 11 per cent of the total), while many more are under-utilised.

Interestingly, though, only Greater Sydney (7.3 per cent) had a lower vacancy rate than Greater Brisbane (7.6 per cent) on Census night, according to the official ABS figures. 

Moreover, more in-depth research by Terry Rawnsley of SGS Economics & Planning unearthed that the reasons for dwellings being unoccupied were both varied and plausible.

For the stock constructed over the four years to 2016, the national vacancy rate on Census night increased to 17 per cent, so arguably there may have been a growing trend towards leaving new apartments vacant.

For some perspective, though, a quick Google Maps scroll over the growing cities of China suggests that anything happening in the empty apartment space in Australia is comparatively speaking small fry!

Weekend reads: Must see articles of the week

Summarised for you here at Property Update.

Lay of the land

Land prices soar

How much is Australia's land worth?

The answer is about $5.8 trillion, according to the latest Australian Bureau of Statistics (ABS) figures for the 2017 financial year.

That's well over 3 times the level of Australia's GDP of around $1.7 trillion. 

And, at just under $4.8 trillion, about 83 per cent of that dollar value related to land zoned for residential use (up from just 63 per cent in 1989, when the data series commences). 

Of course, the ABS figures are quite rightly presented in current prices, and do not attempt to account for the twin impacts of inflation and Australia's significant population growth.

Nevertheless, the figures do show why individual or 'Mum and Dad' investors are drawn towards residential property over commercial investments.

Since the population is growing and everyone needs somewhere to live, there is more competition for residential land - especially in the big capital cities - and therefore values have risen over the long term. 

At the state level, the strong 5-year uplift in residential land values has mainly been driven by New South Wales and Victoria.

Again, these are also the states generating the bulk of economic activity and population growth, so that's to be expected to some extent.

But even accounting for population growth, the uplift in nominal land values was once again huge during the 2017 financial year, with total residential land values rising by about 16 per cent in each of the most populous states. 

As you can see in the above chart, the value of land zoned for housing has all but increased by a lazy couple of trillion dollars through this cycle to date.

In Victoria the total value of residential land sits at about $1.3 trillion, and in New South Wales the figure is now approaching $2 trillion. 

The total value of residential land in both states has comfortably more than doubled since 2009. 

On the other hand, one jurisdiction has seen the total value of its residential land in decline since the 2014 financial year as the resources boom years faded: the Northern Territory. 

Isentia crashes again

Crashed down by another 41 per cent today on another trading update.

Sad news for shareholders that were encouraged to pay such an expensive price for a stock.

Magnetic north

Unemployment ticks down

There's been no shortage of people on hand to announce that the end of the world is nigh for Sydney. 

Perhaps it is, but no-one seems to have gotten around to telling the Greater Sydney economy just yet, as employment growth continues to surge and the city's annual average unemployment rate just keeps on falling, and falling...and falling, towards historic lows. 

The median duration of job search in Sydney has tightened to 13 weeks in September 2017, down from 18 weeks a year earlier.

There have also been notable improvements in the unemployment rate in Adelaide and Hobart lately.

Magnetic north

Perhaps the standout statistic from the detailed labour force figures, though, has been the synchronised upswing in Queensland employment. 

Now the monthly numbers are noisy, there's no question about that, but even when plotting the figures on an annual average basis you can't help but notice the rebound leaping off the chart at you.

Brisbane's recent employment growth has been punctuated mainly by part-time jobs. 

But one more pleasing thing to see is that the state's full-time employment rebound has been spread widely across the state, from the Gold Coast to Toowoomba, and up to the Sunshine Coast, Mackay, Townsville, and even Cairns up in the far north. 

In aggregate, Queensland's regional employment growth is now tracking at levels not seen in a decade. 

Queensland now finds itself in the dizzily unfamiliar position of having added about 99,000 jobs on a net basis over the year to September 2017, around 57,000 of which have been full-time positions.

This is not to downplay the impact of the mining downturn on a number of prominent cities and regions - which ranged from tough to downright severe - but there's been an notable improvement in conditions.

Today's export price figures give one useful clue as to why: coal export prices in the September quarter are still levitating 62 per cent higher than a year earlier.

There has also been a marked drop in the unemployment rate in Cairns, which looks to be in the best nick for a decade, supported by the lower dollar.

Follow the figures

Rest assured, there's always someone on hand to note that the numbers must be wrong or misleading.

Look, possibly.

So be it, statistics can certainly give false signals, but equally, the plural of anecdote is not data - if there's one thing I learned from the Sydney boom over the past decade it's that people can miss out on big trends by tuning into background noise. 

To date, there's been a good deal of road building and dwelling construction in Queensland, and the tourism sector has been thriving in certain parts.

It'll be interesting to see if the recovery becomes more broad-based through 2018...

Missing: one inflation target!

Inconvenient...strewth

Bill Evans of Westpac put out a prescient note last week entitled "Inflation - an inconvenient truth", detailing why inflationary pressures would likely remain soft, possibly with a slowing momentum.

His conclusion was that rate hikes were neither an attractive nor a necessary option given current conditions. And, by no means for the first time, how prophetic his warnings proved to be! 

Headline inflation undershot expectations coming in at a decidedly limp 0.6 per cent for the September quarter, in spite of the expected surge in energy costs (electricity prices shot up by 8.9 per cent in the quarter). 

It's always worth remembering that although inflation is typically reported as one figure, while some things may be getting more expensive, others often aren't. And quite a lot of consumer prices are getting cheaper right now. 

Food prices fell this quarter, for example, as the recent run-up in the price of vegetables eased, while fuel prices also declined, as did all those items categorised as 'communication'. 

The annual headline rate of inflation dropped back to just 1.8 per cent, with an array of consumer items now sitting at their cheapest level in decades, including cars, televisions, phones, computers, and some clothing.

You can see some of the competitive pressures for yourself in the retail sector - just have a stroll around a few household goods stores and take in the vibe - and there doesn't appear to be many suggestions that significant pricing power will be returning to retailers any time soon.

Missing in action

The analytical or underlying measures of inflation were also weak and very weak respectively, printing at the meagre average of just 0.35 per cent for the quarter, meaning that the core rates of inflation are also tracking well under the target range, both in quarterly and annualised terms.

In fact, inflation has been under the target 2 to 3 per cent range for eight consecutive quarters now, normally a sign that monetary conditions have, if anything, been too tight.

If you were being generous you might argue that at least underlying inflation hasn't decelerated year-on-year in the September quarter, but regardless it's yet another miss, with possible downside risks to the next quarter.

Tradables deflate

Tradables inflation is, well, not inflating...

Granted, there was a bit of a lift in non-tradables inflation to 3.2 per cent over the year, although this had very little to do with stronger wages, the rise being largely driven by electricity and a good old 'sin tax' on 'baccy.

Rates on hold?

Overall, this was another soft result, which makes the talk of rate hikes any time soon look to be wide of the mark, not least because prospective revisions to the index weights - the weights being reviewed every six years - may yet trim a couple of further percentage points off the rate of inflation (some analysts think more).

The most likely outlook appears to be the cash rate remaining on hold over the next year, although surely at some point we must due an negative employment report or two, which might just spice things up a bit. 

Rents also remain soft

At the national level rents were only 0.5 per cent higher over the year to September, which represents the slowest annual pace of rental price inflation in 23 years. 

Again this masks wide variations within the sub-indices, with rising rents in some cities - most markedly Hobart - offset by year-on-year declines in Perth and Darwin, with Brisbane now finally joining the declining rents party, as discounted apartment rents are at last reflected in the official statistics.

In Sydney record levels of apartment building have slowed the pace of rental price inflation, though nothing more than that. 

Indeed, rental price inflation in Sydney remains well ahead of the consumer price index for the harbour city, as accelerated population growth has absorbed the new supply.

Rents in Sydney have been outpacing CPI over the course of more than a decade, according to the ABS figures. 

Exodus!

Census findings

Further interesting news from the 2016 Census has been released.

Some of it is rather open to interpretation. For example, there was lower employment in the younger age bracket, comprising 15-24 year olds.

But, on the other hand, 22 per cent of the population now have a degree or higher level of qualification. 

That's up +3.2 per cent from 2006-2011, replicating the same percentage increase as five years earlier, according to ID, the population experts.

Employment opportunities were certainly curtailed by the financial crisis and resources downturn, but we're also studying longer, so it's a somewhat mixed picture.

Exodus!

Similarly, there's quite a bit been said on the apparent mass exodus from Sydney.

Again, there's a strong element truth to this story.

But it's equally important not to take away the wrong visual image from this. 

The fact is, New South Wales always loses people interstate, and it always will, largely to Brisbane, south east Queensland, and even to Melbourne.

In reality, though, the numbers leaving the state on a net basis were dramatically lower in the 2011-2016 Census period than they were in the preceding five years.

And they were much, much lower than they were in the five years before that, with net interstate migration tracking at way under the half the rate of seen from 2001 to 2006.

To the regions...

Now it's true that more people, especially Baby Boomers, have been taking their newly-boosted Sydney equity to move out to regional New South Wales, such as to the Hunter Valley, or to the South Coast.

However, this has been offset by a marked increase in immigration to Sydney, as migrants seek employment opportunities.

The harbour city of Greater Sydney is growing at a faster pace than previously, probably now at somewhere close to 100,000 per annum, which is well ahead of the decade average.

This will presumably continue for as long as Sydney continues to create record job openings. 

The net impact of this dynamic - high immigration and resident Sydneysiders moving outwards or interstate - is that Sydney has a substantial foreign-born population (which now comprises more Chinese-born residents than British-born, a remarkable statistic in its own right).

There's plenty of disingenuous 'analysis' of the capital city economies, focusing on resources exports and ignoring services exports, for example, while also ignoring Australia's record levels of household wealth and the comparative improvement in standard of living for so many immigrants.

The Productivity Commission ("PC") has delivered another long report on the importance of the large cities to Australian wealth, and why services industries and employment growth fare best within them, in part due to proximity to other businesses and labour supply.

The fact is that over the most recent year Sydney (38.6 per cent) and Melbourne (28.4 per cent) have unsurprisingly dominated contributions to Australia's GDP growth, according to analysis by Terry Rawnsley of SGS Economics & Planning.

Challenges abound

All of the above having been said, it's reasonable expect to see interstate migration to south east Queensland accelerating again over the next five years.

One of the most noteworthy challenges identified by the PC is that about 60 per cent of new jobs are created within 10 kilometres of the Central Business Districts, but housing supply in those locations is not keeping up with this pace of growth by about half.

The PC found that most jobs that can be reached within 45 minutes by car are located in the inner city, while on the city fringe this is the case for fewer that 20 per cent of jobs.

By 2050 an additional 10.8 million people are projected to be living in Australia's capital cities, as well as an extra 2.4 million people in the non-capital city areas.