Busting the property bust myth

If you’ve been reading my property investment blogs, you’ll know that I feel confident in the long term prospects of our property markets which will be underpinned by the dual prongs of a growing population (that will require housing) and a wealthy nation (that can afford to pay for it).

I know some commentators are concerned that our economy will slump as the resources boom slows down and some doomsayers are gloating that the property market has fallen for 2 consecutive months.

But I see it differently… we’re entering a new economic stage. A period of continued prosperity, albeit at a slower pace. One that’s underpinned by a generally buoyant economy.

It’s much more than just resources…

Sure the construction phase of the resources boom is coming to an end and other sectors of the economy will have to step up.

And yes… our economic growth will slow down a little over the next few years which will keep interest rates and inflation low.

But it’s not all doom and gloom.

Government analysis last year suggested that over the next five years we’ll need an extra 800,000 workers to ensure our continued economic growth as a surge in service industries eclipses the resources boom.

This means there is a looming structural shift in the jobs market as demand grows for professional skills, offsetting the expected loss in the manufacturing sector.

A regional shift is forecast as Queensland outstrips other parts of the country in job-creation, adding 220,000 positions compared with about 190,000 in NSW, 180,000 in Victoria, 150,000 in Western Australia and 50,000 in South Australia.

Countering assumptions about our economy slumping as the resources boom slows down, the findings of the report show the service industries will need more workers than any other part of the economy.

While mine companies will need about 100,000 new workers over the next five years, healthcare and social assistance employers will need 240,000 staff and professional services companies will require 110,000.

Education, tourism, retail and financial services will also create new jobs as the manufacturing sector shrinks.

The forecasts come with danger signs, as 19 of the 20 strongest job categories require qualifications higher than secondary school.

“The structural change in the Australian labour market and the significant shift towards higher skills occupations will limit the opportunities available to job-seekers without appropriate levels of qualification, work experience and employability skills” the analysis says.

 

What about our aging population?

At the same time we need more workers as our population is ageing and in many ways this could provide a greater challenge for us than population growth.

Overseas demographer Harry Dent caused a stir when he suggested that our aging population and their lack of spending is going to cause the next depression. The fallout of a Baby Boom gone wrong has been witnessed in Japan, where the number of retirees escalated beyond the number of working age citizens and had a notable impact on their local economy.

Dent suggested that Australia is facing its own demographic tsunami as more of our Baby Boomers hit retirement age.

Again I see it differently… we are going to have to populate or perish.

Look at the facts…today 43% of our workforce is made up of Baby Boomers (people born between 1945 and 1964).

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The Baby Boomer Crisis…

Think about it…Australia is on the crest of a demographic tsunami as Australia’s 5.3 million Boomers are going to reach retirement age over the next 15 years.

The country’s money box faces a double whammy as these Baby Boomers leave the workforce and stop paying tax, yet at the same time many will go on the pension and use our public health care system.

The problem is that most Baby Boomers don’t have enough savings or superannuation to see them through retirement.  This means many will have to keep working longer than they had anticipated but eventually, when they do retire, they will place a massive burden on our financial system.

The Government will have to find the money for their pensions and health costs while at the same time making up for their lost taxation revenue by either:

  • Increasing taxes for those in the workforce, which would be political suicide. Or…
  • Increasing the size of the tax paying workforce by importing younger workers. These young skilled adults that will migrate to Australia to fill our increasingly wide gap in skilled labour will be gainfully employed and, given their skills, will earn high incomes and pay their share of tax.

Fact is Australia’s population will keep getting bigger under every realistic scenario and no matter what politicians do, population growth is going to happen. This is a certainty.

What does this mean for Australia?

There is no doubt that our population growth will bring with it significant social, infrastructure and environmental impacts.

In Australia at present, 87 per cent of us live in urban areas; with an obviously emerging trend toward smaller dwellings and inner city lifestyles more of us are going to be concentrated around our major capital cities.

With more and more of us wanting to live in the same 4 big capital cities, and in fact in the same suburbs of those capital cities, our old friend the supply and demand ratio will keep pushing up the value of well located inner suburban properties.

Sure these properties will be unaffordable for some of us who’ll remain tenants. But others will be able to afford these higher priced properties, as I don’t think that anyone would argue that as a nation Australia become wealthier over the next few decades.

The good news is that by many accounts Australians are already the wealthiest nation in the world and if we play our cards right, this is likely to continue as Australia is well positioned to benefit from the growth of Asia, which represents 50% of the world’s population.

The good news is that by many accounts Australians are already the wealthiest nation in the world and if we play our cards right, this is likely to continue as Australia is well positioned to benefit from the growth of Asia, which represents 50% of the world’s population.

Yes our economy is slowing down, and of course there will be speed bumps along the way, but our economy is still the envy of most developed nations.

It’s most likely we’ll have a change of government later this year but they will inherit a particularly good set of economic fundamentals. This means Joe Hockey will likely be able to deliver much the same in their first term in government.

If he can keep GDP growth near 3 per cent, underlying inflation around 2.25 per cent and the unemployment rate around 5.5 per cent then we’re likely to remain in a low interest rate environment.

The bottom line is that our economy is going to soldier on, as are our property markets. I can’t see a bust ahead for either!

 

What does this mean for you?

If you want to take advantage of the opportunities our growing property markets will offer you now is a good time to consider your options.

The problem is that with so many mixed messages out there about what type of what makes a good property investment it’s hard to know who to listen to.

It’s hard to know who to trust.

If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level. Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.

Just click on this link to find out more and reserve your place.

Of course I’ll keep you up to date with how to take advantage of the changes happening in our property markets in future updates, but as so much is happening in property nowadays I’ll keep you updated almost every day with a short post in my blog –just click here and subscribe to it – that’s a different subscription to my regular newsletter – it gives you my short daily updates.

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About

Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Busting the property bust myth' have 2 comments

  1. June 13, 2013 @ 10:24 pm HAILY B

    Thanks for this Michael.
    It’s great to receive your uplifting newsletters. There are so many doomsayers out there, just hoping the property market will crash.
    Not sure why they want it to- maybe they’re jealous of those of us who had to work hard and save and buy a property and wait for time to work it’s magic.
    keep up the good work!

    Reply

  2. June 13, 2013 @ 10:28 pm Michael Yardney

    Thanks for the kind words Haily.
    Yes, there have been doomsayers for all the years I’ve been investing.
    I’m trying to be realistic rather than just optimistic

    Reply


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