“Go” & “No” zones | Michael Matusik

When it comes to jobs…Queensland is starting to look downright ugly, which is a bad omen given the coming state election and given that three large LNG projects, which employ thousands, are due for completion next year.

South east Queensland residential recovery/upturn….yes (and a very mild one compared to past cycles)…. but no boom!

You need full-time jobs and lots of them to create sustainable housing heat.”

Now, new jobs have been created across Queensland in recent years, but much of them have been part-time employment.

There are very few new full-time positions being created.

Right now

Since Christmas, I know of five local businesses near our office (in Brisbane’s west) – several were quite well established operations – that have closed.

Also, several local internet/digital firms have already told me that 2015 has started with a bang for them, as existing businesses try to jump start sagging business conditions that many experienced in the latter part of last year.

I do think we entered a ‘recession’ – maybe not a technical one – around September 2014.

At the coal face, business conditions – especially for small operations – remain very hard, indeed.

Also, those digital boffins tell me they are being approached to design up new websites and the like for a range of new ‘consultancies’, which is really feeble code for recently ‘retrenched’ employees.

Lower interest rates

Yes, lower petrol prices should be stimulatory and a lower $A apparently offers promise, but employment growth – especially full-time work – remains lacklustre not only in Queensland, but elsewhere too.

I am not surprised that the RBA dropped interest rates today, given sluggish employment growth, world deflation and a deteriorating world economic outlook.

Many regulars know that we think rates might need to fall several times over the next 12 to 24 months.

The economy, stupid

Campbell Newman was right about one thing.

In his concession speech he said, “We live in uncertain times.” Many Australians are anxious about the future.

They see mining waning, feel we can’t compete with Asia on manufacturing and understand the budget is broken.

They wonder what is going to sustain the country. At a personal level, the cost of living is a struggle.

It is still a highly aspirational country, but many now doubt whether their aspirations will come true.

Whilst it isn’t our position to comment on the Queensland election result, part of the reason for the large swings against the Queensland LNP was surely about jobs; more pointedly, the lack of them.

Bill Clinton’s 1992 campaign manager summed it up well – “The economy, stupid.”

And yes, it’s really all about jobs.

New jobs & property

We spend quite a bit of time analysing employment trends when undertaking our consultancy investigations; market outlook reports & especially our project advisory work.

We have discovered a strong link between a property market’s long term performance – price & rental growth; growing demand etc. – and new job creation. The more work created in an area – especially if its creation is somewhat consistent, rather than a distinct boom-bust pattern – the better.

As our first chart shows, new job creation typically is cyclical in nature, but some markets – think of a regional town, for example – can be very wavy, indeed.

Our second chart shows that – in most instances over the past 15 years – new job creation has a positive impact on a housing market.

Typically, this impact takes about a year to be felt.

The annual price growth line in our second chart has been brought forward by 12 months to better illustrate this trend.

In short, you need a job to pay the mortgage; buy an investment property (usually) and to pay the rent.

Moreover, new jobs need to be consistently created in an area (with rising wages) in order for the local property market to show long-term capital gains.

Our third ‘chart’ spots Queensland regions in various positions of employment strength. Some are growing above long-term trend, whilst others are falling behind.

“Go” zones

Whilst these market positions are based around one thing – employment growth – for mine, given the importance of new job creation on the housing market’s fundamentals – these areas across Queensland are likely to have more generic property upside during 2015 than those currently acting below trend:

• Gold Coast

• Inner Brisbane

• Sunshine Coast

• Fitzroy area, which does include Gladstone plus Rockhampton/Yeppoon

• Moreton Bay

• Brisbane eastern suburbs (in BCC)

• Brisbane northern suburbs (again, in BCC)

The Gold Coast, for example, has created 15,000 new jobs over the last 12 months alone. This is up 9% in just one year. Close to 305,000 people are now employed on the Gold Coast.

Inner Brisbane is also now creating lots of new jobs, with a 12,000 increase last year, with around 160,000 people (including the CBD) working within a 5 kilometre radius of the Brisbane GPO.

The Fitzroy area might surprise many; but this area has been creating new jobs somewhat consistently since late 2013.

Over 6,000 new employments were created in that central area of Queensland during 2014.

The LNG construction wrap ups planned for this year will have an impact, but other industries exist in the area. It is a matter of buying property that best suits the longer term demographic & employment profile in the area.

“No” zones

There are several areas across Queensland – such as Cairns, for example – that, despite other property factors being positive, have a big Achilles heel in their current poor new employment generation.

Areas that are currently struggling when it comes to new jobs include:

• Cairns

• Townsville

• Wide-Bay – Hervey Bay & Bundaberg

• Logan City

Until these areas start creating more employment, any property gains made during this recovery/upturn phase of their property cycles, are likely to be short-lived.

Neutral zones

Of course there are always areas which are doing okay – nothing flash really, but nothing too bad either. These neutral zones include:

• Darling Downs, including Surat Basin area

• Toowoomba

• Ipswich

• Mackay, including both the Galilee & Bowen Basins

• Brisbane southern suburbs (again, in BCC)

• Brisbane west (BCC)

Things do change. For example, the opening of the Legacy Way soon in Brisbane’s west, coupled with the lower $A, which could see a lift in overseas migration from South Africa & the UK (traditionally strong buyer markets in Brisbane’s west), should see the property market across Brisbane’s western flank improve and maybe dramatically over the next couple of years.

But right now, employment wise, things, as already suggested, are somewhat tough in Brisbane’s western suburbs.

Over the last year, over 3,000 local jobs were lost. Bye bye Newman, welcome Kate Jones.

Well, maybe not exactly, but the recent state government layoffs – many of whom lived in Brisbane’s west – must have influenced votes.

End note

Property is a long-term asset.

The physical product lasts for generations, if not centuries.

It is somewhat whimsical to look to buy such an investment – especially given the high in & out costs associated with property transactions – without taking a long-term view.

Understanding the current & future demographics is very important.

A vital part of that equation is new employment creation. As, too, is knowing the local employment profile.

The property market’s long-term performance is very closely tied to employment.