Another great forward indicator with regard to the future health of the residential market – and in particular new housing construction – is employment growth.
Now, I used to ‘full-time’ employment growth. There seems to be a disconnect between working full-time and housing demand. I think it has more to do with workplace transformation than, say, looser mortgage arrangements.
Today about a third of the Australian workforce are casually employed, with another 30% working part-time.
Anyway, just as too many column centimetres are devoted to burbles about median prices (and worse still, which index is more incorrect), when it comes to property markets, too much attention is given to unemployment, rather than the creation of jobs.
A recent analysis of employment figures tells us quite a lot about the possible future direction of the residential market.
Overall, 124,000 new jobs were created across Australia over the last 12 months (year-ending May 2013). Australia, over the past five years, created about 165,000 new jobs every year. During 2011/12 Australia created 140,000 new jobs. So things, job-wise, would appear to be slowing down.
Again, as discussed in recent Missives, interest rates need to fall further. Given the start of the structural decline in coal; iron ore peaking and our rising population growth, we need to create many more jobs than we currently are.
Creating a long-term policy platform (not politics) to get us back to, at least, our five-year average would be a start.
New South Wales
Only one state is leaping ahead when it comes to employment growth. And it is having a large, positive impact on its real estate market.
And the winner is New South Wales.
New South Wales created just under 70,000 new jobs last year.
Importantly, NSW’s recent job creation is way ahead of its five year average, suggesting, improving residential market conditions ahead.
Four other states are creating jobs – Western Australia with 15,000 new jobs since May last year, along with Victoria, Queensland and South Australia each coming in with about 13,000 new jobs apiece.
New job creation has all but stopped now in Canberra and the Northern Territory. Tasmania is losing jobs (minus 1,300).
[sam id=37 codes=’true’]Whilst Victoria’s recent employment growth is encouraging, it is way down on the longer-term trend (50,000 per annum as a five-year average).
The Victorian housing market’s downturn will most likely, assuming it can continue to create new jobs, now take a softer landing that may otherwise have been the case.
South Australia’s residential market might be the big surprise over the next 12 to 18 months. My SA chart of job creation shows consistent improvement since the beginning of the year.
Keep in mind, SA saw no new job creation during 2011/12. Things in SA look like they could change for the better.
Western Australia; Darwin and Canberra all look like they may be peaking, it terms of residential activity. Past trends would suggest that WA might even go through a market correction unless job creation moves upwards again.
During 2011/12, WA saw 48,500 new jobs and the state’s five year average is 32,600 full-time new jobs each year.
But maybe WA, like Queensland, given they are both ‘resource’ states, overshot in recent years, and the amount of new work is correcting back to more normal levels?
The theory strongly suggests that Queensland’s residential markets should be recovering, but until we start seeing a steady increase in work, the Sunshine State’s residential outlook will remain lacklustre.
Investors need to be very careful about what they buy in Queensland. Anything off-centre might not perform as spruiked. Whilst I think Queensland’s tide will rise (and this is not a veiled attempt at humour) and maybe quite quickly during 2014 and beyond, a rising tide, this cycle, may not float all ships.
Queensland’s new housing market also remains lacklustre.
See, mining (resources) creates wealth in Australia and new housing construction distributes it (and therefore helps to keep much of this wealth in the country). The distribution system works in other states/territories but is broken in Queensland.
For example, Queensland started just 29,000 new dwellings last year (year ending April 2013); whilst Victoria, over the same time period, built 51,000 new homes.
NSW – the traditional basket case when it comes to new housing construction – created 39,000 new dwellings last year. All three states are growing – in terms of civil population – at about the same rates i.e. 80,000 new permanent residents per annum.
Queensland now should be creating about 40,000 or 25% more, new dwellings each year. Queensland must increase its new housing starts, and very quickly, in order to start creating more new jobs. The coal mining slowdown makes this even more pressing.
No stamp-duty on new off-plan sales across Queensland is now imperative – not a budgetary choice.
This Matusik Missive, like all of them, is commentary & not advice. Readers should seek their own professional advice on the subject being discussed.
Michael is the director of independent property advisory Matusik Property Insights and writes the Matusik Missive which is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.
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