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Beware of the unintended economic consequences ahead | Property Insiders [Video]

Well, the results of the 2022 Federal Election are in, and Anthony Albanese will be Australia’s 31st Prime Minister.

In his victory speech he said wanted to “bring Australians together” and that “together we can work in common interests with business and unions to drive productivity, lift wages and profits.”

He explained he wanted “an economy that works for people, not the other way around,” – but these are interesting and challenging economic times, so I look forward to this week’s Property Insiders chat with Dr Andrew Wilson, chief economist of My Housing Market so we can discuss our economy, the latest unemployment figures, wages growth, what Reserve Bank feels about interest rates, and what our new government may mean for property.

What our new government means for property

Well, it looks like we’re going to have a Labor government for a number of terms now, considering the substantial defeat of the Liberal Party, so what will this mean for our property markets and homeownership.

We know the Labor Party backed down from the previously proposed changes to negative gearing, promising to maintain existing regimes for negative gearing and capital gains tax if it came into power.

And it promised to help 10,000 First Home Buyers get into the market with a shared equity scheme.

As well as pledging to build 30,000 new social and affordable housing properties over the next five years.

All these policies will increase demand and are not really addressing supply. Building 6,000 social and affordable homes a year is not enough.

What about Labor’s promised minimum wage increase

As part of its election promises the Labor Party undertook to deliver a minimum wage rise to match inflation.

While this is dependent on Fair Work Australia endorsing it, the outcome is very likely to occur and will deliver some benefits but also some challenges.

A great many skilled Australians have already enjoyed much higher incomes in the last year or so, but a large number of Australians are really struggling to make ends meet as the cost of living swamps their stagnant income.

Normally labour shortages boost wages, but this time around it hasn’t occurred, so extra money in ordinary Australians' pockets will mean they can spend more and grease the wheels of our economy.

While many enterprises will benefit from the extra consumer spending, some will need to increase their prices to help pay for the extra wages; and both these effects are inflationary.

The only anti-inflation weapon the Reserve Bank has is higher interest rates, which may rise further than the Reserve Bank currently plans if the wage rise boosts prices.

This is reminiscent of the 1970s when we had an inflation, wages, interest rate rise spiral that eventually led to the depression of the early 1980s.

Labour Market Flattens Over April

Last week the latest unemployment figures came out.

Australia can finally boast its lowest unemployment rate since 1974 after the unemployment rate dropped to 3.9 per cent in April.

Despite the still-declining unemployment rate, employment growth disappointed up to only 4,000 in April against expectations for a 30,000 gain.

 

Unemployment rate

The low unemployment rate was influenced by a fall in the participation rate over April - down by 0.1%, with fewer people in work over the month.

The RBA has predicted that the unemployment rate would fall to 3.5% by early next year with strong competition for workers placing significant upward pressure on wages.

The latest March quarter ABS Wage Index however was clearly disappointing, reporting another modest result and with a record fall in real wages - despite near record-low jobless rates recorded this year so far.

The prospect of a flattening labour market, steep declines in real wages and the impost of higher interest rates on the economy may have the RBA rethinking its current rate strategy.

Abs Wage Index Annual Change Sa

Auction Markets Generally Lower on National Election Day

Capital city auction clearance rates were generally lower at the weekend with buyers and sellers predictably distracted by Federal Election Day.

Auction markets however have clearly eased over recent weeks with confidence impacted by the shock decision by the RBA to raise interest rates for the first time in over 11 years.

The national auction market reported a clearance rate of 71.4% at the weekend which was the same as reported last weekend but lower than the 82.0% recorded over the same weekend last year. Clearance rates continue to track at this year-so-far low levels.

National Auction Capitals Average Saturday Clearance Rates 21 May

About Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au
30 comments

Thanks for your comments Andrew and yes regional property has performed fantastically over the last 12 months, but over the long term they have underperformed capital city properties. But there's not a fair comparison because great regional locations ...Read full version

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I fixed a lot of loans 6mths ago for low 2% company/SMSF properties, I suspect rates to slightly increase. They have raised rates with major lenders fixed already so I’m perplexed why you insist they won’t rise? Clearly they are. You mentioned CBD/c ...Read full version

1 reply

You are right, the banks are covered by mortgage insurance and the borrower is responsible for their debts. Having said that people should develop good money management skills and not borrow more than they can afford to repay. It's unlikely the int ...Read full version

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