9 things I learned this week that you should also know

A lot can happen in one week in our property markets, can’t it?

So here’s a look back at some of the things I read or learned this week, that I believe you should also know.

1. We can’t deny it – there is wealth inequality in Australia

A new report Inequality in Australia 2020 shows that the average net worth of the richest ten per cent of Australians reached $4.75 million in 2017-18 and they own 46 per cent of household wealth which is underpinned by property assets, superannuation, shares, and business investments.

The next wealth rung – the comfortable middle – had an average household net worth of just under $1.3 million.

About half of that group’s wealth is tied up in their own home although investment properties (with a net value of $104,000 on average) and superannuation also make substantial contributions.

The bottom 60 per cent of Australian households had an average wealth of $277,000, with owner-occupied housing and superannuation the biggest assets.

Another interesting finding

Older people have 50% more wealth than those aged under 65, mainly due to the value of their homes. The average wealth in households with a reference person aged 65 years and over was $1.38 million – 1.5 times that of younger age groups (with an average of $904,000).

Most wealth is in owner-occupied housing and superannuation, but shares and investment property are more concentrated at the top.

High wealth levels are associated with high income and saving levels through working life.

Inheritances go disproportionately to those with more wealth already.

 

2. 1.9 million fewer people

id Demographers forecast that Australia’s population will have 1.9 million fewer people in 20 years’ time than it would have had if COVID-19 never reached our shores.

To give a sense of the scale of change, id Demographers are forecasting by 2041, there will be just under 2 million fewer people living here (31,500,000 people instead of 33,300,000 )

This will mean:

• 466,000 fewer primary school-age children,
• 322,000 fewer secondary school-age children, and…
• a significant impact on the number of homes built (162,000 fewer homes needed in Melbourne alone)

Since is 2005, overseas migration has been the main driver of population growth in Australia, stimulated by federal government policies designed to bolster the tertiary education sector, attract a skilled workforce, and balance Australia’s aging population.

In the decade 2009 to 2019, overseas migration accounted for an average of 218,000 people being added to our population each year.

At the peak times, we added as many of 300,000 people through migration.

id Demographers report that in the current financial year (2020 – 2021) they anticipated Australia will experience the net overseas migration loss of 71,600 people.

This means more people will be moving to live overseas than people moving overseas to live in Australia.

They expect a further loss of 21,600 people in 2022, followed by a gradual return to around 200,000 population growth per year.

Over the past decade, Australia’s population grew faster than we could build houses, but the decrease in population growth means fewer households will be formed and we will require fewer houses moving forward.

id believe in the short-term the reduction in demand will be most evident in the inner city areas and the university districts that are normally home to student populations.

 

3. Massive tax hikes on Victorian homebuyers, homeowners, and property industry jobs

Victorians will be the most highly taxed community in Australia if the Andrews Government has its say.

Today the Victorian Government announced massive tax hikes including a $2.4 Billion Land Tax grab on Victorian homebuyers, homeowners, and property industry jobs to be featured in next week’s State Budget.

This is a slug by the Andrews Government to Victorian homeowners, homebuyers, and investors with additional land tax, stamp duty, and a new tax on property investment and development.

And this comes on top of the recent significant changes to rental legislation in Victoria moving the balance of power to tenants rather than property investors/landlords

The changes announced today were:

• A 19 per cent increase in land tax on properties valued at between $1.8 million and $3 million, with the rate to increase from 1.3 to 1.55 per cent;
• A 13 per cent increase in land tax on properties valued at more than $3 million, with the rate to increase from 2.25 per cent to 2.55 per cent;
• An 18.2 per cent increase in stamp duty on a property’s value above $2 million, with the value up to $2 million to be taxed at the current rate; and
• A new Windfall Gain Tax, which would apply from 1 July 2022, where 50 per cent of the value of uplift as a result of a rezoning (both local government and state government), as assessed by the Valuer General at the time of the rezoning, will be taken by the Government.

The Victorian Government’s assault on property owners with stamp duty and land tax increases will hurt self-funded retirees and worsen housing affordability.

Victorian mum and dad investors will be hit with double-digit percentage increases in land tax, stamp duty, and a new tax on property investment and development.

This isn’t likely to cause current investors to leave Victoria, the capital gains tax would be too expensive, but it is likely to dissuade new investors buying in Victoria, meaning higher rents and better returns for those who stay in the market.

 

4. Will the rapid fall in unemployment challenge RBA stance to interest rates?

The accompanying chart shows how ANZ Bank now expects our unemployment rate to fall to 4.8% by end-2021 and 4.4% by end-2022.

And lower again in 2023 seems likely.

This upgrade potentially challenges the RBA’s expectation a rate hike is “unlikely to be until 2024 at the earliest”.

While these ANZ forecasts may appear ambitious, they reflect the expectation of a decelerating pace of labour market improvement, particularly in 2022.

ANZ explains:

“Ultimately, it will be inflation that matters for the RBA, and the most important judgment in our view is the strength of the transition from underutilisation to wages, and then to inflation.

The RBA is presuming this transition will be very slow, as it was the last cycle, but the risk around this assessment appears rather one-sided.”

5. Rental Market Update

The inner-city apartment markets have struggled since borders were closed to international students, visitors, and those who would have sought holiday work, for example in hospitality, on farms, and elsewhere.

Melbourne and Sydney’s inner-city markets remain very weak with rents still falling.

Compared to pre-pandemic levels, Melbourne’s inner-city unit rents are down 27.7% as of April 2021, Sydney rentals down 18.2%. Inner-city prices for such units remain flat.

The absence of new international students and post-pandemic preference for less congested and near-city living remain headwinds.

This week’s Federal Budget was built on the assumption that international borders will remain essentially closed until mid-2022 so little immediate relief on this front seems likely.

Inner-city rents in Brisbane have not been as soft as in the two larger cities but still fell a net 3.0% from pre-pandemic levels.

Perth though has tightened, even in inner-city markets that have shown a net rental increase of +2.1%.

While Sydney and Melbourne’s inner-city rental markets remain soggy, prices of units across these cities covering the broad array of suburban units, continue rising, evidenced by reports of demand from owner-occupiers, first home buyers, and investors.

6. No other modern nation on earth comes close to Australia’s generosity in absorbing migrants

Sure our international borders are closed at present, but they will reopen again.

The accompanying chart by demographer Bernard Salt, published in the Australian, reminds us that about 30% of Australians (7,500,000 people) were born overseas.

This proportion for the Sydney built-up urban area is 39%, making it one of the world’s most cosmopolitan communities.

This “born abroad” proportion for greater New York is 29%, for Paris 22%, for Berlin 13 %, for Tokyo 2%, while for Shanghai it is less than 1%.

Salt says that Europeans get all angsty when the proportion of migrants approaches 20 per cent. Sydney is double that. Melbourne isn’t too far behind at 36 per cent.

7. Consumer sentiment pulls back from an eleven year high

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.8% to 113.1 in May from 118.8 in April.

While a 4.8% fall is always going to attract attention, it’s important to put this result in perspective.

It is still the second-highest print for the Index since April 2010 and does follow an 11% rise in the Index over the previous three months.

The fall may also represent some disappointment in the Federal Budget as a very generous Budget was still unable to exceed the exuberant expectations of the community.

The Budget was announced on May 11 – the halfway point of the survey period.

8. Unemployment falls to 5.5% despite the end of JobKeeper

The unemployment rate fell to 5.5% in April with 33,800 full-time jobs added despite the JobKeeper scheme ending.

This is the sixth consecutive fall in the unemployment rate, down from 7.4% at its peak in July 2020.

The falls in both employment and unemployment in April saw the participation rate at 66% – back to around pre-pandemic levels.

9. Here’s why your super won’t be enough

The attached chart shows the average superannuation balance for Australians at retirement.

Clearly, it won’t be enough.

Of course, Baby Boomers haven’t had super all their working life and younger generations will end up with more super at retirement.

But even the $545,000 that the Australian Superannuation Funds of Australia suggest Leads to a comfortable standard of retirement is nowhere near enough.

In other words, you’re going to have to take your financial future into your own hands and build an asset base so that you can enjoy the longest holiday of your life – your golden years in retirement.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

If you’re wondering what’s ahead for property you are not alone.

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from Property UpdateProperty Update https://propertyupdate.com.au/some-things-i-learned-this-week-that-you-should-also-know/