Residex on immigration cut (sorry I could not get the graphs in)
http://www.residex.com.au/newsletter/source2009_03aMC.html?content=MC&from=news0309a
Another month passes and things don't get worse, they simply present as more of the same but slightly better.
Consumer confidence can do nothing other than wane in a situation where there is constantly such bad news being dispersed by the press and Government.
It is time to get things into perspective and I suspect for government to recognise that we all know they didn't cause it. They must stop trying to act as if they did and politically protect themselves. If they don't, then their political game will backfire as they send us into a more difficult downturn.
I think it is important for all to stop and recognise that if we have an unemployment number of say 6 to 7% then there is 93% to 94% of the population employed. To put that another way, for every 15 people we meet who are usually employed there will be one who is not. When the unemployment rate was running at 5% then we would meet 1 person in every 20 that was normally employed but is not. Yes, there is a change for the worse, but not a diaster. I am feeling like there is a general "beat up" which needs to stop so the confidence of those who are employed and will remain employed, can lead us all through this downturn.
There are always two ways you can react to a bad position:
1. Take advantage of it and turn it to your benefit or
2. Simply move to solve the immediate problem.
# Our resource states are not responding well to the First Home Buyer Grant. Increasing levels of unemployment are offsetting the benefits. The numbers indicate that there is evidence of growth in the non resource based states.
# There is a clear skew to the bottom half of the market in growth terms. See the table - Analysis of market activity.
# Quartile 1 and 2 represent the bottom half of the market by value. The Percentage represents the change in values in those quartiles.
# It is clear that the Government grant is being absorbed into increasing prices.
# Unfortunately, if the grant comes to an abrupt end and these new borrowers become unemployed then there is going to be increasing level of negative equity and defaults in this group.
# Government needs to urgently consider what it will do at the end of the grant period. Termination may result in the very thing they have been trying to avoid. Further reductions in demand which will increase the rate at which these properties could fall in value in a situation where unemployment increases.
# The growth in the non resource states is encouraging. These markets presently look as if they are now stabilising and moving to a neutral position. Their major period of correction may have passed.
Now back to immigration as it is important from our point of view as investors.
A main factor of our growth has, for a very long time, been an increasing population. It generates jobs and wealth. What would happen if we simply increased immigration in our current situation? If implemented incorrectly, we would see higher levels of unemployment, but if done correctly we have the basis of burgeoning growth.
Spend our budget wisely and we can afford to maintain our current level of immigration and drive our economy. Cut back immigration as proposed and we are simply providing a knee jerk reaction in a very unthinking way but saving our political scalp with the unions. Think laterally and perhaps we can placate the unions and still allow high levels of immigration and drive forward our economy.
So what is the impact of the announcements today?
It has both an immediate and a long term effect on the housing market, as all new arrivals require immediate accommodation (usually rentals) and most will seek to own a home in the medium term.
The 14% cut in skilled migrant arrivals is around 18,500 people, or an overall cut of 8.7%, as there were 213,000 permanent overseas migrant arrivals in 2007/08. This translates into a need for 8,000 less rentals than would otherwise have been required in a market where there is a current unmet demand for around 50,000 dwellings. However, the cuts will not hit the rental market equally throughout the country, as the unmet demand is much greater in some states than others. NSW has 63% of Australia's unmet demand, Victoria has 16% and WA has 14%.
In addition, the immigration cuts will also be greater in some cities than others as they have been made in the construction and manufacturing employment streams, where job losses have been greatest. Most of the migrants in these streams come from the UK and New Zealand and the rental markets most impacted by the reduction are Perth, Brisbane and Adelaide, with the biggest intakes of migrants from the UK and New Zealand. Perth has 36% of its permanent arrivals from the UK, and Adelaide has 29%, while 38% of Brisbane's permanent arrivals come from New Zealand.
The graph shows the effect of the current cut in migration on the housing shortage in the states over 2 years.
The reduction will hit demand for rental accommodation mostly in Adelaide, Brisbane and Perth. This will lead to increased occupancy rates and lower rents. Reduced rents will lessen demand for owner occupied housing by prospective home buyers as it once again makes renting a less costly alternative to buying. This then lowers demand for houses and units for purchase, making housing a less attractive option for investors in terms of both growth and rent return.
In addition, the graph shows that the current reduction will erase the housing shortage in Brisbane and Adelaide and significantly reduce the shortage in Perth over the next two years.
A downward spiral is being set in train in these states which will lead ultimately to a reduction, not just in housing price growth, but in the attractiveness of the market for investors.
What would have been better policy?
Our Government has or is about to spend $20 billion by way of consumer handouts. There can be no guarantee that this will have any long term effect. Immigration does have long term economic benefits.
Some simple and quick calculations indicate that we probably could spend less than $1 billion and maintain our current immigration numbers. If we simply went to research companies such as CSL and our Universities and offered to provide subsidies for people where they set up specific research projects, employed a fixed percentages of the highest skilled immigrants to support the projects then we could maintain our current immigration numbers. We simply need to shift our emphasis from one part of the economy to another. Would the unions suffer? Yes in the short term, but in the longer term they would be better off as this class of highly intelligent immigrants would generate wealth and jobs for others. We would have new industries for the future. Surely we should be considering significant solar energy research projects or alternative energy development research. Our housing markets would not suffer as is going to happen. The current approach in the short term looks as if it should save jobs, but will it? No, we will need fewer dwellings, food and services and thus there will be fewer jobs. In a way the action of government to the immigration position is like the trade protectionism that we all agree is bad and shouldn't be pursued.
We have heard about needing to be the smart country. Well now is the time, let's not waste our saved billions, let's spend it to make us exactly that, the smart country.
Enough of my lateral thinking, do we continue to invest in housing?
Yes, but we need accept the reality of what Government is doing. This will probably be only the first of the reductions in immigration, so save your investing strength for the state which will do best in this environment, New South Wales. Its failures to provide housing are now our savour. Look for bargains in Sydney. But please do your research so you buy in the right area at the right price. Please use our reports so there is very limited downside.
Regards,
John Edwards
http://www.residex.com.au/newsletter/source2009_03aMC.html?content=MC&from=news0309a
Another month passes and things don't get worse, they simply present as more of the same but slightly better.
Consumer confidence can do nothing other than wane in a situation where there is constantly such bad news being dispersed by the press and Government.
It is time to get things into perspective and I suspect for government to recognise that we all know they didn't cause it. They must stop trying to act as if they did and politically protect themselves. If they don't, then their political game will backfire as they send us into a more difficult downturn.
I think it is important for all to stop and recognise that if we have an unemployment number of say 6 to 7% then there is 93% to 94% of the population employed. To put that another way, for every 15 people we meet who are usually employed there will be one who is not. When the unemployment rate was running at 5% then we would meet 1 person in every 20 that was normally employed but is not. Yes, there is a change for the worse, but not a diaster. I am feeling like there is a general "beat up" which needs to stop so the confidence of those who are employed and will remain employed, can lead us all through this downturn.
There are always two ways you can react to a bad position:
1. Take advantage of it and turn it to your benefit or
2. Simply move to solve the immediate problem.
# Our resource states are not responding well to the First Home Buyer Grant. Increasing levels of unemployment are offsetting the benefits. The numbers indicate that there is evidence of growth in the non resource based states.
# There is a clear skew to the bottom half of the market in growth terms. See the table - Analysis of market activity.
# Quartile 1 and 2 represent the bottom half of the market by value. The Percentage represents the change in values in those quartiles.
# It is clear that the Government grant is being absorbed into increasing prices.
# Unfortunately, if the grant comes to an abrupt end and these new borrowers become unemployed then there is going to be increasing level of negative equity and defaults in this group.
# Government needs to urgently consider what it will do at the end of the grant period. Termination may result in the very thing they have been trying to avoid. Further reductions in demand which will increase the rate at which these properties could fall in value in a situation where unemployment increases.
# The growth in the non resource states is encouraging. These markets presently look as if they are now stabilising and moving to a neutral position. Their major period of correction may have passed.
Now back to immigration as it is important from our point of view as investors.
A main factor of our growth has, for a very long time, been an increasing population. It generates jobs and wealth. What would happen if we simply increased immigration in our current situation? If implemented incorrectly, we would see higher levels of unemployment, but if done correctly we have the basis of burgeoning growth.
Spend our budget wisely and we can afford to maintain our current level of immigration and drive our economy. Cut back immigration as proposed and we are simply providing a knee jerk reaction in a very unthinking way but saving our political scalp with the unions. Think laterally and perhaps we can placate the unions and still allow high levels of immigration and drive forward our economy.
So what is the impact of the announcements today?
It has both an immediate and a long term effect on the housing market, as all new arrivals require immediate accommodation (usually rentals) and most will seek to own a home in the medium term.
The 14% cut in skilled migrant arrivals is around 18,500 people, or an overall cut of 8.7%, as there were 213,000 permanent overseas migrant arrivals in 2007/08. This translates into a need for 8,000 less rentals than would otherwise have been required in a market where there is a current unmet demand for around 50,000 dwellings. However, the cuts will not hit the rental market equally throughout the country, as the unmet demand is much greater in some states than others. NSW has 63% of Australia's unmet demand, Victoria has 16% and WA has 14%.
In addition, the immigration cuts will also be greater in some cities than others as they have been made in the construction and manufacturing employment streams, where job losses have been greatest. Most of the migrants in these streams come from the UK and New Zealand and the rental markets most impacted by the reduction are Perth, Brisbane and Adelaide, with the biggest intakes of migrants from the UK and New Zealand. Perth has 36% of its permanent arrivals from the UK, and Adelaide has 29%, while 38% of Brisbane's permanent arrivals come from New Zealand.
The graph shows the effect of the current cut in migration on the housing shortage in the states over 2 years.
The reduction will hit demand for rental accommodation mostly in Adelaide, Brisbane and Perth. This will lead to increased occupancy rates and lower rents. Reduced rents will lessen demand for owner occupied housing by prospective home buyers as it once again makes renting a less costly alternative to buying. This then lowers demand for houses and units for purchase, making housing a less attractive option for investors in terms of both growth and rent return.
In addition, the graph shows that the current reduction will erase the housing shortage in Brisbane and Adelaide and significantly reduce the shortage in Perth over the next two years.
A downward spiral is being set in train in these states which will lead ultimately to a reduction, not just in housing price growth, but in the attractiveness of the market for investors.
What would have been better policy?
Our Government has or is about to spend $20 billion by way of consumer handouts. There can be no guarantee that this will have any long term effect. Immigration does have long term economic benefits.
Some simple and quick calculations indicate that we probably could spend less than $1 billion and maintain our current immigration numbers. If we simply went to research companies such as CSL and our Universities and offered to provide subsidies for people where they set up specific research projects, employed a fixed percentages of the highest skilled immigrants to support the projects then we could maintain our current immigration numbers. We simply need to shift our emphasis from one part of the economy to another. Would the unions suffer? Yes in the short term, but in the longer term they would be better off as this class of highly intelligent immigrants would generate wealth and jobs for others. We would have new industries for the future. Surely we should be considering significant solar energy research projects or alternative energy development research. Our housing markets would not suffer as is going to happen. The current approach in the short term looks as if it should save jobs, but will it? No, we will need fewer dwellings, food and services and thus there will be fewer jobs. In a way the action of government to the immigration position is like the trade protectionism that we all agree is bad and shouldn't be pursued.
We have heard about needing to be the smart country. Well now is the time, let's not waste our saved billions, let's spend it to make us exactly that, the smart country.
Enough of my lateral thinking, do we continue to invest in housing?
Yes, but we need accept the reality of what Government is doing. This will probably be only the first of the reductions in immigration, so save your investing strength for the state which will do best in this environment, New South Wales. Its failures to provide housing are now our savour. Look for bargains in Sydney. But please do your research so you buy in the right area at the right price. Please use our reports so there is very limited downside.
Regards,
John Edwards
