Pre-Pandemic Unemployment Levels Could Push Property Values Even Higher
Published 6:35 am 23 Jun 2021
The Australian property market is defying all odds; and here’s why it could continue to do so.
Australia’s property market defied expectations during the COVID-19 pandemic as property values hit all-time-highs despite heightened unemployment and economic uncertainty.
Over 200 suburbs joined the million-dollar club in the past 12 months and the total value of residential dwellings in Australia rose to a record-high $8.29b – reflecting an increase of $449.9b in this quarter alone.
Much of the growth in Australia’s property market is attributable to historically low interest rates and incentives such as the First Home Loan Deposit Scheme, which allows first home buyers to purchase or build a property with a 5 percent deposit as opposed to 20 per cent.
However, it appears that there’s now another reason that Australia’s property market could continue to boom; unemployment has returned to pre-pandemic levels.
Back to reality: Australia’s recovering economy
During the COVID-19 pandemic, Australia’s unemployment rose to a level not seen in over 20 years, and underemployment rose 41% during March and May alone – pushing many on welfare programs such as JobSeeker and JobKeeper.
Fortunately, robust government programs and relatively low COVID-19 cases have meant that Australia has been able to weather the storm of the pandemic and begin to make a V-shaped recovery.
For the month of May, full-time employment increased by 97,500 and part-time employment climbed by 17,700, bringing the unemployment rate to 5.1 per cent – the same rate as February 2020. The total hours worked for the month increased by 25 million.
The underemployment rate also decreased to 7.4%, improving by 0.3 points for the month and 5.5 points since May 2020.
May’s economic turnaround quelled concerns surrounding the end of the JobKeeper wage subsidy on the 28th of March, as many feared that the removal of JobKeeper would send many Australians into unemployment. Instead, the economy has continued to improve.
Reduced labour pool: A shortage of foreign workers
A primary reason for Australia’s improved employment figures stems from the exodus of skilled overseas workers after the pandemic. It’s estimated that roughly 300,000 foreign workers have left Australia over the past year – in part because many of them didn’t qualify for the COVID-19 related stimulus programs.
Source: abc news
This reduced labour pool has increased demand for workers across Australia, with many employers expressing difficulty in finding the right candidate for their vacant jobs. Roughly 78% of Australian hotels reported experiencing a skilled labour shortage this month.
Moreover, increased domestic tourism and incentives such as Dine & Discover and the HomeBuilder Grant have meant that industries such as retail, hospitality and construction are also seeing increased demand.
While the labour shortage puts many employers in a difficult position, it may have desirable outcomes for employees, as well as Australia’s property market.
Will the property boom continue?
The continued shortage of foreign workers in Australia coupled with increasing economic activity and government incentives around spending are all likely to place upward pressure on wages as companies become more desperate to attract qualified candidates.
Moreover, as employment numbers improve and wages increase, the borrowing capacity for individuals will increase as well – which will likely result in higher numbers of people seeking loans to purchase property.
This is because while the economy was reeling from the COVID-19 pandemic and its ensuing lockdowns, the Australian government had already implemented several incentives toward spending, including low interest rates, the First Home Buyers Grant, stamp duty exemptions and concessions and the HomeBuilder Grant to name just a few.
Although house prices are at record highs, the conditions to purchase property in Australia are certainly very favourable, and the RBA says things will likely stay that way for several years, with RBA Governor Philip Lowe stating that “Given the outlook, the Board is not expecting to increase the cash rate for at least three years.”
The big four banks are expecting these favourable conditions to lead to double-digit property value growth throughout 2021, and Shayne Elliot, the CEO of ANZ predicts that property prices could rise by as much as 17 percent during 2021.
Similarly, the chief economist at AMP Capital, Shane Oliver believes that property values in Australia will continue rising until 2023, when he expects interest rates to increase.
The perfect storm?
There are certainly concerns surrounding the Australian housing market, particularly when it comes to debt levels – Australia’s household debt relative to GDP has gone from 70 percent in 1990, to nearly 185 percent today.
This has prompted the Council of Financial Regulators (CFR) – including APRA, ASIC, the RBA and the Treasury to remind the big lenders to ensure they are focusing upon maintaining responsible lending standards for their home loans.
As such, banks such as CommBank are increasing their serviceability rates – making borrowers demonstrate their ability to make repayments at higher rates.
However, even in their letter to big lenders, the Council of Financial Regulators said that:
“Housing credit growth has picked up and a further increase is expected over the months ahead.”
The CFR went on to say that “There have been signs of some increased risk taking recently, but overall lending standards in Australia remain sound.”
It looks as though the high demand for property in Australia is only going to ramp up further in the coming months.
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