Why Money is Pouring into Australian Housing

Population growth is vital to Australia’s prosperity, we’re told. And Australia’s population growth is largely driven by immigration. Your editor, by way of full disclosure, counts among the newcomers.

Australia’s success was built on immigration, we’re often reminded. And what worked in the 19th and 20th centuries surely will hold true for the 21st and 22nd centuries, right? After all, what could possibly go wrong with adding another million people Down Under every two to three years…forever?

Just so long as it drives economic growth.

Setting my own dystopian visions of such a future aside, that’s where we’ll narrow our focus today. On the widely accepted premise that a growing population is a boon to us all.

The vested interests, at least, are 100% on board.

The following headline caught my eye in yesterday’s Business Day: ‘Immigration curbs pose threat to business returns’. The article goes on to say,

Poorly constructed and strict immigration policy is one of the biggest threats to share market returns, say some of the country’s top money managers.

An expert panel at the Stock Brokers and Financial Advisers Conference in Sydney on Thursday agreed Australian investors could face deteriorating returns thanks to short-sighted policy that curbed population growth…

Since 2000, Australia’s population has risen by more than 19 per cent, or about 4.6 million people. This growth has translated into a demand for services, infrastructure, housing, education and healthcare.’

Look, I won’t argue with the expert panel. Undoubtedly, adding 4.6 million people to the mix will see a rise in demand for Australian housing, education and healthcare…among others. That’s the much-touted economic growth you hear about. The yearly rise in GDP.

And along with this overall growth, some people will certainly see their incomes rise. Among them, I suspect, the top money managers at Sydney’s Financial Advisers Conference.

But how about the rest of us? With a 19% bump in population, has the average Aussie enjoyed a 19% real pay rise?

Certainly not according to the Australian Bureau of Statistics’ (ABS) most recent numbers.

In the March quarter, sluggish wage growth of 0.5% pulled the annual growth rate down to 1.9%. That’s below consumer price inflation of 2.1%. Meaning Australians’ real wages are shrinking…despite strong population growth.

Now, that’s just over the past year. This could be an anomaly. So let’s look back a little further.

The following graph shows the growth in Aussie wages since 1998, not adjusted for inflation. It further breaks it down into private, public and total sectors.

Source: Business Insider

Click to enlarge

As you can see, wage growth looked pretty good right up until 2008-2009. But since 2010, it’s been heading ever lower.

Now, it would be nice to blame this on a shrinking population. Perhaps on poorly constructed, short-sighted immigration policies. But in 2010, Australia had a population of 22.3 million. Today that’s grown to over 24 million.

So if not in higher wages, where did all the money go?

 

The biggest benefactor of a growing population

Australian Housing, of course.

Sure, other asset classes have benefited from the influx of new people. But the finite nature of real estate means that as Australia adds ever more citizens, property becomes relatively more scarce…and expensive.

As guest editor Terence Duffy wrote earlier this week in Money Morning:

Another factor that is hugely beneficial for property prices is population growth.

Last year Australia’s population surpassed 24 million people. We’re adding millions of people faster than ever before.

Based on current trends, we’ll add a million people every two to three years.

But if history is any guide, population may grow far beyond that estimate.

In 1999 Australia had 19 million people. At the time, the Australian Bureau of Statistics (ABS) made a forecast that we’d reach 24 million people by 2033!

Population growth surprises on the upside, and it shows no sign of slowing down.’

Terence is the lead analyst over at Phil Anderson’s Cycles, Trends and Forecasts.

With literally centuries of global data to back him up, studying Phil Anderson’s 18-year real estate cycle was a real eye-opener for me. Among other things, it showed why I was wrong last year in calling for an imminent Aussie house price crash. And why pundits calling for a crash this year will be proven wrong as well.

Phil’s put together a brand-new video presentation detailing his ‘Grand Cycle’, which we’ll be releasing next Tuesday. If you want to know where house prices — not to mention the stock market — are headed next, you won’t want to miss it.

Keep an eye on your inbox next Tuesday. And be sure to set aside an hour of uninterrupted time to watch it. You’ll be glad you did.

This week in Money Morning

Trump remains under near constant, self-inflicted fire at home. To distract his critics, he played one of the oldest tricks in the book. Refocusing attention away from his gaffes and onto the ‘real’ enemy…Iran. Ironically, Greg pointed out in Monday’s Money Morning, Trump made his speech in Saudi Arabia. Not exactly the bastion of freedom and democracy. And Trump dumbed it down to a simple choice between ‘good and evil’. Any hands for evil? Anyone? As Greg notes, it’s hardly a coincidence that the US signed a US$110 billion arms contract with Saudi Arabia. And here in Australia, our own politicians are no better. Greg takes a look at One Nation’s latest blunder, in the incarnation of Pauline Hanson’s chief of staff. You can read all the details here.

On Tuesday, Greg asked, ‘If you can’t get a loan at a major bank, where do you go next?’ Non-bank lenders, of course. The growth in non-bank lending follows a crackdown on the major banks lending to housing investors. And it shows you just how impotent the government’s policies are. Non-bank lenders, in turn, are increasingly raising the money they lend out via residential mortgage-backed securities. This essentially is just repackaged debt, which is then sold on to other investors. With interest rates stuck at record lows, the demand for these securities has doubled in the past year, reaching AU$10.5 billion. It’s a vicious economic cycle we’re in. One that can be prolonged with lower interest rates and ever more debt. But for how long? Read the full story here.

Marking the middle of the working week, Greg turned his attention to the ‘cynical farce’ that is Australian politics. The opposition, he writes, is taking its role a bit too literally — opposing a number of Liberal proposals that normally would be right up Labor’s alley. Once again, this highlights that it matters little which party is in power. And the same holds true the world over. In the US, Donald Trump has proven just as much a tool of the ‘Deep State’ as his predecessors. His budget proposal pours $50 billion more into military spending. Not surprising, as the Deep State is particularly prevalent in the military. What does this mean for Australia? Find out here.

On Thursday, Terence Duffy had a look at short selling. Selling borrowed shares — in the hope the stock loses value — made some people a fortune during the US housing-led crash in 2008. But short selling can work against you as well. In fact, investors who’ve been betting against one particular stock have lost a whopping $4.46 billion in the last six months. Terence spoke to a fund manager at one of New York’s larger funds to find out why this much shorted stock is so resilient. The answer, in Thursday’s Money Morning, may surprise you.

After years of stellar growth, do you believe Australia’s housing market has peaked? Plenty of analysts are eagerly making that call. As Terence wrote on Friday, most recently it was global investment banking giant UBS, which is calling for a 7% fall in house prices over the next 18 months. But what it doesn’t understand, Terence explains, is the real estate cycle. And it’s missing the huge impact that increased infrastructure spending will have on land values. Not to mention low interest rates and low unemployment figures. You can find out why the crew over at Cycles, Trends and Forecasts are convinced we’re looking at years of growth ahead yet, in Friday’s Money Morning here.

Regards,

Bernd Struben,
Managing Editor, Money Weekend

Numbers of interest, as of Friday

Aussie Dollar to US Dollar: 74.34

Gold: US$1,258.53 (AU$1,692.94) per troy ounce

Silver: US$17.19 (AU$23.13) per troy ounce

Bitcoin: US$ 2,557.21 (AU$ 3393.04)

West Texas Intermediate Crude Oil: US$48.55 (AU$65.30)

ASX 200: 5,749.40

Money Morning Australia