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Australia About to Enter Housing Collapse After Govt Got Caught Rigging the Housing Market · The Follio Property Podcast

• 0:00
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• 0:56
  Economic situation will get worse before it gets better. The Albanese government is in trouble. Australia's debt hits $1 trillion. The Australian economy is stuck in a low income, low productivity, low growth trap. High level figures look really good, but in terms of actual household, it's detrimental. You saw with sharp house price crashes, it's over 30%. In real terms, in New Zealand, the government let more people in, puts a bandaid over that problem. Great headline figures.
• 1:21
  The whole thing's a giant Ponzi scheme to cover their problems. Government's obviously looking to curb the CGT discount, which should have everyone pretty nervous because the government's own forecast that came out last month is for big Australia for the next 40 years. The inability to bring on more supply of housing and infrastructure to support that population growth. And it's worse than that because the rental vacancy rate according to coitality now in Australia is at a record low. So the rental crisis is going to get worse.
• 1:43
  Rents have gone up three times faster than wages. Advertised rent series, they're now paying $10,600 more to rent than they were five years ago. We've got the worst rental crisis in history. The government is literally spitting on renters here. So what the hell are we doing here?
• 1:59
  You're listening to the Folio Property Podcast. I'm Rhys Bettle and I'm here each week with my co-host Lachlan De La Hunty. Lachlan, we're in the Melbourne studio today. We've got Leith Van Onselen in the building. I was telling Leith off air, been a big watcher of his YouTube videos over the course of the last four or five months since in my downtime. So good to get him on the program today.
• 2:21
  Yeah, I'm told, I'm a data nerd and apparently you trumped me, so I'm looking forward to diving into the numbers. Cheers. Well, yeah, I mean, I've been following the property market economy for probably 13 years now. So ever since I started macro business back in January 2011. So it's longer than that. January 2011 it was. So yeah, ask me anything you want and I'll answer it as truthfully as possible.
• 2:44
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• 3:10
  Where's the economy at today in Australia? Where do you see it over the next 12 months? We were just talking off air about some potential cycles that may be happening. Where do you see the economy as we sit today? So the Australian economy, I'd say, is stuck in a low-income economy.
• 3:26
  low productivity, low growth trap. So what I mean by that is that we've basically got the poorest productivity growth in the advanced world, and it ranks right at the bottom of the advanced world over the last 10 years. Very poor productivity growth, and as a result, per capita growth, which is actually the thing that I look at, because most of Australia's growth actually just comes through running a high immigration program.
• 3:49
  And that grows the economic pie. So if you bring in, if your population grows by one and a half percent, which is roughly what it does every year, well, then you're going to get roughly one and a half percent economic growth, right? Because you're growing more inputs in people means more outputs in growth. That's not what matters. So you can grow the economic pie, but it's everyone's slice of the pie that matters.
• 4:06
  And that's the area where the Australian economy, quite frankly, stinks. So I've got this very poor productivity growth, and there's a whole bunch of reasons for that which I can get into. And as a result, if you don't have productivity growth, you don't have growth in per capita outcomes. You also don't have real household income growth.
• 4:25
  And that's the predicament that Australia finds itself in, whereby the overall economy is still growing because of high immigration primarily and lots of massive government spending, which is generating most of the job growth that we've got. And that's why I've got a lot of employment rate. But it's not improving living standards and it's not providing better per capita outcomes for Australians. And that's the problem we've got.
• 4:46
  Do you think what's propping up our economy that probably some of the government are leaning on is really just letting more people in, which on high-level figures looks really good when you look at growth in markets, et cetera, but in terms of actual household, it's...
• 5:02
  detrimental. Yeah, 100%. So there's actually two things. But over this century, Australia's population has grown by 9 million people. So if you go to the ABS population clock, which is their running counter of where the population is at, so it literally ticks over as you watch it. Australia's population is now just about to tick over to 28 mil. And that means that since the turn of the century, so as we rang in the new millennium,
• 5:26
  all those years ago when I was in my 20s, Australia's population has grown by 9 million people roughly. And that is a 47% increase. That is the second strongest growth in the advanced world after Israel. Extraordinary growth. And that has been the fundamental reason why...
• 5:43
  Australia has this, Australia's economy has effectively voided recession, if you exclude the pandemic, since the early 90s, because we've grown the population stronger than just about anywhere else. But our per capita growth has been very poor. Our productivity growth is poor. And on top of that, more recently, a bigger driving factor recently has been massive government spending. Obviously excellent, but...
• 6:05
  It's artificial because it's been propped up by this massive government spending. So we've got sort of an economy that over the long term- It's a false economy, right? Because it's essentially been propped up by immigration and propped up by government spending. The government actually aren't doing anything to produce our output other than let more people in, puts a band-aid over that problem, great headline figures, and spend more and take on more debt.
• 6:28
  Yeah, 100%. And in fact, the Centre for Population put out some long-term population forecasts about a month or so ago for the whole of Australia. So what they do is every year they put out their population statement and it basically looks ahead 40 years, but it's actually 41 years because the latest data they got is for last year. And they forecast that Australia's population is going to grow by 13.4 million people in 41 years. So this is to 2065, 66%.
• 6:57
  And shock horror, about 11 million of that is going to be in the capital cities. And the regions are going to get hardly any. So driven by 235,000 average net overseas migration is what they forecast. This is going to have strong growth. But the big four, the biggest four capital cities are going to have explosive growth. And I ask, this is one thing I asked in a recent article is, why the hell do we need this growth? Because one of the reasons why we're often told we need all this immigration is because we've got...
• 7:25
  A, an aging population, and B, to fill skills shortages. The aging population article is complete BS because the whole thing's a giant Ponzi scheme, right? So the whole thing doesn't work, for starters. The skills shortage thing's an absolute crock because the population's grown by 9 million people this century so far, right? We've dwarfed just about everywhere else, yet we've got worse skills shortages than ever. So how does bringing in a whole bunch of people from overseas solve your skills shortages? Because all you do...
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• 8:40
  put more demand on the need for housing and it's low on effect. Because we are a property podcast and I'm loving this. And I can see you're so passionate about where this is going. But as property investors and that's our audience we speak to, it's supply and demand. And all of her there is there's going to be a ton of demand coming to this market, which has been propping up the property market for the last 20 years and is why it's so strong now.
• 9:07
  The inability to bring on more supply of housing infrastructure to support that population growth, to me, just spells inflation in house prices and inflation in rents. Because when demand exceeds supply, that's when we see prices run. Is that your view? Yeah. I mean, I guess the very long term it is, but in the short term, you can get some pretty big hiccups. Yeah.
• 9:26
  Two other countries that have had very strong run-ups in house prices, very similar to us over the last 20-odd years, is New Zealand and Canada. We're number two on the population growth stakes, but New Zealand and Canada have actually had very sharp house price crashes. New Zealand's down about 18% from peak, and in real terms, once you adjust for inflation, it's over 30%. New Zealand's back to where it was in 2019.
• 9:51
  30%? 30%. Oh, it's brutal. And then their government, unlike ours, actually has brains. And they said, nah, we've run it too hard. The punters are unhappy, for starters, but also we've engineered a rental crisis that was similar to ours, bad. Infrastructure is crush-loaded. They've had a whole bunch of problems. The Canadian government actually cut their immigration starting from about mid-2024. And Canada's house prices have fallen by about 30% in real terms as well.
• 10:19
  But what was leading to Canada falling prior to them cutting immigration? Yeah. So they had a big spike in interest rates. So it went up to like, I think it was 5% their cash rate or the cash rate equivalent. 7.5%, 8% in term. Yeah. And it just squeezed them. But also they implemented some reforms to negative gearing. They put in basically a capital gains tax. So they never used to have one. They put in, it's called the Bright Line Test, where they said if you don't sell your property
• 10:43
  If you sell your property within 10 years, you've got to pay a tax. So it's basically capital gains tax. Massive changes. Yeah, they are. That's ringing in the ears here, right? We're talking about two big changes that the government's looking at right now. Exactly. And the Australian government's obviously looking to curb the CGT discount, and it looks like they'll make it retrospective as well.
• 10:59
  which should have everyone pretty nervous. And then summer curbs are negative gearing as well. So, you know, that to me makes me a bit wary of property prices in Australia, especially in those markets like Brisbane. And if you go by Cotality's, so Cotality put out a housing affordability report in September quarter last year. Well, sorry, December, but for the September quarter last year, where it just grabs a median dwelling value to the median household income. But...
• 11:27
  Brisbane Adelaide has just shot up and become into that uber expensive territory that they'd never been in before. And the share of income spent on mortgage repayments, again, in Adelaide and Brisbane just looked super high, yeah. Relative to history. So I'm a sort of believer in some sort of mean reversion. So usually you don't want to invest in a, well, for me, I would invest in a market that's gone up 100% in five years.
• 11:52
  and looks incredibly expensive relative to historical values. Another thing I track is actually plot dwelling values in these markets against the rest of the country. I used the main data for this, and I've got data going back to the early 1970s.
• 12:07
  where you can do like a relative valuation. And I've got, so Brisbane basically went from before the pandemic was historically cheap relative to all the other capitals to now being historically expensive. And it's worse than that because the rental vacancy rate according to Cotality now in Australia is at a record low. If you go by Cotality's advertised rent series, they're now paying $10,600 more
• 12:29
  to rent than they were five years ago. Now, it's disgusting, to be quite frank. And income certainly hasn't gone up. No, no, that's right. Well, totality reckons rents have gone up three times faster than wages, right, in that time. So the rental crisis is going to get worse. So what the hell are we doing here? The government is literally...
• 12:45
  spitting on renters here. We've got the worst rental crisis in history. The percentage of income being spent on rents has never been higher in this country. The situation is getting worse. The government's own advisory council says it's going to get worse. And yet our clown show government
• 13:03
  just keep saying, oh, you know, we've got to boost supply, which is absolutely impossible to do. And they've shown how. You can't do it, mate. They've shown their hand. They've done nothing. Well, I mean, mate, the macroeconomic factors are totally against boosting supply because we've had a 40% increase in construction costs since the pandemic, lot values. So the price of the land that houses go on nationally has increased by 33% at the start of the pandemic, probably way more in places like WA. Obviously, we've seen a whole bunch of home builders go bust.
• 13:31
  So there's less capacity and we've got high interest rates now. So the golden period for construction was between 2015 and 2020. We had that massive high-rise apartment build last century, sorry, last decade.
• 13:44
  Now, it was the golden period in terms of numbers, but it wasn't the golden period in terms of quality because a lot of that stuff were high-rise shoebox, dog box, garbage. Let's be honest. We had balcony defects, leaking homes, flammable cladding. They were absolute garbage that we built, but they did help to suppress rents. The highest single year of construction in Australia's history was $222,500 in 2017. Albo's fanciful housing target...
• 14:11
  wants to build 1.2 million homes over five years, which is 240,000 a year. That is 7% more. Than our best year on record ever. Australia's best year on record when interest rates were 1.5% instead of, if you go by the financial marks, it'll be 4.35% by the end of the year, currently 3.85%.
• 14:28
  So that 1.5%, so it was cheaper for both buyers because mortgage rates were lower to purchase. They could borrow to buy new homes and also cheaper for developers to finance them, right? But now they've got high interest rates, so that's off the board. Construction costs are 40% more and lot prices are more expensive.
• 14:44
  We've got shortages of labour, construction labour, because we're doing all this renewable energy build out all over the country, which is a substitute for construction workers. All the state government's doing big build infrastructure projects to keep up the population ponzi that the federal government's foisted upon them. That's making shortages of labour. In Victoria here, we've got CFMEU union corruption that's just basically driving up construction costs as well. The macroeconomic factors here are not conducive to...
• 15:12
  building 240,000 homes a year, which has never been done in Australia's history. So instead, guess what? We're doing about 180, right? Not even 180 if you get our latest dwelling completion starter. So we're not building anywhere near enough homes to keep up with the population growth. So when you've got that, the only solution is to do what Canada's done and put the handbrake on. And I'm not saying zero migration here, but we need to run a migration policy that is significantly lower, smaller,
• 15:39
  but far more high quality and actually gets people in we need. We actually do need more tradies, right? So what the hell are we doing importing Uber drivers? Because that's pretty much what our migration program does, right? And, you know, before I get, like, I'm sure your podcast listeners won't do this, but I often get caught, oh, you're just xenophobic and blah, blah, blah. Like, it's crap. This whole notion that cutting migration numbers is...
• 16:01
  xenophobic or racist or whatever is laughable because do you think Canada's a xenophobic country? They've done it. New Zealand? No, they've done it. Was Australia a xenophobic country during the Sydney Olympics in 2000? I don't think that was peak Australia. National pride was never bigger. We didn't have all the so-called racist problems and less stuff that we've got now back then. Guess what the net overseas migration was in the Sydney Olympics? 110,000 that year.
• 16:24
  right? The most recent period, 306,000. So it was almost a third what we're running now. And here's the rub. In 2000, that was the highest net overseas migration in a decade, right? So we had 110,000 and at the time they're going, I read the ABS release on it just for fun. You can go back and read it. They go, oh, highest migration in 10 years.
• 16:44
  110,000. So then I went and worked it out. Actually, sorry, I don't take credit for this. Alex joined it. I have him investors did. He worked this out. He did this fantastic chart. It took Australia 12 years up until 2000, year 2000, to add 1 million people to the population via net overseas migration. In the most recent period we've had, which is June 30 last year, that's the data we've got, it had taken just two and a half years to add 1 million people via net overseas migration. That there is your problem.
• 17:12
  The most recent period, we've grown the population through immigration more than four times faster than we did in the year 2000. That is why, fundamental reason why we've got a housing shortage. You don't grow the population faster. Sorry, if you grow the population faster than your capacity to build housing infrastructure, which is what we've done for 20 odd years,
• 17:33
  Well, obviously you're going to have problems. You're going to have shortages of housing. You're going to have shortages of infrastructure, which is exactly what we've got. This is not controversial stuff here. This is basic maths. How does that compare to like a natural increase? So we're obviously talking astronomical numbers in terms of increase in migration, but...
• 17:49
  not looking at any figures, but you know families are getting smaller here in Australia. The three, four, five kid families are now the two. How does that compare to like a natural increase in terms of population? So natural increase is a bit misleading. So when you look at the population data, say average it out over the decade, people go, oh, two thirds of the growth comes from migration, one third from natural increase roughly. It's actually not. It's actually 100% from migration because when migrants come and then they have children, that's counted as natural increase.
• 18:17
  But if the migrants didn't come, they wouldn't have the children. So the fact of the matter is we've got a fertility rate. So the number of children per woman in Australia is just under 1.5. It's actually similar to what Japan's was about a decade ago. So the replacement rate is 2.1. So without migration, the population wouldn't fall immediately because we've got an aging population. So it takes time. But if you go forward, say, 20 years...
• 18:43
  once it catches up, the bulge in the snake works its way through, without migration, our population would fall. So really 100% of our population comes from migration, both directly as soon as they jump off the plane and indirectly once they have children. So it's really, if you want to control the population, you've got to control migration. So if you slow migration, you slow population growth, vice versa. The birth rate is largely irrelevant.
• 19:09
  There's no sign of this slowing down, right? And that's our listeners, predominantly property related. We've got a government that is doing very little, I feel, about the housing shortage problem telling me it's migration. There's no signs that this migration is going to slow down by the figures that you're forecasting.
• 19:25
  Yeah, so the only way I see it happening is if, like, say, One Nation becomes powerful enough, which, who knows? I mean, I've got no doubt that this lurch towards One Nation is purely an immigration play. Well, not purely, but almost purely. So the Australian public, we've kind of hit a tipping point, right? So the Australian public have been ignored on the immigration question for two decades, last decade of opinion polls. All of them show they want lower immigration, et cetera.
• 19:51
  They've all been told, oh, you're racist, you're this, you're that for wanting that, blah, blah, blah. There isn't any room for proper debate in this country because as soon as you try and debate something, I do it all the time, I do it, I debate net zero. I think that's absurd. I debate this mad rush to renewables over baseload power, et cetera. I think we're committing economic suicide. But it's usually that climate deny. It's like, no, no, you can acknowledge that you've got a problem over here that is real, although I don't believe it's nearly as extreme as they make out.
• 20:21
  while acknowledging that what we do is going to make SFA difference and with national security and energy availability and having an industrial base and costal, all those things to me are more important, right? But you call it climate denier. Or if I ask you, you know, argue for lower immigration, which I've done for well over a decade, racist. Like that's the Australian way, right? But I think this lurch towards one nation is people are fed up with this. We saw that with all the March for Australia stuff and whatever. I didn't anticipate any of that stuff, but
• 20:51
  I can understand the sentiment. And also, if we do, if this AI shock is as bad as what it could be in terms of job losses and that sort of stuff, the government might eventually be forced to actually do it, or if we have a big enough economic downturn for some reason.
• 21:07
  They could be forced to cut immigration. But yeah, the base case is certainly not that because the government's own forecast that came out last month is for big Australia for the next 40 years. Basically a cut and paste copy of the garbage we've done the last 20 years, which hasn't worked and has delivered been one of the reasons
• 21:23
  why Australia has terrible productivity growth and one of the reasons why I've had this declining living standards and we've got a, quite frankly, a crap economy. And part of that is we've replaced growing the economy through productivity growth through what's called capital deepening, which is basically for most of the post-war period, Australian advanced economies grew by expanding the amount of capital per person. So that's basically your machines, your tools, your technology, all that stuff. If you provide your workers with more of that, they become more productive.
• 21:53
  The problem is in the last decade or so, or really since we ramped up immigration, our business investment has fallen, which is one of the problems. But also we've run extraordinarily high population growth, which means not only has a business investment fallen, the business investment that we've had has been spread over way more people than we had previously.
• 22:14
  And as a result, our productivity, we've had what's called capital shallowing, where you actually get less capital per worker. And that's been the Australian story. It's actually been Canada's story as well. Canada's suffered the same thing. So the way they measure capital deepening is, which is one of the drivers of productivity growth, is the capital labor ratio. So it's basically the amount of capital divided by the number of workers. With the numerator of that, which is a C, the capital, has the growth rate in that has fallen sharply because we've got less business investment. The denominator has increased sharply.
• 22:43
  because they've got more workers coming in through immigration. That there is a recipe for terrible productivity growth. And that's basically what Australia suffered. It's what Canada suffered. New Zealand suffered it as well. This high migration policy that we're running is literally making the nation poorer. And it's particularly bad in a commodity exporting country like Australia. And you guys are from WA. Can you imagine if WA had a population of 10 million, right? You guys would be poorer.
• 23:10
  Because the reason why WA is rich, and it is very rich, is because of your resource base. But if you spread your resource base over 10 million people instead of, what are you guys at now? Three? Two. Maybe three, like the whole state? The whole state, three. Yeah, I'm guessing, yeah, three. So if you spread your resource base over 10 million people, not 3 million people, you're worse off, right? Exactly. So it's like if my...
• 23:32
  Say my mum passed away, right? And I got my brother and I, and we rock up to our inheritance, and then we find out we've got two long-lost brothers and sisters we didn't know about. You've got less to work with. Yeah, that's it. So you've got to split. So none of this is rocket science, right? This is... Simple math. Mate, when people try and tell you that economics and all this stuff's complicated, it's not. They're just gaslighting. And often they make it complex to confuse you so you don't ask questions. So everyone listening to this, if it doesn't make sense, most likely you're right, right?
• 24:00
  And it doesn't make sense because it's illogical. And, you know, because the so-called experts are telling you the opposite, it doesn't mean you're wrong. It means they're ****. Australia is only rich in the world because we're a massive, we've got massive mineral wealth, right? So if you look at our top 20 exports, other than BS education, right? If you look at the actual goods that we sell, they all come from the regions. Right?
• 24:22
  So, you know, they're all commodities and agriculture, top 20. Okay, so they are independent of the size of Australia. So if Australia is supposed to get to, what, 41 point something million people by 2065 instead of 28 currently, well, we're going to sell the same amount of that stuff regardless how many people we've got because the demand for that's called exogenous. So it comes from overseas, right? It's independent of what we do here. So I'd argue that Australia would be a much richer place if we had a population of 20 million and then we do 20...
• 24:52
  8 million currently, because we'll be spreading our resource space over less people. But it makes no sense to run this high migration policy. It just makes... All we're doing is diluting our mineral wealth. And this is the other thing.
• 25:04
  It certainly makes no sense to grow Melbourne, which does nothing productive really, to 9.1 million people. Because again, Australia is wealthy because of the regions. We often say, like a lot of the economic wonks go, oh, the capital cities are the drivers of productivity because capital city people get paid more. That's complete BS. You actually look at our production and where Australia earns it, pays its way in the world, like your exports pay for your imports.
• 25:30
  We earn our exports in the regions, right? But our regions are only forecast to have like 38,000 net overseas migration each year for the next 40 years, whereas our capital cities are going to get like 196,000. So the whole plan in Australia is just to grow our cities aggressively by about 11 million people, 10.9 million people over the next 40 years and barely grow the regions. Yet our wealth comes from the regions. This is just like, we do everything back to front in this country.
• 25:59
  Like when you literally are rich because of what you sell to the rest of the world, which gets dug up out of the ground or is farmed, which is basically like, like it or not, that's our economy, right? It's not sophisticated. It makes no sense to just import hundreds of thousands of people every year to go and sit in the city and buy imported goods and do service jobs where we basically just sell each other.
• 26:20
  I come to my personal training, you can work your guns, and then he goes here and buys a coffee, and then this guy does this, and then this guy buys a flat screen TV, and this one buys a computer. It's a clown show economy we've got here. Can you imagine Norway and Qatar, which are rich because of the oil and gas exports,
• 26:35
  And they actually tax theirs properly and actually save it and use it for themselves. Norway's got a population of five and a half billion people. It's got a sovereign wealth fund that's worth 300,000 US per citizen because it's oil and gas is mostly government owned, but even the private operators are taxed really heavily. They...
• 26:51
  got, collected that money, invested it in a sovereign wealth fund that invests overseas, the biggest shareholders of Microsoft and other companies. Got this, they're sitting on an endowment like a future fund that's worth 300,000 US per resident. With Norway at 11 million people instead of five and a half million people, guess what? It wouldn't be worth 300,000 per resident, it'd be worth 150. So for them, they have a direct incentive not to run a high immigration policy, but Australia doesn't have that. Well, we should do that, but...
• 27:17
  Because we have biased our tax system to be two-thirds reliant on personal income taxes. So the federal government, if you're working the treasury, your maths is pretty simple.
• 27:29
  We're in hundreds of thousands of people every year. Most of them will work. We collect more personal income taxes. Revenue goes up. They don't factor in the cost to the states, to local governments, to us as individuals. If you live in Sydney, the turn of the century last year, sorry, in 2000, they had only two toll roads, I think it was. Now you go to Sydney, there's toll roads everywhere.