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March of the millennials:The biggest trend in property · The Money Puzzle

• 0:11
  Speaker 1: Hello and welcome to the Australian's Money Positive podcast. I'm
• 0:14
  Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody.
• 0:18
  Speaker 1: And my guest today is a demographer. He's a data animator.
• 0:24
  Speaker 1: He's a key influencer on trends and patterns that shape Australia, basically.
• 0:29
  Speaker 1: And for our purposes today on the Australian investment market,
• 0:34
  Speaker 1: property market in particular. He often writes for the Australian,
• 0:37
  Speaker 1: you might have guessed by now I'm talking, to Simon
• 0:39
  Speaker 1: Kustenmacher of the Demographics Group. How are you, Simon?
• 0:43
  Speaker 2: I'm very good. Thanks for having me on.
• 0:45
  Speaker 1: Delighted to have you on. Is a demographer still more
• 0:48
  Speaker 1: or less fair description of you?
• 0:51
  Speaker 2: I think so, yeah. So we very much do nothing
• 0:53
  Speaker 2: in our little company than to look at big fat
• 0:55
  Speaker 2: data sets all day long and trying to figure out
• 0:59
  Speaker 2: how the world works, trying to understand how Australia works.
• 1:01
  Speaker 2: And we always start with the big picture demographic data sets,
• 1:04
  Speaker 2: and then we feed in lots of, be this economic data,
• 1:07
  Speaker 2: be this sociological and even psychological data. That's just what
• 1:12
  Speaker 2: we all use in order to then tell a story
• 1:15
  Speaker 2: about how Australia might look into the future.
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  Speaker 1: Right, okay. So what, for us, and to take it
• 1:22
  Speaker 1: that the audience are investors and interested anyway in what
• 1:27
  Speaker 1: the shape, the future shape of Australia, we're particularly interested
• 1:30
  Speaker 1: in as to how it will determine how things will
• 1:34
  Speaker 1: go for investors, for instance, for property investors, for example.
• 1:38
  Speaker 1: What to you, most of us are going to know
• 1:40
  Speaker 1: the basics, right? We're going to know that Australia's aging.
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  Speaker 1: We're going to know that immigration is a sort of
• 1:46
  Speaker 1: tap that we can turn on and off, thankfully, and
• 1:48
  Speaker 1: can manage the economy to a great extent by being
• 1:52
  Speaker 1: able to do that. Not every country can do that
• 1:55
  Speaker 1: in such a sophisticated way as Australia. It also has
• 1:59
  Speaker 1: some big trends, I suppose, work from home has come
• 2:03
  Speaker 1: in and seems to be becoming a really deep trend.
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  Speaker 1: But what to you is the outstanding demographic trend an
• 2:12
  Speaker 1: Australian property investor should know?
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  Speaker 2: There are quite a few. I'd start with the most
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  Speaker 2: obvious and basic one, and that is the aging of
• 2:19
  Speaker 2: the population. Everyone read this a million times beforehand. It's
• 2:22
  Speaker 2: no surprise to anyone. But the extent of the aging
• 2:26
  Speaker 2: of our society surprises people. And I always point people
• 2:29
  Speaker 2: to the important year of 85. 85 is the exact
• 2:33
  Speaker 2: half of us make it to 85. Half of us
• 2:35
  Speaker 2: won't make it to 85. That's the median age of
• 2:37
  Speaker 2: death at the moment. And of the cohort that make
• 2:40
  Speaker 2: it past 85, half of them need care on a
• 2:43
  Speaker 2: daily basis. And we are going to double the population
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  Speaker 2: 85 plus in Australia in the next 14 years from
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  Speaker 2: 580,000 people today to 1.2 million people in 14 years.
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  Speaker 2: That is very soon and that is 100% going to happen.
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  Speaker 1: One in 10 people will be over 85?
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  Speaker 2: 1.2 million people. Yeah, exactly. A bit more, we'll grow
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  Speaker 2: by then, but something like 8% or something. It's a
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  Speaker 2: big number. Okay. And we then know already that there
• 3:11
  Speaker 2: is no chance in hell that we will have even
• 3:14
  Speaker 2: remotely enough aged care workers to look after the aging population.
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  Speaker 2: It's utterly impossible. Even if we increase migration significantly, We
• 3:22
  Speaker 2: cannot have enough aged care workers in the system. So that,
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  Speaker 2: of course, tells me that there will be massive demand
• 3:27
  Speaker 2: for family care. That, of course, then means we need
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  Speaker 2: larger homes. If you cannot put mom into an aged
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  Speaker 2: care home, she will be somewhere. And usually, ideally, in
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  Speaker 2: many cases, at the very least, you'll have the family
• 3:40
  Speaker 2: unit step up. That, of course, has the challenge, where
• 3:44
  Speaker 2: do you put her? Because spare bedrooms are so forbiddingly
• 3:47
  Speaker 2: expensive that few families can actually pull this off. So
• 3:51
  Speaker 2: we are seeing an absolute aged care crisis coming at us.
• 3:55
  Speaker 2: If we put the human concerns aside and we look
• 4:01
  Speaker 2: purely through the investment lens here, aged care would be
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  Speaker 2: an insane investment. It will be in extremely high demand.
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  Speaker 2: And those players that operate, they will be very expensive
• 4:13
  Speaker 2: because shortage demands that prices go up. So that's a
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  Speaker 2: sure win.
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  Speaker 1: In the early stages of this pandemic, demographic shift. It
• 4:22
  Speaker 1: hasn't been a great investment. In fact, it's been an
• 4:25
  Speaker 1: area where investors have lost money. All the listed aged
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  Speaker 1: care groups have been, as a general observation, very disappointing
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  Speaker 1: for investors. And so do you think that would ever change?
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  Speaker 2: I would argue that there will be a flight to quality.
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  Speaker 2: So you will see more up and coming aged care venues.
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  Speaker 2: And of course, they are now operating a completely different market.
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  Speaker 2: Back in the day, you operated quite often with relatively
• 4:53
  Speaker 2: poor people, poor customers. Very soon, we have the baby
• 4:58
  Speaker 2: boomers moving into aged care facilities. The oldest baby boomer
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  Speaker 2: is 79. They will very soon be in that stage
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  Speaker 2: of the life cycle. And so this is a more cashed-up,
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  Speaker 2: a richer generation that, of course, will completely reinvent this.
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  Speaker 1: Yeah. Okay. What about the bigger houses then? Is what
• 5:15
  Speaker 1: you're saying … partially explaining the how investors and builders
• 5:23
  Speaker 1: and homeowners continue to want larger accommodation and can you
• 5:29
  Speaker 1: just remind us like per capita per square meter what's
• 5:32
  Speaker 1: the story in australia are we moving to bigger accommodation
• 5:36
  Speaker 1: or is that an illusion of my illusion.
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  Speaker 2: So over overall our houses are getting bigger and our
• 5:41
  Speaker 2: lot of our plots of lands are getting smaller The
• 5:44
  Speaker 2: story is pretty simple. Land is outrageously expensive and we
• 5:49
  Speaker 2: want to live somewhere. And so we go in order
• 5:51
  Speaker 2: to make housing cheaper. The easiest way to make housing
• 5:54
  Speaker 2: cheaper is to minimize the land size that you occupy.
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  Speaker 2: And so we've been seeing this all the while. The
• 6:00
  Speaker 2: personal preferences of families very much change. You do not
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  Speaker 2: put two kids into a bedroom. There's a clear formula
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  Speaker 2: that Australians have one bedroom for mom and dad, one
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  Speaker 2: bedroom for each kid. And then a spare bedroom, you know,
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  Speaker 2: an office if you are knowledge workers that work from home.
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  Speaker 2: So a family with two kids needs four bedrooms. That
• 6:18
  Speaker 2: is a lot. Right now, and for the next 13 years,
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  Speaker 2: we have the biggest generation of them all, the millennials,
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  Speaker 2: making babies, starting their families. That means they move out
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  Speaker 2: of their inner city hipster apartments in your Fitzroy's, your
• 6:33
  Speaker 2: Surrey Hills, your Fortitude Valley's. And they are looking for
• 6:36
  Speaker 2: family-sized homes.
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  Speaker 1: Do you assume they will look for homes at least
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  Speaker 1: as large as they came from?
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  Speaker 2: So that's the ideal. So if there's housing preference research
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  Speaker 2: that asks people, yeah, you know what, of course you
• 6:48
  Speaker 2: all deal with financial constraints. It doesn't matter how rich
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  Speaker 2: you are. There are certain financial constraints that you're operating with.
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  Speaker 2: What are the things that you're willing to compromise on
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  Speaker 2: and which are the things you're not willing to compromise on?
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  Speaker 2: The number of bedrooms is the most important thing for people.
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  Speaker 2: They're willing to compromise on the quality of the build,
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  Speaker 2: on the location of this type of the dwelling. But
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  Speaker 2: the number of bedrooms are the most important bit.
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  Speaker 1: Is that right?
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  Speaker 2: Yeah.
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  Speaker 1: And there's no innovations going on there in the way
• 7:13
  Speaker 1: of smaller bedrooms?
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  Speaker 2: Of course, we are shrinking the bedrooms. That very much
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  Speaker 2: is happening as well. Because you say, yeah, the kids
• 7:20
  Speaker 2: deserve privacy. Whatever it is, the study doesn't need to
• 7:23
  Speaker 2: be all that big, to be honest. The master bedroom
• 7:27
  Speaker 2: needs to be big enough for a big bed. But
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  Speaker 2: we have been shrinking those dwellings. And quite often people say,
• 7:32
  Speaker 2: That's stupid. We are jeopardizing the quality of life here.
• 7:37
  Speaker 2: But the reason our land gets so expensive is, of course,
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  Speaker 2: a bit silly considering how big we are as a country.
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  Speaker 1: It just makes me think, it leads me to a
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  Speaker 1: larger point, which I wanted to bring up with you.
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  Speaker 1: I really want to know where you're coming from on this.
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  Speaker 1: Standing back from it, you would have thought that if
• 7:52
  Speaker 1: there's an ageing of Australia, that many of that aged
• 7:56
  Speaker 1: cohort might like to leave the larger cities to somewhere
• 7:59
  Speaker 1: more pleasant and are more relaxed. And we also had
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  Speaker 1: a big shift in COVID to the tree change, seed change.
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  Speaker 1: Standing back from it, is that happening in any serious
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  Speaker 1: way demographically?
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  Speaker 2: Yes, quite a few of those pandemic trends are persisting
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  Speaker 2: to a smaller degree. So the working from home phenomenon,
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  Speaker 2: we quite quickly realized that the people that work fully remotely,
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  Speaker 2: fully from home is actually relatively small. Most people work
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  Speaker 2: in a hybrid way. It doesn't matter whether you go
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  Speaker 2: to the office one day per week or five days
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  Speaker 2: per week. As long as you go to the office,
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  Speaker 2: sometimes you stay within a magical two-hour drive-time radius of
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  Speaker 2: the CBD. So you can draw this two-hour drive-time radius
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  Speaker 2: around all CBDs in the country, and it's population boom inside,
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  Speaker 2: and it's crickets outside of that two-hour drive-time radius. It's
• 8:55
  Speaker 2: nice and quiet there. And of course, the retirees, they
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  Speaker 2: always were a cohort that could move wherever they wanted
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  Speaker 2: because they were not shackled by their place of work anymore.
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  Speaker 2: And so the downsizer narrative that some people expected with
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  Speaker 2: the baby boomers to occur is much smaller than it
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  Speaker 2: actually was expected, simply because baby boomers are not at
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  Speaker 2: scale doing the gold watch retirement. Where it's the gold
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  Speaker 2: watch on the Friday and then it's golf course until
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  Speaker 2: you drop. That's not what they do. They increasingly slide
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  Speaker 2: into retirement. They reduce their working hours three days per week,
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  Speaker 2: two days per week, a bit of consulting here and there.
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  Speaker 2: Maybe you take a really long break in the middle
• 9:37
  Speaker 2: of the year, go on a Rhine River cruise or
• 9:39
  Speaker 2: something like this. And ultimately, that means that you are
• 9:43
  Speaker 2: shackled to the CBD for longer, because why would you
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  Speaker 2: give up your large scale family home that is in
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  Speaker 2: comfortable commuting distance to move elsewhere? to retirement destination.
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  Speaker 1: So has downsizing not matched forecasts of downsizing?
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  Speaker 2: It's much exaggerated, the whole downsizing narrative. It of course
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  Speaker 2: does happen and people do move to Noosa. That's true.
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  Speaker 2: But ultimately, we are staying put. And if you talk
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  Speaker 2: to Australians, older Australians, they'll tell you things like, I
• 10:09
  Speaker 2: want to be carried out of the family home. That
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  Speaker 2: seems to be the ultimate goal in life. Unfortunately, while
• 10:15
  Speaker 2: most people say they want to do this, only 14%
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  Speaker 2: of us die in the family home. We ultimately still
• 10:20
  Speaker 2: die in hospice or hospitals.
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  Speaker 1: How about downsizing within the neighborhood, within the zone?
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  Speaker 2: That's, of course, not possible because the baby boomers that
• 10:29
  Speaker 2: are living in big family homes, if they want to
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  Speaker 2: downsize locally, there are no comfortable two-bedroom apartments or smaller
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  Speaker 2: dwelling availables because these are dominated by those family homes
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  Speaker 2: and They did not add any stock over the last
• 10:44
  Speaker 2: decades because the bastions of the baby boomer family homes
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  Speaker 2: are also the NIMBY bastions that blocked development because they
• 10:51
  Speaker 2: wanted to retain the built environment, the atmosphere of the
• 10:55
  Speaker 2: area that they lived in. And now they cannot downsize.
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  Speaker 1: It would suggest to me, maybe I'm wrong, tell me
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  Speaker 1: what you think, downsizer type accommodation in any suburb will
• 11:05
  Speaker 1: be highly valued in the near future because there's such
• 11:08
  Speaker 1: little supply of it.
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  Speaker 2: Exactly. And to be perfectly blunt, we're operating in a
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  Speaker 2: property market where there is a shortage of all types
• 11:16
  Speaker 2: of housing in all locations. Not to be too flippant
• 11:19
  Speaker 2: about it, but whatever you build, we'll find a buyer.
• 11:22
  Speaker 1: Sure. People will buy or rent anything. What do you
• 11:24
  Speaker 1: think in the nature of property formation, what type of
• 11:28
  Speaker 1: property do you think will be the most in demand
• 11:31
  Speaker 1: in the near future?
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  Speaker 2: In the near future, family-sized homes for millennials. Millennials cannot
• 11:37
  Speaker 2: put the families that they're making into the dwellings they're
• 11:40
  Speaker 2: currently in. That's impossible. So we know that over the
• 11:43
  Speaker 2: next 13 years or so, the biggest generation of them
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  Speaker 2: all moves from the inner suburbs of our big cities
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  Speaker 2: to wherever they can find a three and four bedroom dwelling.
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  Speaker 2: Of course, if you talk to the urban planners, they say, yo,
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  Speaker 2: we want heaps more three and four bedroom dwellings in
• 11:58
  Speaker 2: the middle suburbs. We need to densify our cities. Our
• 12:00
  Speaker 2: cities are much too sprawled out. Absolutely correct, they are.
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  Speaker 2: And they should have been built differently. But the cheapest
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  Speaker 2: way of building housing in the here and now is
• 12:10
  Speaker 2: to bulldoze a bit of land on a greenfield site
• 12:12
  Speaker 2: and put a cheap box on top. It is much,
• 12:15
  Speaker 2: much more expensive on a square meter basis to build
• 12:18
  Speaker 2: medium density or high density. And if you operate a
• 12:22
  Speaker 2: city like Melbourne that grows at 100,000 people per year,
• 12:26
  Speaker 2: you need housing fast. And Melbourne, of course, has no
• 12:30
  Speaker 2: physical boundaries around it. You can just pancake the city
• 12:33
  Speaker 2: out and out. You then build infrastructure problems for the
• 12:36
  Speaker 2: future and whatever, and you build an absolutely unmanageable, terrible city,
• 12:40
  Speaker 2: but that's neither here nor there in the short term.
• 12:43
  Speaker 2: So that's one of the big conundrums that we have.
• 12:45
  Speaker 1: Just keeping it on national picture, you mentioned that millennials
• 12:50
  Speaker 1: were the biggest. What do you mean?
• 12:51
  Speaker 2: So millennials are the biggest generation. They're not the biggest
• 12:55
  Speaker 2: birth cohort. We always talk about the baby boomers being
• 12:57
  Speaker 2: the biggest birth cohort because we had 3.8 kids in
• 13:01
  Speaker 2: per family, so these are big families. But millennials saw
• 13:05
  Speaker 2: the benefit over the last two decades of being amped
• 13:07
  Speaker 2: up by migration. So they are much more multicultural generation,
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  Speaker 2: if you will, as baby boomers. And so they're much
• 13:13
  Speaker 2: bigger in numbers. And now they are all on the move.
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  Speaker 1: They're the dominant cohort in Australia.
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  Speaker 2: Absolutely.
• 13:20
  Speaker 1: As we speak. And just remind your listeners what a
• 13:24
  Speaker 1: millennial is.
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  Speaker 2: Millennials are people born in the 80s and 90s. So
• 13:29
  Speaker 2: these are people, the oldest millennial is in their early 40s,
• 13:32
  Speaker 2: the youngest one is in their mid-20s.
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  Speaker 1: So it seems to me there's two huge trends. There's
• 13:35
  Speaker 1: the aging of Australia, and this is the doubling of
• 13:37
  Speaker 1: the over-85s. And then there is the millennial, to simplify it,
• 13:43
  Speaker 1: moving from their inner-city barista neighborhood to the middle suburbs.
• 13:47
  Speaker 1: They hope to find a family home. They hope. Which
• 13:50
  Speaker 1: would suggest to me that the standalone family home, it's
• 13:54
  Speaker 1: been highly prized. And its valuations have risen faster than
• 14:01
  Speaker 1: units for a long time. And it would suggest to
• 14:04
  Speaker 1: me that's going to keep going if that is the
• 14:06
  Speaker 1: demographic undercurrent.
• 14:09
  Speaker 2: Absolutely. Just to be fair, millennials all need three and
• 14:14
  Speaker 2: four bedrooms very soon. Are we building them fast enough? No.
• 14:18
  Speaker 2: So they will go up further in price. All the while,
• 14:20
  Speaker 2: we're not seeing the benefits of actually baby boomers in
• 14:23
  Speaker 2: the next 10 years vacating their three and four bedroom dwellings.
• 14:26
  Speaker 2: because they are not downsizing. They're hanging on the workforce
• 14:30
  Speaker 2: for longer. They don't see the point in selling the
• 14:33
  Speaker 2: family home just yet, because it massively increases in value.
• 14:37
  Speaker 2: And if you sell, you have to do the whole
• 14:39
  Speaker 2: stupid stamp duty stuff and whatever. It's a nuisance. And
• 14:42
  Speaker 2: you don't have the ideal downsizer unit nearby where it
• 14:45
  Speaker 2: makes sense to downsize for you. So they will stay.
• 14:48
  Speaker 2: So the demand for three and four bedroom goes through
• 14:51
  Speaker 2: the roof. It's absolutely gigantic. But there's also a bit
• 14:54
  Speaker 2: of a... To be honest, for the millennials that need
• 14:57
  Speaker 2: family homes now in the next 10 years, I don't
• 15:00
  Speaker 2: have any positive news for them. If I'm talking to
• 15:03
  Speaker 2: people that are 20 that only need their family-sized homes
• 15:06
  Speaker 2: in 15 years' time or so, I'm a bit more
• 15:09
  Speaker 2: optimistic for them because by then you'll have all the
• 15:12
  Speaker 2: baby boomers die out of their homes and so you'll
• 15:15
  Speaker 2: see this massive surge of supply in the market. So
• 15:19
  Speaker 2: that should then soften house prices, whether this is a
• 15:22
  Speaker 2: slowdown of growth, whether this is actually price reduction, who knows.
• 15:25
  Speaker 2: but it'll be easier for people that are 20 than
• 15:28
  Speaker 2: it is now for people that are 30.
• 15:30
  Speaker 1: Interesting. All right, we'll take a short break. We'll be
• 15:31
  Speaker 1: back in a moment. Hello, welcome back to the Australian's
• 15:39
  Speaker 1: Money Puzzle podcast. I'm James Kirby, and I'm talking to
• 15:42
  Speaker 1: Simon Kustenmarker of the Demographics Group, who is a demographer...
• 15:47
  Speaker 1: and well-known demographer and writer for The Australian and is
• 15:51
  Speaker 1: well-known of course generally in media as a spokesman or
• 15:55
  Speaker 1: a commentator on trends in population which I always find
• 15:59
  Speaker 1: very interesting as it informs trends in property. Now in
• 16:03
  Speaker 1: the first segment we did talk about two big trends,
• 16:05
  Speaker 1: the ageing of Australia. Population over 85 is going to double.
• 16:09
  Speaker 1: There's lots of ways you can look at that and
• 16:12
  Speaker 1: be aware of that and how you invest. Similarly Simon
• 16:16
  Speaker 1: was mentioning how the millennial, the largest cohort of all
• 16:20
  Speaker 1: born in the eighties and nineties, currently in their inner
• 16:23
  Speaker 1: city pads. Once they have kids, they've got to go
• 16:27
  Speaker 1: out to the middle suburbs, unless they want to be
• 16:30
  Speaker 1: falling over each other inside in their small house. So
• 16:33
  Speaker 1: they do, and he's laying it out that will be
• 16:36
  Speaker 1: very competitive in the near future. So there are two
• 16:39
  Speaker 1: major trends. We didn't really zone in on work from home, Simon.
• 16:43
  Speaker 1: I mean, it's a trend that's emerged in our lifetime
• 16:46
  Speaker 1: in a serious manner. People always did it. I mean,
• 16:51
  Speaker 1: just to reflect on that, do you think the COVID
• 16:53
  Speaker 1: period changed work from home in any structural fashion? And
• 16:57
  Speaker 1: how might that affect property going forward?
• 17:01
  Speaker 2: Working from home is here to stay. Once you give
• 17:04
  Speaker 2: people a right, it's very hard to take it away.
• 17:07
  Speaker 2: You can see this in the US with gun rights.
• 17:09
  Speaker 2: Once you give people a certain right, taking this away
• 17:12
  Speaker 2: is very tough. So people will want to work from home.
• 17:15
  Speaker 2: Of course, you see this in New South Wales where
• 17:17
  Speaker 2: a government tries to force the government employees back. We'll
• 17:21
  Speaker 2: see how this plays out. I think it's very unfavourable
• 17:23
  Speaker 2: and I think that for the next foreseeable future, it
• 17:28
  Speaker 2: is workers who hold the leverage. Workers can make the
• 17:31
  Speaker 2: calls simply because we are running out of workers. That
• 17:34
  Speaker 2: is another very important demographic truism in the coming decade.
• 17:39
  Speaker 2: There's a skills shortage right now. The skills shortage is
• 17:43
  Speaker 2: not really linked to the pandemic. Yes, the pandemic made
• 17:45
  Speaker 2: it worse because we said, hey, no financial support for
• 17:48
  Speaker 2: temporary visa holders, so they buggered off. That created a
• 17:51
  Speaker 2: dip of 300,000 people in a workforce of 14 million.
• 17:54
  Speaker 2: That had an impact. But the skills shortage will still
• 17:56
  Speaker 2: be here in the next 10 years because what we
• 17:58
  Speaker 2: are seeing is the big court of baby boomers leaving
• 18:02
  Speaker 2: the world of work. They, of course, allowed to retire.
• 18:04
  Speaker 2: It's fine. They worked hard. But at the other end
• 18:06
  Speaker 2: of the spectrum, we have a slightly smaller court entering
• 18:08
  Speaker 2: the world of work. As if this imbalance wasn't bad enough,
• 18:11
  Speaker 2: For the next 13 years, we have millennials making babies.
• 18:14
  Speaker 2: That means they go on parental leave, at least for
• 18:16
  Speaker 2: a little bit. And so they temporarily leave the world
• 18:19
  Speaker 2: of work.
• 18:20
  Speaker 1: Didn't immigration traditionally plug those problems?
• 18:24
  Speaker 2: It could plug those problems because in the past, we
• 18:28
  Speaker 2: had relatively small cohorts retiring year after year. Now we
• 18:31
  Speaker 2: have this impact of this gigantic baby boomer cohort leaving. Yes,
• 18:35
  Speaker 2: and this is why I'm absolutely convinced that we will
• 18:38
  Speaker 2: continue a high migration approach in this country. which, of course,
• 18:41
  Speaker 2: sometimes people criticize for saying, hey, right now we have
• 18:44
  Speaker 2: a housing shortage and why are we still taking in migrants?
• 18:47
  Speaker 2: Maybe we should, you know, put the brakes on for
• 18:49
  Speaker 2: now for a bit. But ultimately, a slowing migration creates
• 18:53
  Speaker 2: more problems than it solves. And quite often, I think
• 18:56
  Speaker 2: it's just a cheap political way of saying we tackle
• 19:00
  Speaker 2: the housing affordable issue by saying we slow down migration
• 19:03
  Speaker 2: because it's very convenient, isn't it, politically? You say housing
• 19:06
  Speaker 2: affordability is the fault of a non-voting cohort. Easy. And
• 19:10
  Speaker 2: of course, you're saying that I ticked my speaking point
• 19:14
  Speaker 2: about housing affordability. I don't need to talk about as
• 19:17
  Speaker 2: a government in all the ways that I'm complicit in
• 19:19
  Speaker 2: driving up house prices. Because you could get rid of
• 19:22
  Speaker 2: stamp duty. You could get rid of franking credits, negative gearing.
• 19:26
  Speaker 2: You could first home buyer grants. They only drive up
• 19:29
  Speaker 2: house prices. There are plenty of policies there that drive
• 19:32
  Speaker 2: house prices up. But if you were tackling them, if
• 19:35
  Speaker 2: you were dumb enough to tackle them like Bill Shorten was,
• 19:38
  Speaker 2: you're guaranteed to not be voted in because you still
• 19:41
  Speaker 2: operate in a country where the majority, two thirds of
• 19:44
  Speaker 2: all voters own their home and they don't want to
• 19:46
  Speaker 2: go down.
• 19:47
  Speaker 1: But back to the work from home and the difference
• 19:49
  Speaker 1: it might have made if it did make a difference
• 19:51
  Speaker 1: to property investing. What's your initial reaction there?
• 19:55
  Speaker 2: So what it does is traditionally people wanted to avoid
• 19:58
  Speaker 2: the soul-destroying commute and so they moved as close to
• 20:01
  Speaker 2: the CBD as they could afford. Now that working from
• 20:04
  Speaker 2: home is a thing and you know, yeah, you only
• 20:05
  Speaker 2: need to go to the office every now and then,
• 20:07
  Speaker 2: we widened our perimeters. So all of a sudden, and
• 20:10
  Speaker 2: this is where we look at this two-hour drive time
• 20:12
  Speaker 2: radius from the CBD, all of a sudden a wider
• 20:15
  Speaker 2: area is considered acceptable. You're willing to commute longer if
• 20:19
  Speaker 2: you only go into the office one or two days
• 20:20
  Speaker 2: a week. Then the hour and a half commute each
• 20:23
  Speaker 2: way or whatever is fine. Whereas in the past, this
• 20:25
  Speaker 2: would have been ridiculous.
• 20:27
  Speaker 1: It would have been hell because you were doing it
• 20:29
  Speaker 1: five days, but you can do it two days. And
• 20:31
  Speaker 1: do you see in the numbers any reflection of that
• 20:34
  Speaker 1: kicking in? For instance, city zones... becoming more popular or
• 20:42
  Speaker 1: more expensive, that perhaps could be explained in some way
• 20:45
  Speaker 1: by that trend.
• 20:46
  Speaker 2: Yeah, we see the fastest growing areas in all capital
• 20:50
  Speaker 2: cities is the urban fringe. That's because this is where
• 20:53
  Speaker 2: you build greenfield development sites, so you can build relatively
• 20:56
  Speaker 2: cheap housing at scale fast. You build the three, four
• 21:00
  Speaker 2: bedroom stock that those millennials want, and you are just
• 21:04
  Speaker 2: in the commutable distance.
• 21:06
  Speaker 1: When you say fastest growing, you mean... Building growth.
• 21:10
  Speaker 2: Meaning population growth. I measure everything in population growth. But yeah,
• 21:13
  Speaker 2: this is where, if you look at the big cities,
• 21:15
  Speaker 2: they see growth everywhere right now. But it's the fringe,
• 21:19
  Speaker 2: it's like a belt around the urban fringe that is
• 21:22
  Speaker 2: an absolute boom town.
• 21:24
  Speaker 1: Have you seen any zones where there was price depreciation
• 21:26
  Speaker 1: because of work-from-home trends?
• 21:28
  Speaker 2: No, not really. Because you'd say, in a sense, the
• 21:32
  Speaker 2: inner suburbs would have seen a weakening, theoretically, in an
• 21:36
  Speaker 2: environment where we didn't also see massive population growth. And
• 21:39
  Speaker 2: so because you have growth wherever you look, essentially in
• 21:42
  Speaker 2: the big cities, prices don't fall. And then, of course,
• 21:45
  Speaker 2: prices didn't fall during the pandemic because we had, even
• 21:47
  Speaker 2: though we had negative population growth, people left the country.
• 21:50
  Speaker 2: We had super low interest rates. And if interest rates
• 21:53
  Speaker 2: are super low, people are happy to bid a lot
• 21:56
  Speaker 2: of money for their houses. And so that drove up prices.
• 21:59
  Speaker 2: And now we have this crazy shortage and interest rates
• 22:02
  Speaker 2: are going up and up. And we still see high
• 22:04
  Speaker 2: prices that don't really see them fall, structurally speaking.
• 22:09
  Speaker 1: One of the things I want to ask you, which
• 22:10
  Speaker 1: is an economic question, but I'm sure you're across it,
• 22:12
  Speaker 1: was this notion, very strong concept, I think, that what happened,
• 22:16
  Speaker 1: we had this extraordinary period where interest rates went to
• 22:19
  Speaker 1: zero and they fell from whatever, a long-term average of 7%
• 22:23
  Speaker 1: to zero for some years. And in that time, being
• 22:28
  Speaker 1: roughly half the five years, maybe seven years running up
• 22:32
  Speaker 1: to about a year and a half ago, two years ago,
• 22:35
  Speaker 1: What occurred in the property market was a capitalization of
• 22:38
  Speaker 1: interest rate changes, as reflected in what you're saying, that
• 22:43
  Speaker 1: basically people could bid more because the loans were cheaper
• 22:46
  Speaker 1: than they ever had been before. That period is now over.
• 22:50
  Speaker 1: So I'm asking you, do you think we will... Do
• 22:53
  Speaker 1: you think it's possible... People say property is very expensive. Yes,
• 22:57
  Speaker 1: it is on a historical and international measure. Do you think...
• 23:02
  Speaker 1: we could have a repeat in the next decade of
• 23:04
  Speaker 1: the sort of price appreciation we had in the last
• 23:06
  Speaker 1: decade that included that period of capitalization of interest rates.
• 23:10
  Speaker 2: Yeah, the way that I look at interest rates is,
• 23:13
  Speaker 2: you know, it would be, of course, fun to have
• 23:15
  Speaker 2: lower interest rates again, but I don't see that happening
• 23:18
  Speaker 2: because the RBA is fighting an uphill battle against demographics.
• 23:21
  Speaker 2: The RBA wants us to spend less money. That's why
• 23:24
  Speaker 2: they put up the interest rates because high interest rates
• 23:26
  Speaker 2: are deflationary. But what we're seeing in the next decade
• 23:29
  Speaker 2: is that we see the biggest generation ever, the millennials,
• 23:32
  Speaker 2: Moving through the highest spending phase of the life cycle.
• 23:34
  Speaker 2: They completely move through the mid-40s. That's the phase of
• 23:37
  Speaker 2: the life cycle where you spend more money than ever
• 23:39
  Speaker 2: before or ever after. Because you already had quite a
• 23:42
  Speaker 2: couple of promotions, so you have a lot of money
• 23:43
  Speaker 2: to spend. You already had all the kids that you
• 23:46
  Speaker 2: will ever have. So you have a lot of costs
• 23:49
  Speaker 2: associated with those kids. You have a big fat mortgage.
• 23:51
  Speaker 1: You can't save.
• 23:53
  Speaker 2: Every penny that you earn. No matter the scenario, it
• 23:55
  Speaker 2: goes out the door, back into the economy.
• 23:57
  Speaker 1: It really sucks for those people in the mid-40s.
• 24:00
  Speaker 2: And so the millennials will spend no matter what, guaranteed,
• 24:05
  Speaker 2: the biggest generation. Also, the richest generation, the baby boomers,
• 24:09
  Speaker 2: they're now moving into retirement. And traditionally, they would have
• 24:11
  Speaker 2: been meant to become a poor, penny-pinching pensioner cohort. But
• 24:16
  Speaker 2: they're not because they benefit from high house prices. They
• 24:19
  Speaker 2: all own their own homes. So they feel richer on paper,
• 24:21
  Speaker 2: the wealth effect. Plus, they own the vast majority of
• 24:24
  Speaker 2: cash savings. They benefit from high interest rates. Why would
• 24:28
  Speaker 2: the richest cohort stop spending money? So for the next decade,
• 24:31
  Speaker 2: we have this weird setup where the richest cohort and
• 24:34
  Speaker 2: the biggest cohort definitely want to spend money. And so
• 24:37
  Speaker 2: what do you do as an RBA? You can't just say, yeah,
• 24:39
  Speaker 2: we'll easily cut rates as long as everyone is spending
• 24:42
  Speaker 2: like crazy. So keep the rates elevated as a lower degree.
• 24:48
  Speaker 2: But we will spend money. like crazy. And so you
• 24:52
  Speaker 2: create this suffering at the bottom end of society.
• 24:55
  Speaker 1: It requires a consistent elevation of interest rates.
• 24:59
  Speaker 2: Is that what you're... Yeah, I'm saying structurally speaking, I
• 25:02
  Speaker 2: would say the interest rates want to be higher in
• 25:04
  Speaker 2: this decade than they were in the past decade.
• 25:08
  Speaker 1: Okay. Food for thought, folks. Very interesting. And you might just,
• 25:13
  Speaker 1: in terms of context, in terms of what Simon is saying,
• 25:15
  Speaker 1: also keep in mind that the savings that were built
• 25:17
  Speaker 1: up during the pandemic... have been effectively drained, with the
• 25:21
  Speaker 1: exception of mortgage money. It's been quite obvious and has been,
• 25:24
  Speaker 1: I mean, the savings rate, first of all, fell from
• 25:26
  Speaker 1: a long-term average of 6% back to about 1% now.
• 25:29
  Speaker 1: And the savings buffer that was built up during COVID,
• 25:34
  Speaker 1: as you will be aware, has been almost entirely drained
• 25:37
  Speaker 1: from the system. And people use that just basically for
• 25:40
  Speaker 1: ongoing living expenses. It was one of the things that
• 25:42
  Speaker 1: cushioned people in the last year, so it won't be
• 25:45
  Speaker 1: cushioning them next year. Okay, short break, back in a moment.
• 26:01
  Speaker 1: Hello and welcome back to the Australian's Money Puzzle podcast.
• 26:04
  Speaker 1: Standing away or stepping away from daily news and weekly
• 26:08
  Speaker 1: topics this week and looking at the big picture with
• 26:11
  Speaker 1: Simon Kussenmacher of the Demographics Group. He's a demographer and
• 26:15
  Speaker 1: very much across Australia. big trends in Australia. We've been
• 26:18
  Speaker 1: talking about the big trends in society. I wanted to
• 26:23
  Speaker 1: just zone in at the end of the show Simon
• 26:25
  Speaker 1: on place and region in very broad terms. Queensland seems
• 26:33
  Speaker 1: to be in many ways the state of the future
• 26:36
  Speaker 1: from a property perspective. It's consistently strong. In recent years,
• 26:39
  Speaker 1: it had a long, dull period, admittedly, until maybe three
• 26:43
  Speaker 1: years ago. It was pretty flat. Brisbane prices had a
• 26:45
  Speaker 1: long history of trouble. The city was overbuilt. Then it
• 26:48
  Speaker 1: had floods. Then there was COVID, etc. But it's been
• 26:52
  Speaker 1: steaming along since that time. And more broadly... internal migration
• 26:58
  Speaker 1: continues in that direction from New South Wales and from Melbourne.
• 27:03
  Speaker 1: How important is that? And what do you think of that?
• 27:05
  Speaker 1: I won't say consensus, but very commonly held opinion that
• 27:08
  Speaker 1: Queensland is where the property action might really centralize in
• 27:12
  Speaker 1: the future. Sydney being sort of, in some extent, full
• 27:15
  Speaker 1: to the gills and Melbourne being able to be overbuilt
• 27:17
  Speaker 1: if needs be.
• 27:19
  Speaker 2: Yeah, so I'm very optimistic about Southeast Queensland. And I,
• 27:22
  Speaker 2: of course, as a demographer, look at Southeast Queensland as
• 27:24
  Speaker 2: a single city, as a single conurbation. The local mayors,
• 27:27
  Speaker 2: the Tom Tate of the world would, of course, hate this.
• 27:30
  Speaker 2: But if you view it southeast Queensland as a single city,
• 27:33
  Speaker 2: you realize how powerful this can be. It is the
• 27:36
  Speaker 2: best connected of the three big capital cities then because
• 27:39
  Speaker 2: you have a string of pearls of three international airports
• 27:42
  Speaker 2: across the eastern seaboard. You have three CBDs. You could
• 27:46
  Speaker 2: even extend it to Toowoomba with a big regional airport.
• 27:50
  Speaker 2: So the most important challenge that this region has is
• 27:53
  Speaker 2: to improve the connectivity between its hubs. And this is
• 27:57
  Speaker 2: what actually the Olympic Games was meant to push. It
• 28:01
  Speaker 2: was meant to do this. It was meant to do
• 28:03
  Speaker 2: an Olympics on the cheap and use all the money
• 28:06
  Speaker 2: to build infrastructure. So that, of course, drives the region additionally.
• 28:10
  Speaker 2: So you have the fighting chance to get Olympic infrastructure
• 28:13
  Speaker 2: money into a city to a degree that neither Melbourne
• 28:16
  Speaker 2: or Sydney have. So that works in their favor. The
• 28:19
  Speaker 2: only problem is that we now realize, oh, Lord, We
• 28:21
  Speaker 2: have no workers. If we take all the workers to
• 28:24
  Speaker 2: build our infrastructure, they are not building residential. That hurts
• 28:27
  Speaker 2: the market there. And of course, 2009, we realized that
• 28:30
  Speaker 2: infrastructure is inflationary. So we can't build too much because
• 28:34
  Speaker 2: we don't want to add to the inflationary pressures. That said, though, ultimately,
• 28:39
  Speaker 2: they will build more infrastructure in Melbourne or Sydney in
• 28:41
  Speaker 2: the coming decade that will push them up. And of course,
• 28:44
  Speaker 2: you will have retirees continuing to move to Queensland. We
• 28:47
  Speaker 2: have now a big code of retirees ahead. So this
• 28:49
  Speaker 2: will come dry for the economy as well. And of course,
• 28:53
  Speaker 2: each of those big cities, Sunshine Coast, Gold Coast, Brisbane,
• 28:57
  Speaker 2: now have a CBD very much in their own right.
• 29:00
  Speaker 2: So they then create jobs and then attract populations. The
• 29:04
  Speaker 2: problem now is that Brisbane is, of course, becoming more
• 29:07
  Speaker 2: and more expensive. And so you're still in competition, the
• 29:10
  Speaker 2: big cities with each other. So that slows growth a
• 29:12
  Speaker 2: bit down. But then you look at the Gold Coast.
• 29:16
  Speaker 2: This is a region that has it all. It's a
• 29:18
  Speaker 2: retiree destination. It's a lifestyle destination. It has a CBD
• 29:21
  Speaker 2: in their own right. It also acts as an overflow
• 29:23
  Speaker 2: suburb of the people that cannot live in Brisbane. So
• 29:27
  Speaker 2: they have it all. It's perfect. It's a work-from-home destination
• 29:30
  Speaker 2: as well.
• 29:31
  Speaker 1: It sounds like you have no problem at all with
• 29:32
  Speaker 1: the consensus about Queensland basically having tickings.
• 29:36
  Speaker 2: Especially not if you talk about the Gold Coast or
• 29:38
  Speaker 2: Sunshine Coast. Very optimistic. there. I would say the same
• 29:41
  Speaker 2: is to a slightly lesser degree true for Geelong. Geelong
• 29:45
  Speaker 2: will be an absolute massive growth machine because it's the
• 29:50
  Speaker 2: overflow suburb of Melbourne and increasingly has an industry, a
• 29:54
  Speaker 2: CBD in their own right. There's nothing holding Geelong back either.
• 29:59
  Speaker 2: We then go further and we look at guaranteed trends
• 30:03
  Speaker 2: in the next 10 years will be an increase in
• 30:04
  Speaker 2: military spending. So who will benefit from more military spending?
• 30:08
  Speaker 2: It's a Darwin, it's a Townsville, it's an Adelaide, maybe
• 30:12
  Speaker 2: a Cairns to a smaller degree. But so you see
• 30:14
  Speaker 2: that these big shifts definitely will be mirrored in our
• 30:18
  Speaker 2: urban investments as well.
• 30:21
  Speaker 1: Very good. Some great new ideas there that we haven't
• 30:24
  Speaker 1: come upon on the show before, many of them We
• 30:27
  Speaker 1: often bounce off, but we don't sit down and talk
• 30:29
  Speaker 1: about them properly because we haven't had the right person
• 30:31
  Speaker 1: to talk to. But we did today. So, Simon Kustumarko,
• 30:34
  Speaker 1: thank you very much for being on the show. Very interesting.
• 30:36
  Speaker 1: We'll talk to you again, I'm sure.
• 30:37
  Speaker 2: It's been a delight. Lovely.
• 30:39
  Speaker 1: Thank you, Simon. And folks, keep those emails coming if
• 30:42
  Speaker 1: you can. themoneypuzzle at theaustralian.com.au One other thing. Do mention
• 30:48
  Speaker 1: us to someone you know in your circle. It would
• 30:51
  Speaker 1: be great to just tell them about the show. And
• 30:53
  Speaker 1: today's show was produced by the SM Angle. Talk to
• 30:56
  Speaker 1: you soon. Thank you.