Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Friday, 23 June 2017

Australian population clock strikes 24.5 million

Population growth picks up

It was only in February last year that we saw the Australian resident population clock pass 24 million.

Today, the population clock quietly ticks past 24,500,000. 

The population clock presently assumes an increase of one person every one minute and 22 seconds.


The quarterly rate of population growth in Australia has picked up strongly again since bottoming out in early 2015.

In fact absolute population growth has been very strong since the mining boom, and has comfortably exceeded expectations before the Sydney Olympics.  

Versus the 1999 ABS forecasts the population today is 2.95 million higher than was projected at that time. 

That's not to decry the forecasts, which must be always be wrong to some extent.

Rather this is to show the potential scale of the impact from the mining boom on the creaking infrastructure deficit.

In particular the growth in population of the capital cities has far outstripped anything that could have been expected two decades ago, and projections expect this trend towards urban densification to intensify. 

Thursday, 22 June 2017

Sydney grinds towards full employment

Jobs growth picks up

If this blog has adopted a marginally more upbeat tone in recent weeks, then it's mainly due to improved labour force indicators. 

Total employment expanded by +234,740 over the year to May 2017, rising by +2 per cent - a pace of employment growth miles ahead of the rate of population growth - to a fresh high of 12.21 million. 

Having apparently threatened to stall, employment growth in 2017 is off and running again in Greater Sydney, where the total number of employed persons is up by +1.91 per cent over the past year, comfortably fast enough to keep the unemployment rate declining. 

Smoothing out the volatility on a 3mMA basis, we can see that the annual rate of employment growth in Sydney has been picking up again since January 2017. 

As a result the Greater Sydney unemployment rate was again reported at just 4.4 per cent in May.

The annual average unemployment rate in Sydney has been declining consistently since February 2014, suggesting that the harbour city is approaching so-termed 'full employment'.

Elsewhere, Hobart is tightening nicely, but Brisbane's labour market is evidently struggling to absorb new migrants as apartment construction gets set to fade. 

At the industry level healthcare and social assistance has seen a net increase in employment of more than +509,000 over the past decade, the ageing population accounting for strong stock price performance in that sub-index. 

The most contentious point is what happens from here to total construction employment, which remains heroically elevated at a fraction under 1.1 million. 

Maroons thrive

State of Origin - series level

A symbolic shift in momentum is last night's thriller of a big game?

New South Wales looked set to dominate the match throughout, but Queensland ended up snatching the spoils right at the death. 

For half a decade now Brisbane has lived firmly in Sydney's shadow on the economic front as the coal and LNG downturn has bitten hard. 

And there's no doubt that Sydney has been powering ahead with its infrastructure plans while Queensland has been languishing.

Yet the cyclical migration north is well underway now. 

If only Queensland's political leaders could show as much spirit as its footie team! 

Wednesday, 21 June 2017

Job vacancies rise to a 5-year high

Jobs rebound

There has been much criticism of the Reserve Bank's apparently lackadaisical approach to monetary policy and the subdued economy in recent times - mainly from people like me, to be fair.

But the RBA must be feeling at least a little vindicated after a spate of improved news about the economy, particularly on the employment front. 

The unemployment rate was reported at a 51-month low this month.

And so it continues today. 

It was reported today that manufacturing employment has expanded by 40,000 over the past year, the strongest growth in a decade.

And the jobs outlook has brightened lately too.

The Department of Employment's job vacancies index was released today, with total seasonally adjusted vacancies rising to 172,403.

That's the highest result monthly since nearly five years ago June 2012.

Since the nadir in September 2013, the index has bounced back by 24.5 per cent.

Increases have been seen across all states and territories lately, but South Australia has been the surprise standout performer.

Low rates just starting to bite a little. Better!

Melbourne vacancies crash to a 7-year low

Infrastructure boost for SYdney

Most indicators suggest that Melbourne has moved into first place as the city creating the most jobs and growth.

That said, the New South Wales Treasurer handed down a 2017-18 Budget yesterday revealing that the state's finances are in rude health.

Each month I've been tracking the unprecedented stamp duty take resulting from Sydney's property boom, a gift which has kept on giving.

It was reported yesterday that the state beat projections in 2016-17 to hit another surplus of $4.5 billion, with NSW now in a negative net debt position, boasting a net worth totalling more than a quarter of a trillion dollars, and with enough left over to set up a $15 billion Future Fund.

To complete the virtuous circle the state now plans to unleash a towering $72.7 billion spend on infrastructure, incorporating an impressive range of projects, a further record $7.7 billion for health infrastructure, and $4.2 billion to build 26 new schools and to fund upgrades.

This is a positive move for Sydney, and the harbour city will need to get these projects moving to fill the hole left by any coming downturn in the rate of apartment building.

Melbourne vacancies keep falling

We seem to have reached an inflection point in this property cycle.

Lower interest rates spurred record numbers of property investors into the market since 2012.

But now regulators and banks are winding back interest-only loans and have introduced tougher serviceability measures and higher mortgage rates for investment products.

And this is at a time when demand for rentals has never been higher, with employees changing roles and locations more frequently than in times past, and a record boom in international visitors and students.

While the rate of dwelling construction has been impressive, I recently mused here whether the number of available rental properties will keep up with demand this year and next. 

Vacancy rates declined across much of Australia in May, with the national vacancy rate dropping from 2.4 per cent to 2.2 per cent. 

Vacancies remained super-tight in Hobart (0.6 per cent) and Canberra (1 per cent), while in Sydney the vacancy rate declined to just 1.8 per cent. 

Vacancy rates ticked down in Brisbane, Perth, and Darwin in May, though from elevated levels in the case of Perth and Darwin, where median asking rents continue to slide. 

In Melbourne the vacancy rate is almost in freefall, halving from more than 3 per cent at the end of 2014 to a 7-year low of just 1.5 per cent. 

Inflation impact?

SQM's asking rents index shows rents already rising for apartments in Sydney (up 3.5 per cent over the year to June 20), and quite sharply for apartments in Melbourne (up 5.9 per cent).

The vacancy rates figures suggest that rental prices may soon level off in the resources capitals, while there is mounting evidence of a tightening rental market in the two most populous capital cities. 

If rents do start to rise again then this has implications for monetary policy since rents form an important part of the consumer price index (combined with rising energy prices, a strengthening rental market could be enough to scope out further rate cuts).

On the other side of the ledger, oil prices have declined to their lowest level in 9 months. 

Overall, the figures suggested that the rental markets in the weakest cities are approaching their cyclical nadir, while most other markets ex-Brisbane are either tight or tightening. 

Most notably, the feared oversupply in Melbourne has not materialised - if anything the number of available rentals is failing to keep pace with demand. 

Tuesday, 20 June 2017

Capital city prices rise 10 per cent

City prices up 10 per cent

Capital city residential property prices rose by 2.2 per cent in the March 2017 quarter, to be 10.2 per cent higher over the year.

Apartment price growth has been strong in Sydney in recent years, but overall established house prices have comfortably outperformed through this cycle to date, partly reflecting an apartment overbuild in some regions. 

The total value of Australia's dwelling stock has now increased by 50 per cent since December 2011, rising by $2.2 trillion to a total of a shade over $6.6 trillion. 

Sydney leads, for now

Over the year to March the strongest price growth was recorded by Sydney (14.4 per cent) and Melbourne (13.4 per cent), though it seems highly likely that Sydney's annual growth rate is now firmly on a downwards trajectory from here. 

At the other end of the scale more annual price declines were suffered by Perth (-3.5 per cent) and Darwin (-5.9 per cent). 

The tight Hobart market recorded the strongest quarterly gain (3.4 per cent) to be up by a boisterous 11.3 per cent over the past year.

Indexing the numbers back to 2003 shows how long run dwelling price performance between the capital cities is converging, with the resources capitals coming back down to earth following the peak of the mining boom.

At the state level New South Wales has seen a huge surge in its mean dwelling price which has increased from $535,300 at the end of 2011 to $886,800, for an absolute increase of $351,500 or 66 per cent. 

Reflecting the end of the resources construction boom, over the same timeframe mean prices were up by only 3 per cent in Western Australia and declined by 2 per cent in the Northern Territory. 

Nationally the mean dwelling price has increased by $182,800 or 38 per cent since the end of 2011. 

Of the $2.2 trillion increase in the total value of the dwelling stock since 2011, the three most populous states of New South Wales ($1.2 trillion), Victoria ($0.6 trillion), and Queensland ($206 billion) together accounted for 91.5 per cent of the increase.

Supply response picks up

Finally, a quick look at the net increase in the dwelling stock, which has picked up the pace in swelling by 194,000 dwellings over the year to March 2017. 

The March stock figures are preliminary and subject to revision - the increase looks decidedly low in New South Wales, for example - but the annual rate of increase has clearly picked up the pace since 2012.

It's interesting to note that while Victoria has increased the size of its dwelling stock by 10.3 per cent over the past half decade - much faster than the 6.7 per cent increase in New South Wales - the strong annual increase of 2.2 per cent is still only just ahead of the state's rampant rate of population growth.

The wrap

There were more strong gains in dwelling prices in Sydney (3 per cent) and Melbourne (3.1 per cent) across the first quarter of the calendar year.

Meanwhile Adelaide prices rose by 1.5 per cent to be 5 per cent higher over the year, and Canberra snuck in under the radar to record annual growth of 8.9 per cent. 

The above having been said, the double digit annual growth rate is likely to represent the peak for this cycle, with a raft of macroprudential measures appearing well set to douse investor activity. 

Monday, 19 June 2017

New car sales doing record high burn-offs

Cashed up Aussies

When there is clear-cut evidence of financial stress rising, I'm the first to post about it

But it's increasingly clear that we're only being fed half a story here, and consumers are far from tapped out. 

We've reached the daft situation where bad news (e.g. falling car sales last month, ignoring the weather impact) is reported as a "canary in the coalmine", but strong results are dismissed as fake, or more often, "just like Ireland".

The full picture includes that Australian household wealth reached $9.4 trillion in the first quarter of this year - soon to surpass double the level seen at the nadir in 2009 - while currency & deposits have been piling up to the extent that Aussie households are now sitting on a 'cash' pile exceeding $1 trillion for the first time on record. 

Personal credit growth has also been tracking along in negative territory for quite some time. 

It's not hard to see why: mortgage rates have essentially halved since 2009 for many homeowners, which is why I can't buy into the 'everyone is in financial stress' narrative - it just doesn't make sense. 

Record car sales

In May new motor vehicle sales surged to 100,476 on a seasonally adjusted basis, the highest monthly figure ever recorded, so it looks like the canary just came to.

Total new Sports Utility Vehicle (SUV) sales have bolted to a record high of nearly 447,000.

Queensland sales rebounded by 5 per cent in May after inclement weather in early April, while over the past 12 months Victoria has been the strongest performer, with annual sales rising by 4 per cent year-on-year to a record high of 330,711. 

While New South Wales recorded the highest number of sales over the year to May at 396,585, there is a stack of mounting evidence that the momentum in the economy has shifted towards Melbourne. 

New car sales continued to decline by 7 per cent year-on-year on rolling annual basis in Western Australia, while production volumes continue to fade away towards zero as automotive assembly Down Under is gradually wound up. 

The wrap

There may be a case for Uber drivers accounting for some of this month's record sales, while home equity redraw may also have played a role (not sure about that, as generally banks have been closing up the purse strings, not the other way around). 

Overall, though, it was a monumental month of new motor vehicle sales breaking all previous records, while personal credit growth is actually in decline. Witch hunt!

Is Sydney heading for a rental crisis?

Investors knocked out

An idea seemingly out of left field given record dwelling completions in Sydney, but stick with it.

Despite record apartment construction in 2016, the rental market is ultimately governed by the supply of rental properties on the market and the demand from tenants, not the absolute number of properties built.

Sydney is a city with an unusually high demand for rentals, for a few reasons.

Firstly, because it's an expensive city to buy a home to live in, and in an era where job stability is far less common most inhabitants will be a part of the rental market at one time or another (if nothing else the high rates of stamp duty ensure this). 

Sydney can also be a transient type of place - the harbour city attracts the most migrants from overseas, but also loses the most incumbent residents interstate or to the regions of New South Wales. 

This is a dynamic which leads to a high rate of churn and lots of tenancies. 

As home to the strongest economy in the nation in recent years, the annual rate of net overseas migration into New South Wales has been accelerating again, from 50,000 in 2010 back up to to more than 76,500 at the last count in September 2016. 

And then there is the unprecedented boom in the number of international students.

At the same time, a significant crackdown in lending to investors is underway, with a credit squeeze and rates being hiked on investor loans, while investors increasingly starved of credit are beginning to turn their interest to cheaper markets upstate or interstate. 

Changes announced in the state budget were designed to bring more first homebuyers into the market in their stead. 

Domain Group reported this week that apartment rents have increased by 17.4 per cent in Sydney over the last five years, with the growth in apartment rents topping 20 per cent in half a dozen sub-regions. 

Sydney may not be at full employment just yet, but with an unemployment rate of just 4.4 per cent it's been getting pretty close, and we know from historical experience that this tends to bring a high demand for rental properties. 

Sydney also has a track record of seeing rental prices spike when demand for investment properties falls sharply, such as from 1985 to 1988 (negative gearing ban), and in 2008 (financial crisis). 

A post to bookmark and watch over the next year. 

Sunday, 18 June 2017

How many apartments are we building?


Another day, another property bust article from me old mucker Roger Montgomery, this time in Professional Planner:

Usually when writing financial articles or documents there's an internal checking process that goes something like this: "Does this make sense? No, this does not make sense." - but for some reason this doesn't seem to apply when Monty writes about dwelling supply.

The only reason I can think of is to cause people to panic, sell their home, and invest in a managed fund (happy to stand corrected, though).

Have we been producing 230,000 apartments annually, or indeed anywhere close to that level?

Let's take a look at some numbers...

How many?

2016 was by some margin the greatest calendar year on record for dwelling construction in Australia.

In total just under 114,000 houses were completed, and fewer than 95,000 attached dwellings (including all townhouses, 'plexes, units, and apartments).

It was a a monster year for dwelling construction with the industry operating close to full capacity, as evidenced by price inflation in materials and labour prices, and a shortage of qualified project managers. 

These completion figures are before accounting for stock obsolescence or demolitions, and therefore the net additions were considerably lower.

The ABS preliminary estimates puts the annual net increase in the total number of dwellings at +172,800, but these are of course subject to revision, and in any case these are quite muddy waters at the best of times.

It's certainly true that over time we have been building fewer houses per capita and shifting towards apartments.

In reality what happened was that by 2009 Sydney completions had crashed to their lowest level since 1953, while there was also the uncertainty of the financial crisis to contend with.

Since 2013, through a combination of record low interest rates, very strong dwelling price growth, and an unprecedented demand for new apartments from investors in China, developers have pumped out a record supply response.

But even still, we're not near 230,000 apartments annually.

Even lobbing in everything that isn't a house we've got nowhere near producing 230,000 units per annum.

Housing Industry Association (HIA) numbers have shown that while the number of semi-detached commencements has continued to rise, high-rise apartment starts have already fallen away quite sharply in Victoria and Queensland.

This means that peak commencements took place back in the 2016 financial year at a total of 116,300 multi-units.

One key dynamic through this property market cycle - given that it takes on average at least three times as long on average for an apartment to be completed versus a house - is that the pipeline of apartments still to be delivered remains huge in 2017.


One other point, the population increase over the year to September 2016 was 1.5 per cent, or +348,700, not 1.3 per cent as claimed in Monty's latest op-ed:

The rate of population growth also now appears to be accelerating, certainly to above 350,000 per annum, and possibly towards 400,000.

To put that in context, remember last year when Australia's population hit 24 million? This week, the population clock will fizz past 24,500,000. Next year, we'll pass 25 million.

As I noted 13 months ago - when Monty argued that there was already 18 months worth of oversupply - any way you spun the numbers back then you couldn't get to an oversupply of 200,000 dwellings.

For that reason, Monty's claim that rents are falling around the country is also not correct.

I noted here this week that "Sydney rental crisis" could be the next big story as investors are clubbed out of the market, and the latest figures from Domain Group suggest that this could follow hard upon.

For as long as the present rate of immigration and population growth continues, you can more or less forget any oversupply in Melbourne, but the usual regional caveats apply.

There could be some challenges on the outer-Sydney fringe, for high rise apartments in Blacktown and Parramatta, while inner city Brisbane apartments have been a hot topic for at least a couple of years now.

Saturday, 17 June 2017

6 ways the inner Brisbane apartment market is adjusting

Boots on the ground

I've been watching the Brisbane market closely this year, though I don't always post that much on my blog page about it. Here are six ways in which the inner Brisbane apartment market is steadily adjusting.

1 - Mothballing

Developers of apartment projects have found it increasingly tough to shift the last few units in their developments, even with discounting and particularly now foreign buyers have pulled back. This is a common story heard from local market participants. 

Apartment approvals in Brisbane have dropped off a cliff, while many owners of development sites will now opt to sit on them until the next cycle, or some are selling their sites to cut their losses. 

It's clear from wandering around the 'hood that some long marketed projects have not seen a sod turned, suggesting that unsurprisingly pre-sales have been struggling along (e.g. in the 'Gabba).

2 - Construction slowdown

We had a bit of divine intervention in the first quarter of the year, with Queensland apartment building work done dropping by 22 per cent, largely due to severe weather. 

Cyclone activity aside, generally construction does now seem to be progressing with less urgency, and the cyclical peak in activity has now passed. 

3 - Staged releases

The big listed developers are releasing their major projects in stages, and some may well be nudged out or held back a little until the market is ready to play ball at acceptable margins. 

4 - Renters centralising

You'll probably have to use your zoom function to be able to see this, but some of the established apartment towers now have furniture on nearly every balcony (which demonstrably wasn't the case in 2016, as indeed I showed on this blog). 

This dynamic is pulling rental demand away from some of the older and tired rental housing in middle ring suburbs, in turn encouraging the older stock be renovated or removed. 

This is not universally the case, however, and some of the larger or newly completed projects clearly have many vacant units yet to be absorbed. 

5 - Discounting

Falling prices, you say? Yes, there's been a fair bit of that, both for market sales and rental prices. 

The weakening rental market isn't always picked up perfectly in the data. For example, sometimes landlords would rather offer a free month of rent, electronic products, their mother-in-law...pretty much anything to avoid dropping the headline weekly rental amount. 

But, the signs are there. You only need to look at the banners on the buildings to see that there umpteeen vacant apartments still to be filled. It's a bona fide renter's market out there, folks. 

6 - Immigration

Finally, one thing that the developers anticipated correctly is accelerating immigration from interstate.

In fact, Brisbane is now attracting more internal migrants than any other capital city, and young professionals will gravitate to the inner city locales, drawn in by the prospect of a rental market bargain combined with walkability.

The adjustment is far from finished yet, granted, but it does not appear to be the case that there is an oversupply that can be measured in years, as some have claimed. 

Apartment approvals and commencements have dropped dramatically, while Greater Brisbane's population growth accelerated to 1.8 per cent in FY2016, in doing so surging to 41,135 from 35,090 just a year earlier. 

Population growth across the greater capital city will be faster again in 2017, probably at approaching 45,000 by my projections.

So, a weak market, but a gradually adjusting one.  

Sydney on track to smash record dwelling completions

Record construction

Metropolitan Sydney has seen a huge acceleration in population growth since 2004, which resulted in an undersupply of dwellings. 

However, supply is now responding with gusto.

37,608 dwellings were completed over the year to March 2017, including 27,078 multi-units, while approvals and dwellings under construction figures suggest that this figure will head plenty higher still. 

As I've charted in more detail here previously, Parramatta and Blacktown are two of the LGAs set to see a record number of apartments constructed. 

2017 will end up being the biggest year on record for dwelling construction in the harbour city, while population growth may also slow as folks migrate to south-east Queensland.

In 2016 Australia completed just under 95,000 attached dwellings. 

Weekend reads: Must see articles of the week

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Friday, 16 June 2017

Middle ring Sydney tight

Rental vacancies tight

I spoke to the manager of an agency with a large rental roll in Sydney last week, and he noted that he had just one vacancy across his entire portfolio right now.

In his opinion, the next big news story could be the "Sydney rental crisis" as new macroprudential rules restrict investor activity.

Domain reported strong rental price rises for both houses and apartments in Sydney and Melbourne, the index moving into ling with SQM's asking rents index.

Elsewhere there were strong rises in rents in Canberra and Hobart, but significant annual declines in Darwin and Perth. 

The REINSW vacancy rate survey for May 2017 showed that middle ring Sydney has consistently recorded tight vacancy rates over the past four months. 

The other area seeing very tight rental vacancies is Wollongong, while property markets in Newcastle and the Hunter Valley have righted themselves after a tough period as the coal price crashed.