As 2021 gets underway, there is a genuine sense of an economy that is again starting to build momentum. Thankfully for Australia, the worst of Covid-19 seems to be behind the nation, though the threat has not gone away.

Optimism is now being reflected in much of the data and press. The Job advertisements over a fifteen year period demonstrate two important points in the more recent years. The first point relates to changes in Australia’s total number of job advertisements, which is often viewed as a sound indicator of contraction or growth in the economy. The job advertisement data charted below highlights what most were feeling, that 2019 was not a great year. Had we not had the interference of Covid -19 in 2020, the question has to be asked, “would the government have been so bold with stimulus and infrastructure programs?” The answer is probably no, which would have made the RBA’s job even harder given the already record low interest rates at the time. However, what has been demonstrated is that when fiscal policy and monetary policy combine, the results for the broader economy and citizens can be quite substantial.

The second point being that a “V” shaped recovery has surpassed many expectations, ours included. Although the author suspects that if the data was drilled down to at a finer grade, that “V” shaped recovery would not be applicable to every industry.

If a State-by-State perspective is entered into, the east coast of Australia has underperformed, particularly in NSW and VIC which have failed to reach double digit growth. Whether this is reflected in lower migration rates, particularly given both States high reliance on international migration to power their economy, or simply the value proposition may be better in other States for those returning back to Australia and looking for somewhere to live. Both of those States have also been more badly affected by the Pandemic, so potentially there are both economic and social consequences that go with that.

The CBA are now postulating a potential 16% increase in residential values nationally in 2021/22, though as little as 8-9 months ago, were forecasting a 20% fall in the sector. Forecasting will make a liar out of most of us, but to get it so wrong one has to question the validity of the modelling or the inputs being used.

The growth story for residential property has largely already started across Australia, though apartments are definitely lagging housing as the recovery gathers momentum. What is not being reflected in the December data is the strength of the job advertisements correlating with the pricing mechanisms. Having stated that, price growth will lag job data, particularly in an upwards facing cycle.

The real value capture story however is not around capital city price growth. It now revolves very much around regional centres that showed limited growth over the past property boom, but are now playing a game of catch up as the value proposition combined with often superior lifestyle options has meant that capital growth is accelerating at a far greater rate than the cities.

The above table is ranked on the basis of a Year on Year comparison for the major regions. This table highlights that much of the growth is related to resource or non-coastal locations that are generally considered highly affordable when compared against their respective capital city. What the data doesn’t unfortunately show is whether this push is being driven by first home buyers, families, right sizers or retirees looking to unlock equity in their principal place of residence to help fund their retirement.

If the recovery continues at the same rate, big picture productivity gaining infrastructure and monetary policy remains accommodative. With the exceptions of the loss to life Australians have had to endure, Covid-19 may well have proven to be the catalyst that the nation needed to rethink its place in the world and its own capacity for self-reliance. It may actually prove more favourable to the regions with many having felt removed from much of the city centric decision-making processes.

Whether it be the regions or capital cities, 2021 at the beginning of the year should be providing most with a much greater sense of optimism and far less impending doom.

Matthew Gross | Director | mgrosss@nprco.com.au

2021, Justified Optimism

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