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Is one growth driver more important than others? – Michael Yardney

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Clearly there are many different growth drivers, but is there one that stands out, one that is more important than the rest?

That’s the question we ask Michael Yardney.

Transcript:

Kevin:  A great question that we’re asked quite often on the show is “What is likely to drive future property price growth?” Clearly, there are many different growth drivers, but is there one that stands out, one that’s probably more important than the rest?

That is my question today for Michael Yardney from Metropole Property Strategists. Hi, Michael.

Michael:  Hello, Kevin.

Kevin:  Can you answer that question? Can you actually get it down to one?

Michael:  There is definitely one that’s more important than the rest, because in my opinion, economic growth is what’s going – in the medium to long term – to drive property price growth.

Because economic growth leads to jobs, jobs lead to wages growth, people come in and move because of jobs, and when people move to an area, that creates initially rental demand, moving on to eventually house-buying demand.

So of all the factors, economic growth is an important one.

Now, of course, all those other things are important as well – consumer confidence, interest rates, business confidence, political certainty, the banking system – but all that creates economic growth, so they very much lead to that.

Kevin:  Are there some key employment statistics we should consider, Michael?

Michael:  It’s important to understand how we now create economic growth, because our capital cities are now attracting 81% of job creation. Go back a decade; that was only 60%. In other words, we are building things, making things, creating things differently, and the forecast is for more jobs to be created in our capital cities than elsewhere in the future.

That’s because we’re no longer manufacturing things, we’re no longer living off the land.

If you look at some statistics, last year, Melbourne created 72,786 jobs, Sydney created 54,000 jobs, and that made up a huge bulk of all the job creation in Australia. But more importantly, Kevin, they were full-time jobs. In other areas, if you look at hospitality, if you look at retail, a lot of those are part-time jobs – not the same.

Kevin:  When you look at the graph that you’ve shown me here, that is just so obvious, isn’t it? 54,000 in Sydney, 72,000 in Melbourne, 18,000-odd in Brisbane – it’s lightyears. It really is between Sydney and Melbourne.

They’re quite staggering figures.

Would it be right then that investing outside of the major economic centers is fraught with risk?

Michael:  In my opinion, job creation is increasingly important for future property performance. Those areas with limited employment opportunities are likely to struggle with regard to figure capital growth – and rental returns, even. The opposite trend is, of course, going to occur – that those areas where the jobs are being created, there are going to be more people wanting to go there, and it’s a snowballing effect.

More highly skilled jobs, Kevin, are the ones that pay more, and they’re the people who have higher disposable incomes and who can afford to buy new houses or investment properties or new cars, and that creates more business in the local economy and it snowballs.

Kevin:  Correct me if I’m wrong, though, it wasn’t always that way, was it – economic growth not always concentrated in our major capital cities?

Michael:  No, it wasn’t, Kevin. Just back a century ago, and we were really dependent on the bush. About four million Australians lived in rural properties or small towns of fewer than 3000 people.

Most were market towns. We were served in an agricultural community, so we lived on the land. A century ago, only a third of Australians lived in cities even the size of Toowoomba, over 100,000 people.

It was mainly primary production. Mining also had a bit of a say in it. Then post World War II, we became a manufacturing country and things changed. We started to industrialize, and there was a big shift to urban living and into suburban homes. Then go back to the mid-1960s, three out of five Australians lived in a major city and manufacturing was creating most of the jobs.

But that’s no longer what drives us now, Kevin, so when we think about Australia’s economy and our exports, we tend to think about wool or sheep or iron ore or minerals, but in fact, interestingly a large part of our economy and exports today is services with health and education and tourism. We are now a service-based economy, Kevin.

Kevin:  It’s fascinating when you look at it that way, Michael. What is the bottom line?

Michael:  It appears safe to assume that service industries are really going to be our biggest source of employment and increasingly, the muscle behind economic growth in the future.

And most service-related jobs are going to be in our capital cities, but more than that, Kevin, they’re going to be in the central areas of our capital cities, and that’s what’s going to create the ongoing jobs growth, the ongoing wages growth, the ongoing population growth.

So to invest outside the three or four big capital cities of Australia in my mind is foolish. It doesn’t mean there aren’t opportunities elsewhere, but it’s just too hard to swim against that very strong tide of economic growth, Kevin.

Kevin:  Great talking to you, Michael. Michael Yardney from Metropole Property Strategists. By the way, before I let you go, congratulations on taking out that award for your blog site, Property Update – one of the most popular, most read blogs in the world, I believe.

Michael:  Kevin, I was amazed when I got ranked by Feedspot as the world’s number one property website and blog. That was against some very tough international competition. It wasn’t even something I entered into; they emailed me and said, “Hey, you won.”

Kevin:  Fantastic. Well, congratulations, Michael. Once again, Michael’s blog site is Property Update, and he’s a regular guest on our show, as well. Thanks for your time, Michael. We’ll catch you again next week.

Michael:  Thanks, Kevin.

 

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