There’s been some dire economic news delivered to the Australian public throughout 2020. From falling retail spending and GDP contraction to challenges with mainland China and the loss of export opportunities.
But perhaps the most widely relatable among all the figures is that of unemployment.
Every average Aussie can see the tangible outcomes of job losses one way or another. Whether felt directly, through family members or in the wider community where a favourite barista or hairdresser is now without a pay packet.
According to the ABS, Australia’s unemployment rate hit 7.5 per cent in July. That translates into 1,009,400 people within the employable population who’re out of work and is 296,200 more people without a job as compared to July 2019 figure.
These pretty dismal figures aren’t surprising given the extraordinary measures that have been implemented to deal with the pandemic, but they still make for sobering reading.
There are also some economists who quote these headline numbers as evidence we are heading toward a precipice with inevitable conclusions – among them being a plummet in property values.
While I’m not here to paint an unrealistically rosy picture about the nation’s unemployment number, I would like to take pause and inject some perspective into the discussion.
You see, there are reasons why smart investors don’t need to be concerned about a high national unemployment rate killing property markets.
Drilling down
First up, property is weathering the economic storm far better than many predicted early on this year.
Throughout March and April, calls of double-digit value drops were coming thick and fast from analysts. There were expectations of value decreases in the range of 10 to 20 per cent, particularly in larger markets. There were even some first-time buyers cheering the upcoming price cliff – an ‘own goal’ celebration in my mind, but that’s perhaps something for a different blog.
Despite these predictions, we’ve seen just how resilient property has been as an asset class.
CoreLogic data revealed that price softening since mid-March has been only two per cent in Sydney and four per cent in Melbourne. Not great, but a far cry from some of the more pessimistic forecasts.
But what’s more promising is that, compared to the same time last year, property values have actually risen across all major capitals except Perth. So, I think we can all get comfortable with the concept of property value rigidity.
National unemployment
Now, let’s look at this unemployment rate of 7.5 per cent.
The problem with basing decisions on this figure alone is that there is no nuance in a national unemployment percentage. The rate captures everyone who’s out of work across all industries. It doesn’t allow for the fact that while some sectors have borne the brunt, others have survived or even flourished.
It’s also not location-specific. For example, I’m certain there are café owners in Brisbane doing far better than those in Melbourne at present.
In many ways, saying THE unemployment rate is 7.5 per cent is the same as saying Brisbane’s median house price is $650,000. Within that figure are multiple sub-markets made up of a cross-section of property types, price points and suburbs. Some areas will have a median of $400,000 while others will see a median of $1.1 million.
So, why don’t we apply the same logic to the unemployment figure and utilise it as part of a raft of metrics when choosing prime investment locations?
Aspire accredited advisors look at two elements of employment in suburbs they’re investigating for investment potential:
Full-time employment in the suburb – which should be higher than the state’s average and unemployment (not part-time) which should be lower than the state’s average.
The industry of employment and top professions in the suburb – this provides an idea of what typical homeowners and tenants do for a living so we can gauge whether a suburb is dominated by resilient industry employees.
The other factor our advisors consider is median weekly household incomes as compared to city and state averages. This paints a picture of average household wealth. By researching wealth, we have an important variable to use in determining what would be considered an ‘affordable’ rent level in a particular suburb. It also helps illustrate how aspirational residents are in an area, and whether they’re likely to be part of a suburb’s gentrification story.
In combination with other metrics, these figures help reveal locations which are more likely to weather the economic storm than others – and may, in fact, experience property price growth and high renter demand even while national unemployment is rising.
Headline figures are fine to a degree, but by relying on an advisor who knows how to appropriately break down the results, investors can benefit from strengthening markets even during tough times.
Speak with an Accredited ASPIRE Property Network Advisor to help with your first step or next step into property investment.
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