With Melbourne’s unemployment rate lowest nationally,
consumers are looking past uncertainty towards bright outlook

RPM sits down with Daniel Gradwell Associate Director, Property at ANZ to provide an update on key economic & property market developments over Q2

What are the key take-outs for Victoria’s residential property market in Q2?

There’s no doubt we’re seeing a good news story. In Q1 it was encouraging to see Melbourne catching up to the rest of the country, especially with consumer confidence coming from such a long way back in 2020. But what’s really impressive is that we’ve now started to overshoot other states.

One of the key takeaways from an economics perspective is Victoria’s 4.4% unemployment rate is now the lowest of all states and territories, and even lower than the start of the pandemic. This demonstrates that the stimulus packages had the desired effect.

Overall, Victoria’s economy performed well, which in turn is reflected in a positive housing sector. While previously we could attribute most of the housing price increase to low interest rates, its growth now reflects the state’s economic performance and the added Government stimulus in addition to the steadily low interest rates.

What trends are emerging in the housing market, given the current situation?

While it’s really not possible at this point to predict timing for the reopening of international borders, what’s been interesting is the magnitude of internal migration in Australia. There’s been unusual patterns emerging over the past 12 months, with Australians starting to move regionally at the expense of capital cities, with Perth and Brisbane also benefiting from new residents.

This reflects a societal shift towards a different type of working life, with people less concerned about commute times given the prevalence of working from home, and also requiring different spaces. Working full time on a shared kitchen bench is not sustainable, and the falls in inner-city apartment rental returns particularly is testament to that.

However this really is only a temporary story, because as soon as borders reopen the internal migration numbers will get swamped by the overseas factor, which generally accounts for between 60-70% of Victoria’s population growth.

What are economic and property indicators telling us?

There was considerable concern that jobs would dry up and unemployment would rise following the conclusion of JobKeeper in March. But in fact, we’ve seen job creation continue, with 25,000 more Victorians in jobs than before the stimulus was wound back.

On the property front, the HomeBuilder program also finished in March, but since then approvals for detached housing have still been sitting at record levels. And while it won’t last forever, it means we’re on solid footing for the rest of the year with a strong pipeline of work for the next several quarters. This is so important for the construction industry, given the sector’s multiplier effects on the rest of the economy.

Looking forward, one of the key risks we are likely to face is the reintroduction of macroprudential regulation. The longer housing prices continue to rise, the more likely the Australian Prudential Regulation Authority (APRA) may introduce stabilising measures. One of the key risks of this intervention is the pendulum swinging too far the other way and triggering a downturn, as was the case in the last cycle when APRA put limits on in 2015 to 2017, with a material decline in prices occurring during 2017 & 2018.

A significant lesson as we move towards a ‘Covid-normal’ is that short, sharp lockdowns don’t have a lingering impact, and we’re seeing this demonstrated time and time again. While restrictions implemented in Victoria at the end of May impacted auctions and transactions during the immediate period, it did not have a material impact on the market. People are looking past that short-term disruption and still feeling confident about the future, with their decisions reflecting this. And it’s not just the data that’s showing this – anecdotally there is incredible positivity for the future of the economy, and further stimulus and proactive decision making will further enhance this sentiment.