In today’s show Michael Yardney, from Metropole Property Strategists, will tell us what’s going to drive our economy now that the mining boom is over.
Kevin: Well, the mining boom is well and truly over, so what’s going to drive our economy now? That’s the question we pose today of Michael Yardney from Metropole Property Strategists.
Michael, your answer to that?
Michael: I think we use to, in the old days, live off the sheep’s back around Federation time, and then we were a manufacturing country. We were protected from the Global Financial Crisis by the fortuitously timed resources boom spurred by China’s insatiable appetite for almost anything we could dig out of the ground at the time. But, Kevin, that boom is over, and I don’t think it is going to come back again ever to that level.
The government was looking for other ways to drive our economy. Initially, it was real estate, the property sector, the construction sector, and that has carried us through for a few years. But I guess a good question is what industries are going to take us into the future? The simple answer is service industries, Kevin.
Kevin: Let’s talk a bit more about that, Michael.
Michael: Service industries are going to drive our long-term growth, and that’s in particular the health industry, the finance industry, insurance, and education. It’s not just servicing Australians but servicing our geographic neighbors, also, including Asia and China.
Interestingly, I was surprised when I read a report from the ANZ Bank and Price Waterhouse saying that service-based industries – like I said, finance, engineering, education, tourism – already employ nine out of ten people, Kevin. They account for 75% of Australia’s GDP, so it’s quite significant.
But the suggestion is it’s where the growth will be in the future, and that’s where wages growth is going to be. In my mind, that’s what investors should keep an eye on, because that’s where people are going to also be able to afford – if they get higher wages growth – to pay more for properties, and that will lead to capital growth of properties, as well.
Kevin: But, Michael, these service industries are predominantly city-based, aren’t they? What does that mean for the regional areas?
Michael: Unfortunately, it means that more of our migrants and more of our locals are going to be moving to the big capital cities. If you look at 2015 – the current year – Sydney has created 87,000 jobs. The rest of Australia, including all the other capital cities, created just over 80,000 jobs.
The vast majority of jobs created are currently in Melbourne and Sydney, Sydney taking the lion’s share. That’s where most of the migrants are coming. Remember our large population growth is basically being driven by overseas migration. Sure, we’re taking some refugees, and sure, we’re taking some family reunions, but the vast majority is people wanting jobs.
You’re right, Kevin. There’s going to be a bigger gap between the regional cities and the big capital cities. Even within the capital cities, Kevin, the majority of economic growth is going to center around their CBDs where the big office buildings for a lot of these industries are.
Kevin: Michael, we’ve seen in the past where governments have tried to encourage people to go and work remotely, particularly with things like the Internet, being able to work in those areas. Is that a possibility? Is that going to be the savior for some of these regional areas?
Michael: Kevin, they’ve always talked about decentralization, and the government has attempted by moving government organizations and tax officers to the regional area. They’ve also encouraged industries to move there with tax breaks. But in my mind, that’s really just fiddling around the edges. That’s unlikely to be a driver of major growth of population, wages, and real estate in the future.
Like other countries, our economy is going to change to being service-industry based in the big capital cities, and in particular to world-class cities of Melbourne and Sydney. That means we’re going to have more yuppies… Remember that term from the 1980s?
Michael: …Young, upwardly-mobile professionals who are going to be willing to and able to afford to pay a premium for housing because they’re going to want to live closer to where there work is. There’s going to be gentrifying of those inner suburbs. They’re not going to want that really long drive or public-transport commute to the outer suburbs.
Kevin: Thank you, Michael. We’ll leave it there. Michael, of course, and his blogsite, PropertyUpdate.com.au.
Michael Yardney, thank you for your time.
Michael: My pleasure, Kevin.