1 00:00:11,220 --> 00:00:14,340 Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm 2 00:00:14,400 --> 00:00:18,250 Speaker 1: James Kirby, the wealth editor at The Australian. Welcome aboard, everybody. 3 00:00:18,270 --> 00:00:22,090 Speaker 1: If you're an investor, it's worth knowing that this week 4 00:00:22,890 --> 00:00:26,450 Speaker 1: may well be a turning point on rates, which are 5 00:00:26,530 --> 00:00:29,830 Speaker 1: so important, of course, to investors. The big banks have 6 00:00:29,890 --> 00:00:35,010 Speaker 1: been cutting their deposit rates that they offer retail customers. 7 00:00:35,750 --> 00:00:37,810 Speaker 1: Three of the big four have moved in the last 8 00:00:37,850 --> 00:00:41,030 Speaker 1: few days, cutting their rates by about half. a percent 9 00:00:41,229 --> 00:00:45,040 Speaker 1: roughly from a 5% or so to 4.5% on the deposit. 10 00:00:45,500 --> 00:00:50,900 Speaker 1: That means that the banks really do believe that rates 11 00:00:50,940 --> 00:00:53,540 Speaker 1: are coming down. Cynically, of course, you might say they're 12 00:00:53,580 --> 00:00:57,300 Speaker 1: moving well ahead of time and maybe moving ahead of 13 00:00:57,460 --> 00:00:59,640 Speaker 1: any cut we even get. We'll talk about that in 14 00:00:59,700 --> 00:01:03,530 Speaker 1: a moment. We've also been talking about how all year, 15 00:01:03,610 --> 00:01:06,670 Speaker 1: if you've listened to various shows, I've had several guests 16 00:01:06,770 --> 00:01:09,720 Speaker 1: saying that units are going to go better than standalone 17 00:01:09,730 --> 00:01:12,360 Speaker 1: houses on price. And that is exactly what's been happening 18 00:01:12,900 --> 00:01:15,880 Speaker 1: in recent times. You'll see that reported. And one other, 19 00:01:15,900 --> 00:01:21,619 Speaker 1: I thought, quite topical, newsworthy item is today the major 20 00:01:21,640 --> 00:01:24,560 Speaker 1: report on childcare has come out. It's from Victoria University. 21 00:01:25,860 --> 00:01:30,860 Speaker 1: And it gives a lie of the land on childcare. Basically, 22 00:01:30,980 --> 00:01:32,979 Speaker 1: it says that one in four Australians live in what 23 00:01:33,000 --> 00:01:35,640 Speaker 1: they call a childcare desert. That is where there are 24 00:01:35,680 --> 00:01:38,920 Speaker 1: three or more kids for each spot. the child care 25 00:01:38,940 --> 00:01:43,800 Speaker 1: center there are regional towns and suburbs where those stats 26 00:01:43,840 --> 00:01:46,000 Speaker 1: go off the deep end and there are six kids 27 00:01:46,040 --> 00:01:48,620 Speaker 1: for every spot and that's on the basis that you 28 00:01:48,640 --> 00:01:52,110 Speaker 1: can even get into a child care my guest today 29 00:01:52,270 --> 00:01:55,570 Speaker 1: is impeccably credentialed to talk about all this because a 30 00:01:55,770 --> 00:01:59,710 Speaker 1: she's economist at amp b she's a regular guest on 31 00:01:59,730 --> 00:02:02,960 Speaker 1: the show and c she just did a very interesting 32 00:02:03,650 --> 00:02:07,530 Speaker 1: What would you call it? A social media video about childcare. 33 00:02:07,750 --> 00:02:10,690 Speaker 1: And she filmed herself going down to the childcare centre 34 00:02:11,169 --> 00:02:14,230 Speaker 1: and speaking as an economist, but also someone dashing to childcare, 35 00:02:14,250 --> 00:02:16,430 Speaker 1: which if you've ever done that, you'll never forget it. 36 00:02:16,700 --> 00:02:19,380 Speaker 1: And you know all about it. It's Diana Messina of 37 00:02:19,520 --> 00:02:22,100 Speaker 1: A & P. How are you, Diana? Hi, James. I'm good. 38 00:02:22,200 --> 00:02:23,059 Speaker 2: Thank you for having me on. 39 00:02:23,540 --> 00:02:25,239 Speaker 1: Great to have you on. Great to have you on. 40 00:02:25,380 --> 00:02:27,440 Speaker 1: The thing about childcare, and call me a cynic if 41 00:02:27,460 --> 00:02:30,560 Speaker 1: you will, but the thing about childcare is you're so 42 00:02:30,650 --> 00:02:35,360 Speaker 1: interested in childcare. I'm just remembering that I was on 43 00:02:35,400 --> 00:02:37,739 Speaker 1: the board of a childcare centre when we had kids 44 00:02:37,780 --> 00:02:41,600 Speaker 1: in childcare. And I can remember actually being applying for 45 00:02:41,620 --> 00:02:43,790 Speaker 1: grants to renovate the place and all that sort of thing. 46 00:02:44,169 --> 00:02:46,350 Speaker 1: And you're so involved. And then your kids move on. 47 00:02:46,610 --> 00:02:50,230 Speaker 1: And well, it's only human. You're not as intensely interested 48 00:02:50,270 --> 00:02:52,730 Speaker 1: as you were. But we will do that in a moment, folks. 49 00:02:52,750 --> 00:02:54,290 Speaker 1: But I want to talk to Diana, first of all, 50 00:02:54,530 --> 00:02:57,320 Speaker 1: about some big picture things, because it's news to me, actually, 51 00:02:57,639 --> 00:03:03,210 Speaker 1: that the big banks have been cutting the rates. They... depositors. 52 00:03:03,530 --> 00:03:05,990 Speaker 1: And that to me is them really moving now. It's 53 00:03:06,050 --> 00:03:08,370 Speaker 1: beyond theory now. They are of the belief that rates 54 00:03:08,389 --> 00:03:11,090 Speaker 1: are going to fall. Do you think that tells us 55 00:03:11,169 --> 00:03:15,280 Speaker 1: anything we didn't already know about where rates are going, Diana? 56 00:03:16,980 --> 00:03:20,780 Speaker 2: Well, the banks price their fixed rates and the deposit 57 00:03:20,840 --> 00:03:26,040 Speaker 2: rates of what money market expectations tell us. And money 58 00:03:26,080 --> 00:03:28,090 Speaker 2: markets are pricing in a rate cut by the end 59 00:03:28,120 --> 00:03:30,730 Speaker 2: of the year in Australia here, four rate cuts in 60 00:03:30,750 --> 00:03:34,600 Speaker 2: the U.S., And money market expectations in Australia are very 61 00:03:34,639 --> 00:03:37,480 Speaker 2: much influenced by what happens globally, particularly in the US. 62 00:03:38,080 --> 00:03:40,240 Speaker 2: So we may not get a rate cut by the 63 00:03:40,260 --> 00:03:43,680 Speaker 2: end of the year, but clearly the market has moved 64 00:03:43,800 --> 00:03:45,910 Speaker 2: and is signaling that there are going to be rate 65 00:03:45,950 --> 00:03:48,610 Speaker 2: cuts within the next 12 months. The market jumps around 66 00:03:48,650 --> 00:03:52,550 Speaker 2: a lot. We can't necessarily take it to heart that 67 00:03:52,570 --> 00:03:54,710 Speaker 2: this is exactly what's going to happen. But I think 68 00:03:54,750 --> 00:03:57,339 Speaker 2: that's just what the banks are responding to, this change 69 00:03:57,530 --> 00:03:59,900 Speaker 2: in money market expectations about where rates are. 70 00:03:59,880 --> 00:04:00,400 Speaker 1: Going to go. 71 00:04:00,970 --> 00:04:04,190 Speaker 2: The banks don't have any clue as to what the 72 00:04:04,210 --> 00:04:06,510 Speaker 2: Reserve Bank is actually going to do because the Reserve 73 00:04:06,530 --> 00:04:09,270 Speaker 2: Bank hasn't met yet. They are the ones that decide 74 00:04:09,610 --> 00:04:12,220 Speaker 2: the rates on that day. So I think it's just 75 00:04:12,280 --> 00:04:15,240 Speaker 2: them responding to what the financial markets are saying right now. 76 00:04:16,480 --> 00:04:21,100 Speaker 1: I thought that the depositors were very important to our 77 00:04:21,140 --> 00:04:24,440 Speaker 1: local banks in terms of where they set their rates today. 78 00:04:25,800 --> 00:04:29,820 Speaker 2: Well, absolutely they are. We've been in this period where 79 00:04:29,860 --> 00:04:34,359 Speaker 2: deposit rates have been extremely high over the past 12 80 00:04:34,360 --> 00:04:38,440 Speaker 2: to 18 months. So this is a normalisation to the 81 00:04:38,500 --> 00:04:39,669 Speaker 2: rates that we've had. 82 00:04:39,690 --> 00:04:46,020 Speaker 1: Are they high on what measure? Above inflation or historically or. 83 00:04:47,100 --> 00:04:51,339 Speaker 2: They're high relative to the last five to 10 year average. 84 00:04:52,779 --> 00:04:56,780 Speaker 2: The deposit rates have basically moved in line with the 85 00:04:56,860 --> 00:05:03,570 Speaker 2: rate hikes and the variable interest rates, about 85% of 86 00:05:03,630 --> 00:05:07,690 Speaker 2: the rate hikes have been passed onto the average variable rate. 87 00:05:07,930 --> 00:05:11,230 Speaker 2: I usually look at the one that's discounted because most 88 00:05:11,250 --> 00:05:13,750 Speaker 2: of the banks are still giving discounts to the headline 89 00:05:13,810 --> 00:05:17,880 Speaker 2: rates Usually in most rate cycles, we see about 90% 90 00:05:17,880 --> 00:05:21,200 Speaker 2: pass-through from changes to the cash rate to the actual 91 00:05:21,600 --> 00:05:23,640 Speaker 2: variable interest rate. So it's been a little bit less 92 00:05:23,660 --> 00:05:24,140 Speaker 2: than normal. 93 00:05:24,460 --> 00:05:26,500 Speaker 1: Well, I must say, folks, if you are thinking of 94 00:05:26,940 --> 00:05:29,659 Speaker 1: locking in some money on a term deposit and you 95 00:05:29,680 --> 00:05:31,400 Speaker 1: were waiting for the top, well, they say no one 96 00:05:31,440 --> 00:05:33,990 Speaker 1: rings a bell at the top, right? But this is 97 00:05:34,070 --> 00:05:36,470 Speaker 1: as close as you'll get to it, I think, where 98 00:05:36,550 --> 00:05:41,590 Speaker 1: they're just starting what could be the first of a 99 00:05:41,630 --> 00:05:46,580 Speaker 1: sequence of cuts. OK, now, the other thing that I 100 00:05:46,779 --> 00:05:49,960 Speaker 1: wanted to talk to you about briefly was that unemployment 101 00:05:49,980 --> 00:05:53,239 Speaker 1: turned out to be stronger than people thought. The numbers 102 00:05:53,279 --> 00:05:55,930 Speaker 1: behind the scenes were stronger. And I'm taking from that 103 00:05:55,970 --> 00:05:57,630 Speaker 1: full employment is still here. And I'm taking from that 104 00:05:57,670 --> 00:06:00,870 Speaker 1: that basically rental, the demand for rents isn't going to 105 00:06:00,910 --> 00:06:02,870 Speaker 1: change much because people will be able to pay them. 106 00:06:02,890 --> 00:06:05,330 Speaker 1: There really is no sign of unemployment going the wrong 107 00:06:05,370 --> 00:06:07,910 Speaker 1: way at the moment. I know the headline number moved 108 00:06:08,050 --> 00:06:11,630 Speaker 1: ever so slightly up. But could you explain what your 109 00:06:11,650 --> 00:06:13,560 Speaker 1: interpretation of the unemployment numbers are? 110 00:06:15,029 --> 00:06:17,590 Speaker 2: The labour market's been quite interesting in Australia. What we've 111 00:06:17,650 --> 00:06:22,020 Speaker 2: seen is employment growth being quite high, actually, but the 112 00:06:22,080 --> 00:06:25,300 Speaker 2: unemployment rate trending up. And the two moving in line 113 00:06:25,360 --> 00:06:27,510 Speaker 2: doesn't necessarily make a lot of sense. Usually, you would 114 00:06:27,529 --> 00:06:31,250 Speaker 2: expect that if employment growth was slowing, you would see 115 00:06:31,290 --> 00:06:34,589 Speaker 2: the unemployment rate go up. What's been happening in Australia 116 00:06:34,790 --> 00:06:37,910 Speaker 2: is that we are seeing an increasing amount of people 117 00:06:38,110 --> 00:06:39,890 Speaker 2: actually in the labour force. So people who are in 118 00:06:39,910 --> 00:06:42,060 Speaker 2: the labour force are either those who are working or 119 00:06:42,100 --> 00:06:46,260 Speaker 2: looking for work, therefore technically unemployed. The participation rate in 120 00:06:46,279 --> 00:06:48,300 Speaker 2: the labour force has gone up to a record high. 121 00:06:48,339 --> 00:06:51,180 Speaker 2: So the number of people age over 15 going into 122 00:06:51,200 --> 00:06:53,460 Speaker 2: the labour force is at its highest level that it's 123 00:06:53,480 --> 00:06:56,960 Speaker 2: ever been in Australia. That's a result of high immigration 124 00:06:57,339 --> 00:07:00,080 Speaker 2: into the country and forcing people into the workforce, but 125 00:07:00,120 --> 00:07:02,900 Speaker 2: also that people are feeling confident enough to go and 126 00:07:02,940 --> 00:07:05,520 Speaker 2: try and find a job, which is why employment growth 127 00:07:05,580 --> 00:07:07,820 Speaker 2: is still holding up, but the unemployment rate is moving 128 00:07:07,900 --> 00:07:11,990 Speaker 2: up just quite slowly, I'd say. It bottomed at 3.5%, 129 00:07:11,990 --> 00:07:16,150 Speaker 2: it's now 4.2%. As you said, the unemployment rate is 130 00:07:16,230 --> 00:07:18,730 Speaker 2: moving higher, but it's still not at a level where 131 00:07:18,770 --> 00:07:22,250 Speaker 2: you'd be becoming concerned about the state of the consumer. 132 00:07:22,350 --> 00:07:25,830 Speaker 2: I think, obviously, the consumer has weakened in the past 133 00:07:25,830 --> 00:07:28,950 Speaker 2: 18 months, and we've seen that through lower retail spending, 134 00:07:29,080 --> 00:07:33,880 Speaker 2: particularly in volumes, per capita retail spending overall, very weak 135 00:07:33,920 --> 00:07:39,480 Speaker 2: consumer confidence, negative real disposable income growth. But we're not 136 00:07:39,500 --> 00:07:44,060 Speaker 2: at the point where consumers are having to double down 137 00:07:44,180 --> 00:07:47,550 Speaker 2: on their mortgages and are forced to sell. We haven't 138 00:07:47,590 --> 00:07:51,390 Speaker 2: seen a huge increase in arrears or delinquency rates. If 139 00:07:51,430 --> 00:07:53,710 Speaker 2: the unemployment rate gets up a little bit higher, we 140 00:07:53,730 --> 00:07:56,730 Speaker 2: think it will get to four and a half, 4.6%. 141 00:07:56,730 --> 00:08:00,220 Speaker 2: That's probably at a level where you might see some 142 00:08:00,260 --> 00:08:03,940 Speaker 2: further weakening in consumer spending, but not enough where you're 143 00:08:03,980 --> 00:08:06,540 Speaker 2: going to see levels of forced selling in the property market. 144 00:08:06,560 --> 00:08:09,200 Speaker 1: So those numbers from an investor's point of view and 145 00:08:09,220 --> 00:08:12,380 Speaker 1: say a property investor point of view, talk about defaults 146 00:08:12,520 --> 00:08:15,780 Speaker 1: or bargains in the market where people are defaulting on 147 00:08:15,800 --> 00:08:21,160 Speaker 1: their mortgages. Folks, there is no signal in results, particularly 148 00:08:21,180 --> 00:08:26,140 Speaker 1: from banks, that is happening in any significant fashion whatsoever. However, Diana, 149 00:08:26,180 --> 00:08:29,550 Speaker 1: what about if I'm trying to make a decision as 150 00:08:29,580 --> 00:08:33,550 Speaker 1: an investor on rates and the RBA is out there 151 00:08:33,590 --> 00:08:36,890 Speaker 1: saying there's no rates till Christmas, the biggest bank in 152 00:08:36,910 --> 00:08:40,950 Speaker 1: the country is out there cutting rates already because they Well, 153 00:08:40,970 --> 00:08:45,309 Speaker 1: they can, but also, of course, cutting them for depositors, 154 00:08:45,330 --> 00:08:47,449 Speaker 1: that is, not borrowers. But the point I want to 155 00:08:47,530 --> 00:08:49,940 Speaker 1: ask you is, is the chance of a rate cut 156 00:08:50,500 --> 00:08:53,339 Speaker 1: elevated then? And is it even worth waiting for? 157 00:08:54,059 --> 00:08:58,459 Speaker 2: If you're looking to get into the market and you 158 00:08:58,480 --> 00:09:00,860 Speaker 2: want a variable interest rate, then you do have to 159 00:09:00,900 --> 00:09:04,040 Speaker 2: wait for it because variable interest rates aren't being cut yet. 160 00:09:04,540 --> 00:09:06,979 Speaker 2: Some of the fixed rates have come off. their highs, 161 00:09:07,020 --> 00:09:09,720 Speaker 2: but that was already happening even six months ago when, 162 00:09:10,559 --> 00:09:12,800 Speaker 2: as I said before, the fixed rate moves with money 163 00:09:12,820 --> 00:09:17,360 Speaker 2: market expectations around interest rates. So it depends what sort 164 00:09:17,420 --> 00:09:20,540 Speaker 2: of stage you're in terms of the investment cycle. I 165 00:09:20,580 --> 00:09:23,540 Speaker 2: think a rate cut is still worth waiting for in 166 00:09:23,600 --> 00:09:26,020 Speaker 2: the sense that there is still the risk of a 167 00:09:26,090 --> 00:09:28,330 Speaker 2: rate rise here. If you listen to what the Reserve 168 00:09:28,350 --> 00:09:31,870 Speaker 2: Bank is saying, they still sound hawkish. If we get 169 00:09:31,970 --> 00:09:34,910 Speaker 2: an upside surprise in inflation in the next six months, 170 00:09:35,770 --> 00:09:40,059 Speaker 2: they could potentially lift interest rates again if they're becoming 171 00:09:40,080 --> 00:09:41,320 Speaker 2: concerned about inflation again. 172 00:09:41,440 --> 00:09:45,260 Speaker 1: And that means those banks would never cut their borrowing 173 00:09:45,280 --> 00:09:47,800 Speaker 1: rates and would just lift those deposit rates back up. 174 00:09:48,400 --> 00:09:49,790 Speaker 2: Well, that's usually how it works. 175 00:09:50,230 --> 00:09:53,410 Speaker 1: Okay. Keep that in mind, folks. You might think that 176 00:09:53,450 --> 00:09:55,550 Speaker 1: it's a natural line to draw that if they're cutting 177 00:09:55,570 --> 00:09:57,830 Speaker 1: their deposit rates, well, the lending rates must be coming down. 178 00:09:58,950 --> 00:10:03,070 Speaker 1: Not necessarily. Sorry, but don't make that assumption because you 179 00:10:03,110 --> 00:10:05,600 Speaker 1: would be running ahead of yourself. And the banks can 180 00:10:05,620 --> 00:10:08,280 Speaker 1: run ahead of themselves if they wish. Their banks, they're 181 00:10:08,320 --> 00:10:11,939 Speaker 1: operating in a different set of dynamics than you and I. Hey, 182 00:10:11,980 --> 00:10:13,579 Speaker 1: one other thing I wanted to ask you about before 183 00:10:13,620 --> 00:10:16,270 Speaker 1: we go to the break. A question in a while 184 00:10:16,590 --> 00:10:22,560 Speaker 1: from Omar. Really interesting about how that in his particular suburb, 185 00:10:22,580 --> 00:10:25,859 Speaker 1: which must be in Melbourne because the prices weren't going anywhere, 186 00:10:26,679 --> 00:10:28,640 Speaker 1: the rates were going up at the same time. Council 187 00:10:28,679 --> 00:10:29,960 Speaker 1: rates were going up at the same time. I don't 188 00:10:29,980 --> 00:10:31,600 Speaker 1: know if you look at this as an issue, but 189 00:10:32,460 --> 00:10:35,390 Speaker 1: I do see spot reports all the time about councils 190 00:10:35,950 --> 00:10:40,730 Speaker 1: in funding, various funding crises and emergencies with that. Have 191 00:10:40,750 --> 00:10:43,329 Speaker 1: you looked at that at all, whether council rates may... 192 00:10:44,290 --> 00:10:47,970 Speaker 1: go up even in suburbs where prices aren't going up. 193 00:10:48,290 --> 00:10:49,050 Speaker 1: This is interesting. 194 00:10:49,170 --> 00:10:53,770 Speaker 2: I think it probably reflects a lagged inflationary response from 195 00:10:53,809 --> 00:10:57,110 Speaker 2: the council. So usually the council rates do have to 196 00:10:57,130 --> 00:11:01,569 Speaker 2: respond to land values, which have been going up alongside 197 00:11:01,590 --> 00:11:05,130 Speaker 2: home prices. I mean, the home price index is basically 198 00:11:05,150 --> 00:11:09,000 Speaker 2: a value of land and the cost of building. So 199 00:11:09,150 --> 00:11:11,790 Speaker 2: land values are still going up. across the nation, in 200 00:11:12,260 --> 00:11:15,410 Speaker 2: Victoria and Melbourne in particular, it's been a different story. 201 00:11:15,470 --> 00:11:18,110 Speaker 2: Melbourne prices have been going down, as you mentioned. I 202 00:11:18,170 --> 00:11:21,710 Speaker 2: think the council rate increases are probably reflecting just the 203 00:11:21,730 --> 00:11:25,209 Speaker 2: high inflation environment that we've been in. And those types 204 00:11:25,550 --> 00:11:30,670 Speaker 2: of rates, like even in utilities, insurance, all those types 205 00:11:30,750 --> 00:11:34,210 Speaker 2: of rates that we pay usually tend to lag the 206 00:11:34,250 --> 00:11:37,000 Speaker 2: broader inflation cycles. I think it's probably only a matter 207 00:11:37,020 --> 00:11:40,560 Speaker 2: of time before we see some softer inflation in some 208 00:11:40,600 --> 00:11:44,130 Speaker 2: of those council rates, but probably not outright deflation. Unfortunately, 209 00:11:44,150 --> 00:11:45,710 Speaker 2: that's not the way the councils operate. 210 00:11:46,550 --> 00:11:50,250 Speaker 1: Does that mean that the rate increases might not be 211 00:11:50,290 --> 00:11:51,309 Speaker 1: as severe as they have been? 212 00:11:51,730 --> 00:11:53,590 Speaker 2: I think that they have to stop being as high. 213 00:11:53,870 --> 00:11:57,820 Speaker 2: And we've basically already seen the peak in insurance premiums 214 00:11:57,860 --> 00:12:01,130 Speaker 2: and insurance costs and finance costs as well. Those types 215 00:12:01,270 --> 00:12:04,390 Speaker 2: of rates just tend to reflect what happened in inflation 216 00:12:04,410 --> 00:12:07,760 Speaker 2: a few months ago. And also, of course, the specifics 217 00:12:07,800 --> 00:12:10,240 Speaker 2: that go alongside that industry, like in insurance, they've had 218 00:12:10,260 --> 00:12:12,460 Speaker 2: their own issues that have been going on that have 219 00:12:12,500 --> 00:12:16,339 Speaker 2: led to higher premiums and these higher costs for consumers. 220 00:12:16,400 --> 00:12:21,229 Speaker 2: But obviously, the broader inflationary environment impacts a lot of 221 00:12:21,270 --> 00:12:23,370 Speaker 2: those rate-setting agencies. 222 00:12:24,190 --> 00:12:25,990 Speaker 1: Hey, I want to ask you one last thing. It 223 00:12:26,030 --> 00:12:28,490 Speaker 1: came up once or twice on the show. In certain 224 00:12:28,570 --> 00:12:31,850 Speaker 1: parts of the country... And even in the big cities, 225 00:12:32,690 --> 00:12:37,750 Speaker 1: the economics of property, particularly unit investments, was that the 226 00:12:37,790 --> 00:12:43,900 Speaker 1: replacement cost of building apartment towers in some areas are 227 00:12:44,740 --> 00:12:47,180 Speaker 1: as high, if not higher, than the cost of the 228 00:12:47,220 --> 00:12:50,900 Speaker 1: apartments inside existing towers. And that's like a real fundamental 229 00:12:50,940 --> 00:12:52,980 Speaker 1: economic thing, isn't it? That if you can get something 230 00:12:53,340 --> 00:12:56,250 Speaker 1: and it's actually a discount on its replacement cost, then 231 00:12:56,280 --> 00:12:58,710 Speaker 1: you really have, from a textbook point of view, a 232 00:12:58,730 --> 00:13:01,920 Speaker 1: bargain apparently. Have you come across it? Are you aware 233 00:13:01,960 --> 00:13:05,510 Speaker 1: of it? Could you explain to even the listeners why 234 00:13:05,530 --> 00:13:06,370 Speaker 1: that's significant? 235 00:13:07,210 --> 00:13:11,790 Speaker 2: I think that probably reflects the fact that the expectations 236 00:13:12,270 --> 00:13:14,319 Speaker 2: for home values are still that they're going to go 237 00:13:14,650 --> 00:13:17,120 Speaker 2: up in terms of the land value, but also that 238 00:13:17,160 --> 00:13:19,830 Speaker 2: the cost of the materials, the labour costs, that go 239 00:13:19,870 --> 00:13:23,410 Speaker 2: into building a potential new dwelling just continue to rise. 240 00:13:23,630 --> 00:13:26,010 Speaker 2: And we've seen that in that new dwelling construction cost 241 00:13:26,030 --> 00:13:29,210 Speaker 2: component of the consumer price index. We see that in 242 00:13:29,330 --> 00:13:33,830 Speaker 2: rents and in labour costs as well, particularly around construction, 243 00:13:33,890 --> 00:13:37,850 Speaker 2: because we've seen that the infrastructure construction space has basically 244 00:13:37,870 --> 00:13:40,770 Speaker 2: been crowding out the residential construction space, leading to higher 245 00:13:40,809 --> 00:13:45,250 Speaker 2: wages in the residential construction sector. So that probably explains 246 00:13:45,290 --> 00:13:49,260 Speaker 2: that dynamic. as well as this expectation that home prices 247 00:13:49,280 --> 00:13:50,820 Speaker 2: will continue to rise in Australia. 248 00:13:51,540 --> 00:13:55,080 Speaker 1: Yes. Well, it's interesting. Certainly, the numbers are there that 249 00:13:55,160 --> 00:13:57,900 Speaker 1: in some parts that is the case. It may reflect 250 00:13:57,940 --> 00:14:01,540 Speaker 1: that kind of inflation spike that really hit builders for 251 00:14:01,580 --> 00:14:06,330 Speaker 1: a while. And when you come across that, if you 252 00:14:06,370 --> 00:14:09,310 Speaker 1: find a place that is where the existing stock is 253 00:14:09,370 --> 00:14:11,469 Speaker 1: actually at a discount or replacement value, then you're really 254 00:14:11,510 --> 00:14:14,250 Speaker 1: onto something. We'll take a short break. We're going to 255 00:14:14,290 --> 00:14:18,410 Speaker 1: have a look at childcare. I expect that for most listeners, 256 00:14:18,450 --> 00:14:20,000 Speaker 1: if you're involved with childcare, you're going to find this 257 00:14:20,030 --> 00:14:22,440 Speaker 1: really interesting. If childcare is coming down the line in 258 00:14:22,460 --> 00:14:24,680 Speaker 1: your life, you're going to find it really interesting. If 259 00:14:24,720 --> 00:14:28,700 Speaker 1: you've passed the childcare point of your life, you might 260 00:14:28,920 --> 00:14:31,690 Speaker 1: skip the segment, except to say, folks, that there is 261 00:14:31,730 --> 00:14:34,790 Speaker 1: also a property dimension here, of course, with big childcare 262 00:14:34,850 --> 00:14:37,790 Speaker 1: listed groups and what's going on there. So we will 263 00:14:37,990 --> 00:14:39,730 Speaker 1: deal with that in a moment, and then we'll have 264 00:14:39,750 --> 00:14:52,170 Speaker 1: some questions. Hello, welcome back to the Australian's Money Puzzle podcast. 265 00:14:52,230 --> 00:14:56,730 Speaker 1: I'm James Kirby talking to Diana Mussina of AMP. Diana 266 00:14:56,790 --> 00:14:59,270 Speaker 1: is an economist who's been on the show regularly. Now, 267 00:14:59,890 --> 00:15:02,880 Speaker 1: this wasn't my plan at all, but it's very useful 268 00:15:02,910 --> 00:15:06,520 Speaker 1: that this major child care report came out today from 269 00:15:06,540 --> 00:15:09,840 Speaker 1: Victoria University. It's getting a lot of coverage around the place. 270 00:15:09,880 --> 00:15:12,380 Speaker 1: I see it was released exclusively to the ABC, which, 271 00:15:12,420 --> 00:15:15,600 Speaker 1: of course, I would be very annoyed about because I 272 00:15:15,640 --> 00:15:17,260 Speaker 1: like these things to be released to everybody at the 273 00:15:17,300 --> 00:15:21,700 Speaker 1: same time. Just a point there, Victoria University. And it's 274 00:15:21,840 --> 00:15:25,970 Speaker 1: a major report, really, as it looks at Australian childcare issues, 275 00:15:26,130 --> 00:15:29,090 Speaker 1: it looks at overseas issues, and it looks at the 276 00:15:29,130 --> 00:15:33,570 Speaker 1: availability of places. A couple of broad points. The situation 277 00:15:33,590 --> 00:15:36,430 Speaker 1: has improved ever so slightly in recent times. That's one 278 00:15:36,480 --> 00:15:39,280 Speaker 1: thing in terms of the supply of centres. But then 279 00:15:39,300 --> 00:15:42,800 Speaker 1: there are Spots all over the country where there is 280 00:15:42,820 --> 00:15:46,340 Speaker 1: what they call deserts. Regional areas, pretty obvious it wouldn't 281 00:15:46,360 --> 00:15:50,660 Speaker 1: be a childcare center, but also lower socioeconomic areas. And 282 00:15:50,820 --> 00:15:53,360 Speaker 1: parts of the city where there's just bad luck, where 283 00:15:53,400 --> 00:15:57,140 Speaker 1: there are less spots than there are children. So let's 284 00:15:57,180 --> 00:16:00,260 Speaker 1: talk about macro first and then specifically your own experience here. 285 00:16:00,730 --> 00:16:03,310 Speaker 1: Where are we on childcare, do you think? Do you 286 00:16:03,330 --> 00:16:06,350 Speaker 1: think it's improving broadly on a macro point of view 287 00:16:06,410 --> 00:16:09,270 Speaker 1: in terms of a service locally? 288 00:16:09,970 --> 00:16:12,210 Speaker 2: There's actually been a huge amount of change in the 289 00:16:12,250 --> 00:16:14,610 Speaker 2: childcare sector in the last few years. The Labor government 290 00:16:14,650 --> 00:16:19,430 Speaker 2: introduced some new policies last year that increased the childcare 291 00:16:19,530 --> 00:16:23,340 Speaker 2: benefit to many families, broadened it out, also gave some 292 00:16:23,480 --> 00:16:28,480 Speaker 2: additional funds to the preschool sector, which is different to childcare. 293 00:16:28,500 --> 00:16:30,540 Speaker 2: I think a lot of people think of as basically 294 00:16:30,860 --> 00:16:33,140 Speaker 2: from one year to three and a half or four, 295 00:16:33,160 --> 00:16:36,060 Speaker 2: but there's also this preschool sector. And Australia is quite 296 00:16:36,140 --> 00:16:40,530 Speaker 2: strange in that we have some community funded preschools, in 297 00:16:40,630 --> 00:16:43,190 Speaker 2: some specific areas, but if you're lucky enough to live 298 00:16:43,210 --> 00:16:45,150 Speaker 2: in that area, you get it. If you're not too bad, 299 00:16:45,230 --> 00:16:48,310 Speaker 2: you have to pay $ 180 or $ 200 a day for 300 00:16:48,350 --> 00:16:52,290 Speaker 2: continued childcare. So that, and that's only something that I've 301 00:16:52,320 --> 00:16:55,280 Speaker 2: discovered after becoming a parent myself. I think we still 302 00:16:55,320 --> 00:16:59,080 Speaker 2: have a long way to go to solve some of 303 00:16:59,120 --> 00:17:02,060 Speaker 2: the issues that you say around the right provisions of 304 00:17:02,080 --> 00:17:04,780 Speaker 2: the number of centres in specific areas. We've seen a 305 00:17:04,840 --> 00:17:08,619 Speaker 2: huge boom in in demand for centres in terms of 306 00:17:08,660 --> 00:17:10,780 Speaker 2: where people are living. So in their local areas, there 307 00:17:10,820 --> 00:17:14,310 Speaker 2: are no spots for children, but in areas like the CBD, 308 00:17:14,369 --> 00:17:17,070 Speaker 2: for example, childcare centres have actually had to close because 309 00:17:17,490 --> 00:17:19,409 Speaker 2: less people are working in the city. A lot of 310 00:17:19,430 --> 00:17:23,750 Speaker 2: them have actually merged together in the CBDs as people 311 00:17:23,790 --> 00:17:26,310 Speaker 2: have chosen to send their kids to more local centres. 312 00:17:26,430 --> 00:17:29,159 Speaker 2: So this is The childcare dynamic is really changing. And 313 00:17:29,180 --> 00:17:31,550 Speaker 2: then we've had also some large wage gains that have 314 00:17:31,570 --> 00:17:33,990 Speaker 2: gone to the childcare sector, which reflects the fact that 315 00:17:34,010 --> 00:17:37,950 Speaker 2: the aged care sector had these wage gains last year, 316 00:17:38,320 --> 00:17:41,530 Speaker 2: and that pushed people out of childcare into aged care. 317 00:17:41,570 --> 00:17:44,109 Speaker 2: So there's not enough staff going back into childcare. Hopefully 318 00:17:44,130 --> 00:17:47,010 Speaker 2: these wage gains can actually encourage more people into the sector. 319 00:17:47,230 --> 00:17:49,470 Speaker 2: And I personally think that the wage gains were very 320 00:17:49,490 --> 00:17:50,909 Speaker 2: much needed for that space. 321 00:17:51,150 --> 00:17:53,869 Speaker 1: And there's the services that are so important and wages 322 00:17:54,290 --> 00:17:57,750 Speaker 1: had run terribly behind in some of those services, aged care, 323 00:17:58,300 --> 00:18:01,800 Speaker 1: childcare too. Now, from a property perspective, still with big picture, 324 00:18:01,820 --> 00:18:04,719 Speaker 1: there was a time, perhaps there are still some believers 325 00:18:04,800 --> 00:18:07,280 Speaker 1: out there that childcare could be a business. Not only 326 00:18:07,300 --> 00:18:09,800 Speaker 1: could it be a business, a successful business, but so 327 00:18:09,859 --> 00:18:11,620 Speaker 1: successful that it could be listed on the stock market 328 00:18:11,680 --> 00:18:15,590 Speaker 1: and we could all be investors in successful childcare centres. 329 00:18:15,630 --> 00:18:22,090 Speaker 1: This idea was cabooshed by ABC Childcare Centres, which spectacularly 330 00:18:22,109 --> 00:18:24,510 Speaker 1: went off the rails. This is some years ago. But 331 00:18:25,130 --> 00:18:27,379 Speaker 1: I mention it because from the ashes of that, if 332 00:18:27,410 --> 00:18:30,680 Speaker 1: you like, came Goodstart. And there are now really three 333 00:18:30,720 --> 00:18:34,560 Speaker 1: big childcare chains in Australia. Goodstart, which is a non-profit company, 334 00:18:35,290 --> 00:18:39,389 Speaker 1: and was created from the wreckage, if you like, of 335 00:18:39,410 --> 00:18:42,090 Speaker 1: the ABC Child Care Centres group when it went under. 336 00:18:42,950 --> 00:18:45,909 Speaker 1: Then there's Guardian, which is very big across the country 337 00:18:45,970 --> 00:18:48,490 Speaker 1: and is currently for sale, owned by Private Equity Group. 338 00:18:49,190 --> 00:18:52,680 Speaker 1: And then there's G8, which is a listed stock and 339 00:18:53,140 --> 00:18:55,220 Speaker 1: is at least 20 or 30% lower now than it 340 00:18:55,260 --> 00:18:58,260 Speaker 1: was five years ago. Not a successful stock, but was 341 00:18:58,320 --> 00:19:01,450 Speaker 1: put forward to people as a property play. as much 342 00:19:01,550 --> 00:19:04,709 Speaker 1: as a childcare business because they had property underneath them. 343 00:19:05,190 --> 00:19:07,690 Speaker 1: I'm using this as a lead-in to ask you, Diana, 344 00:19:07,730 --> 00:19:10,500 Speaker 1: whether you think it's actually, not that it's legitimate, I'm 345 00:19:10,520 --> 00:19:13,560 Speaker 1: not interested in the sort of philosophical part of all this, 346 00:19:13,600 --> 00:19:17,740 Speaker 1: but whether childcare as a business is a feasible investment 347 00:19:18,040 --> 00:19:22,780 Speaker 1: for private industry and whether anyone could ever really expect 348 00:19:22,800 --> 00:19:27,250 Speaker 1: to make money as an investor, shareholder in listed childcare centres. 349 00:19:28,010 --> 00:19:28,850 Speaker 1: Have you ever looked at that? 350 00:19:29,310 --> 00:19:33,890 Speaker 2: To be honest, I think... The answer is probably more no, 351 00:19:34,030 --> 00:19:38,619 Speaker 2: because when I think about the long-term drivers of a 352 00:19:38,680 --> 00:19:41,520 Speaker 2: stock performance, I'm not a stock analyst, but when I 353 00:19:41,540 --> 00:19:44,530 Speaker 2: think about generally what drives shares in the long term, 354 00:19:44,619 --> 00:19:50,050 Speaker 2: it's profit growth. And I don't think fundamentally that childcare is... 355 00:19:50,020 --> 00:19:56,040 Speaker 2: a profitable investment. It's very highly regulated. So it has 356 00:19:56,080 --> 00:20:00,840 Speaker 2: a lot of public sector involvement and funding. And I 357 00:20:00,920 --> 00:20:03,619 Speaker 2: find it difficult to imagine that the profit margins are 358 00:20:04,340 --> 00:20:07,960 Speaker 2: high or that you could potentially expect to be running 359 00:20:08,160 --> 00:20:13,270 Speaker 2: high profit growth in that type of very highly regulated area. 360 00:20:13,290 --> 00:20:17,629 Speaker 2: So I feel childcare, while it is privately provided in Australia, 361 00:20:17,650 --> 00:20:21,730 Speaker 2: it has so much public influence. And I think that personally, 362 00:20:21,869 --> 00:20:24,050 Speaker 2: it should have more public influence. We should be going 363 00:20:24,450 --> 00:20:27,710 Speaker 2: more down the path of some Scandinavian countries that are 364 00:20:27,770 --> 00:20:31,909 Speaker 2: basically all regulated by the government. Because The best examples 365 00:20:32,130 --> 00:20:35,570 Speaker 2: of early childcare provision is one that is provided by 366 00:20:35,590 --> 00:20:37,830 Speaker 2: the government, like our public primary schools. 367 00:20:38,130 --> 00:20:40,190 Speaker 1: Now, tell me your own experience. Did you say 200 368 00:20:40,190 --> 00:20:41,690 Speaker 1: bucks a day? Is that what it is now? 369 00:20:42,369 --> 00:20:46,590 Speaker 2: It's a bit less than that, but in some areas 370 00:20:46,650 --> 00:20:49,790 Speaker 2: in Sydney, I've heard people paying $ 200 a day in 371 00:20:50,490 --> 00:20:53,750 Speaker 2: areas like Paddington, apparently. That doesn't include any benefit that 372 00:20:53,770 --> 00:20:56,330 Speaker 2: you get from the childcare rebate. A family income is 373 00:20:56,369 --> 00:20:58,670 Speaker 2: now means tested up to about $ 500, 000 for a family. 374 00:21:01,070 --> 00:21:05,670 Speaker 2: But it obviously steps down after a certain amount. So 375 00:21:05,970 --> 00:21:08,570 Speaker 2: there is some benefit involved there. I think the bigger issue, though, 376 00:21:08,690 --> 00:21:12,540 Speaker 2: is that we just don't have enough provision of public preschools. 377 00:21:13,300 --> 00:21:15,940 Speaker 2: I mentioned that briefly before. So if you're lucky enough 378 00:21:15,960 --> 00:21:18,800 Speaker 2: to live in an area where there's public preschools, that's great. 379 00:21:19,500 --> 00:21:21,619 Speaker 2: And you could pay $ 50, $ 70 a day, much cheaper 380 00:21:21,660 --> 00:21:27,490 Speaker 2: rates than childcare amounts. But if you don't live in 381 00:21:27,540 --> 00:21:29,919 Speaker 2: the areas where those are provided, then you're stuck to 382 00:21:29,940 --> 00:21:33,140 Speaker 2: just putting your children into childcare, which is much more expensive. 383 00:21:33,160 --> 00:21:36,640 Speaker 2: So again, this government influence, that's partly funded by state 384 00:21:36,660 --> 00:21:39,659 Speaker 2: and local governments in terms of those preschools. So we 385 00:21:39,700 --> 00:21:42,159 Speaker 2: really need to see more of that, I think, to 386 00:21:42,220 --> 00:21:43,940 Speaker 2: solve some of the issues that we have in the 387 00:21:43,960 --> 00:21:44,770 Speaker 2: childcare sector. 388 00:21:45,310 --> 00:21:47,590 Speaker 1: So are you paying hundreds of dollars a week for childcare? 389 00:21:47,609 --> 00:21:52,740 Speaker 2: Yeah. Lucky I have some grandparent support and some childcare. 390 00:21:52,760 --> 00:21:54,679 Speaker 2: So it's not five days of childcare. 391 00:21:54,940 --> 00:21:56,880 Speaker 1: It's tough. I know we didn't have anything like that 392 00:21:56,900 --> 00:21:59,340 Speaker 1: at all, of course. And I remember there was a, 393 00:21:59,440 --> 00:22:02,920 Speaker 1: we lived about 20, I worked about 20 kilometres from 394 00:22:02,980 --> 00:22:05,879 Speaker 1: the childcare centre. And every day, my wife used to 395 00:22:06,140 --> 00:22:07,520 Speaker 1: bring them over in the morning and I used to 396 00:22:07,540 --> 00:22:09,720 Speaker 1: go down and get them in the late afternoon. And 397 00:22:09,869 --> 00:22:11,850 Speaker 1: there was a fine if you were late. You had 398 00:22:11,910 --> 00:22:13,510 Speaker 1: to drive down this highway every day. 399 00:22:13,530 --> 00:22:14,850 Speaker 2: It's now $ 2 a minute. 400 00:22:16,140 --> 00:22:19,570 Speaker 1: Yeah, I remember driving down this highway every afternoon with 401 00:22:19,609 --> 00:22:22,070 Speaker 1: this fine hanging over my head, whether I'd make it 402 00:22:22,130 --> 00:22:25,770 Speaker 1: or not. Oh, God, it's a tough phase. And if 403 00:22:25,790 --> 00:22:28,209 Speaker 1: you haven't done it yet, as I say, folks, you 404 00:22:28,230 --> 00:22:31,429 Speaker 1: will find that child care, you have intense interest in 405 00:22:31,470 --> 00:22:33,830 Speaker 1: the issue. When you have people in child care, just 406 00:22:33,850 --> 00:22:36,650 Speaker 1: like aged care, I expect is the very same. All right, 407 00:22:36,690 --> 00:22:47,580 Speaker 1: we'll be back in a moment with some very interesting questions. Hello, 408 00:22:47,619 --> 00:22:50,859 Speaker 1: welcome back to the Australian's Money Puzzle podcast. Diana, I'm 409 00:22:50,880 --> 00:22:52,900 Speaker 1: just going to read something first. There were some questions, 410 00:22:52,940 --> 00:22:55,460 Speaker 1: but this was a comment, and I'd like you, if 411 00:22:55,480 --> 00:22:57,580 Speaker 1: you've anything to say on this as well. So it's 412 00:22:57,600 --> 00:23:02,909 Speaker 1: about the FIRE movement, F-I-R-E, Financial Independence Retire Early. We 413 00:23:02,930 --> 00:23:07,969 Speaker 1: did a special on it last week, and we were sceptical, 414 00:23:08,270 --> 00:23:11,230 Speaker 1: not about it. I think some of the habits and 415 00:23:11,410 --> 00:23:14,710 Speaker 1: principles of it are very good. I'm very interested in 416 00:23:14,730 --> 00:23:17,830 Speaker 1: the first part, financial independence. I was sceptical about how 417 00:23:18,290 --> 00:23:21,389 Speaker 1: the possibilities of retiring early, and I thought the movement 418 00:23:21,430 --> 00:23:24,530 Speaker 1: perhaps made that seem a little bit too easy. In 419 00:23:24,609 --> 00:23:28,270 Speaker 1: any event, needless to say, and entirely fairly, the FIRE 420 00:23:28,369 --> 00:23:33,250 Speaker 1: movement in Australia, Brenda, who represents them and speaks for 421 00:23:33,310 --> 00:23:38,210 Speaker 1: them and runs meetings once a week in Melbourne, I believe, has, 422 00:23:38,670 --> 00:23:41,670 Speaker 1: I'm just editing from her response, but this is part 423 00:23:41,710 --> 00:23:43,619 Speaker 1: of what she had to say right of reply. The 424 00:23:43,680 --> 00:23:46,379 Speaker 1: media left a home in on the reduced spending to 425 00:23:46,540 --> 00:23:50,359 Speaker 1: only live on rice and beans rhetoric and bitpick about 426 00:23:50,380 --> 00:23:54,100 Speaker 1: being frugal and that we don't enjoy life as followers 427 00:23:54,160 --> 00:23:57,320 Speaker 1: of the FIRE movement. It's actually the opposite. The FIRE 428 00:23:57,359 --> 00:24:00,280 Speaker 1: movement is about plugging holes where money just escapes from 429 00:24:00,320 --> 00:24:03,439 Speaker 1: most people and using that to build portfolios in and 430 00:24:03,500 --> 00:24:06,120 Speaker 1: out of super. I would say you are correct that 431 00:24:06,180 --> 00:24:11,050 Speaker 1: many pursue FIRE using shares and ETFs particularly. Perhaps a 432 00:24:11,180 --> 00:24:16,330 Speaker 1: third of the FIRE... Movement followers in Australia use property 433 00:24:16,590 --> 00:24:20,370 Speaker 1: investments as part of their strategy or a combination of both. 434 00:24:20,450 --> 00:24:23,270 Speaker 1: We advocate for things like comparing insurance, finding a better 435 00:24:23,290 --> 00:24:26,260 Speaker 1: deal on bills, and yes, seeing where you can reduce spending, 436 00:24:26,280 --> 00:24:30,120 Speaker 1: but only where it doesn't align with your values. Okay. 437 00:24:30,760 --> 00:24:33,540 Speaker 1: Thank you, Brenda. Have you come across the FIRE movement? 438 00:24:34,180 --> 00:24:36,330 Speaker 2: Well, a lot of the research that we do at 439 00:24:36,380 --> 00:24:41,340 Speaker 2: AMP shows that about 90% of people die with the 440 00:24:41,380 --> 00:24:44,379 Speaker 2: majority of their super still intact. So they're not drawing 441 00:24:44,420 --> 00:24:47,000 Speaker 2: down their super because of fear that they're not going 442 00:24:47,020 --> 00:24:49,060 Speaker 2: to have enough to live on. So it is a 443 00:24:49,140 --> 00:24:52,580 Speaker 2: massive issue. You need to give retirees the confidence to retire. 444 00:24:53,180 --> 00:24:54,899 Speaker 1: Yes. Do you think part of that is not so 445 00:24:54,940 --> 00:25:00,240 Speaker 1: much fear, but determination to have an inheritance over? 446 00:25:00,260 --> 00:25:03,899 Speaker 2: Well, based on the surveys that I've seen within AMP, 447 00:25:04,260 --> 00:25:06,399 Speaker 2: that's not the major issue. The major issue is actually 448 00:25:06,420 --> 00:25:10,770 Speaker 2: this concern that they're not going to have enough to 449 00:25:10,790 --> 00:25:12,930 Speaker 2: live on. So I guess it's not knowing how much 450 00:25:12,970 --> 00:25:15,050 Speaker 2: they're spending or how much they want to spend every year. 451 00:25:15,070 --> 00:25:17,870 Speaker 2: So not having a financial plan in place, not being 452 00:25:17,890 --> 00:25:21,169 Speaker 2: concerned about the returns from their super and worried that 453 00:25:21,190 --> 00:25:22,630 Speaker 2: the returns are going to go down or that the 454 00:25:22,730 --> 00:25:25,900 Speaker 2: actual value of their capital is going to fall. And 455 00:25:26,180 --> 00:25:29,899 Speaker 2: leaving something for inheritance is probably the third or the 456 00:25:29,940 --> 00:25:31,340 Speaker 2: fourth issue, but not the first. 457 00:25:31,760 --> 00:25:33,840 Speaker 1: Interesting. And thanks, Brenda. And we will come back to 458 00:25:34,200 --> 00:25:36,500 Speaker 1: fire movement. I want to see what people think about it. 459 00:25:37,490 --> 00:25:39,389 Speaker 1: I know it's very popular, particularly in the US, and 460 00:25:39,410 --> 00:25:41,270 Speaker 1: I know that it's popular here, and I would like 461 00:25:41,290 --> 00:25:44,350 Speaker 1: to know, folks, what you think about it. And we 462 00:25:44,390 --> 00:25:46,120 Speaker 1: had some replies, but I thought we'd have more. So 463 00:25:46,150 --> 00:25:48,520 Speaker 1: let us know what you think. All right. Julie, I 464 00:25:48,560 --> 00:25:50,920 Speaker 1: read at the weekend units are outperforming houses. Is this 465 00:25:50,980 --> 00:25:53,379 Speaker 1: a blip or something more important? Yes, I refer to 466 00:25:53,420 --> 00:25:57,620 Speaker 1: that in the preamble. Units are outperforming houses, Diana. So 467 00:25:58,600 --> 00:25:59,540 Speaker 1: are they a better investment? 468 00:26:01,450 --> 00:26:05,710 Speaker 2: Everything goes through cycles, right? So we've seen houses outperform 469 00:26:05,770 --> 00:26:09,640 Speaker 2: now through basically through most of that post COVID recovery. Again, 470 00:26:09,720 --> 00:26:12,140 Speaker 2: it depends what capital city you're looking at. It's not 471 00:26:12,220 --> 00:26:16,880 Speaker 2: a national uniform market. There are differences, the different performances 472 00:26:17,060 --> 00:26:19,560 Speaker 2: across the different capital cities and even across the regions. 473 00:26:19,920 --> 00:26:22,619 Speaker 2: The regions did so well after the initial stage of 474 00:26:22,660 --> 00:26:25,520 Speaker 2: the pandemic. And now we're seeing those areas fall. Melbourne 475 00:26:25,540 --> 00:26:29,050 Speaker 2: prices are declining significantly. Unit values are getting some more 476 00:26:29,090 --> 00:26:31,710 Speaker 2: demand because of high population growth. So a lot of 477 00:26:31,770 --> 00:26:34,750 Speaker 2: the demand that's coming through is for units because a 478 00:26:34,790 --> 00:26:38,690 Speaker 2: lot of the immigration that's coming through is from students. 479 00:26:39,400 --> 00:26:42,280 Speaker 2: And that's why we're seeing this increased demand for units 480 00:26:42,320 --> 00:26:45,340 Speaker 2: and also because houses outperformed before. So it's not to 481 00:26:45,380 --> 00:26:47,720 Speaker 2: say that units are going to outperform forever. It's just 482 00:26:47,840 --> 00:26:49,760 Speaker 2: at this current point in the cycle, this is what 483 00:26:49,780 --> 00:26:50,220 Speaker 2: we're seeing. 484 00:26:50,680 --> 00:26:53,670 Speaker 1: Is it a reversion to the mean? Are you coming 485 00:26:54,090 --> 00:26:56,250 Speaker 1: through with that economic concept? 486 00:26:57,170 --> 00:26:58,790 Speaker 2: Well, a lot of the time I think that everything 487 00:26:58,830 --> 00:27:01,010 Speaker 2: does revert to its mean. I guess the housing market 488 00:27:01,030 --> 00:27:03,230 Speaker 2: is a little bit different because if it reverted to 489 00:27:03,310 --> 00:27:05,310 Speaker 2: its mean, then we should have seen some bigger falls 490 00:27:05,390 --> 00:27:09,449 Speaker 2: to home prices and we haven't. I think probably the 491 00:27:09,470 --> 00:27:12,090 Speaker 2: better performance in units can continue for a little while 492 00:27:12,150 --> 00:27:15,510 Speaker 2: longer because we've got this strong immigration coming through. The 493 00:27:16,070 --> 00:27:19,820 Speaker 2: student numbers have declined and the government is clamping down 494 00:27:19,880 --> 00:27:23,030 Speaker 2: on a lot of those visas. So we may see 495 00:27:23,210 --> 00:27:26,040 Speaker 2: some weakness coming through later next year, but we're also 496 00:27:26,100 --> 00:27:28,500 Speaker 2: seeing that there's a lower number of people that are 497 00:27:28,520 --> 00:27:32,060 Speaker 2: living per dwelling. So we're obviously needing some more demand 498 00:27:32,400 --> 00:27:35,070 Speaker 2: for things like units. We don't have enough housing supply 499 00:27:35,109 --> 00:27:37,410 Speaker 2: in Australia as a nation and particularly in New South 500 00:27:37,450 --> 00:27:41,230 Speaker 2: Wales and Queensland. So people will be attracted to the 501 00:27:41,330 --> 00:27:44,610 Speaker 2: unit market to get into the housing market and just 502 00:27:44,630 --> 00:27:47,040 Speaker 2: to get their foot in the door. But I think 503 00:27:47,100 --> 00:27:50,659 Speaker 2: eventually this difference between unit and house performance will probably 504 00:27:50,820 --> 00:27:52,459 Speaker 2: revert to more normal. 505 00:27:52,859 --> 00:27:54,720 Speaker 1: The gap. Yeah. And I think the gap used to 506 00:27:54,740 --> 00:27:57,870 Speaker 1: be like 10% and now it's 30%, something like that. 507 00:27:57,920 --> 00:27:59,990 Speaker 1: It's blown out as a debt ratio. I don't know 508 00:28:00,030 --> 00:28:02,670 Speaker 1: how they measure that ratio, but that's that ratio that 509 00:28:02,830 --> 00:28:06,669 Speaker 1: measures the gap between the units and the houses. It 510 00:28:06,730 --> 00:28:10,170 Speaker 1: blew out to about 30% nationwide from about 10% nationwide. 511 00:28:10,290 --> 00:28:13,260 Speaker 1: Higher in some cities, of course. And now you see 512 00:28:13,410 --> 00:28:17,730 Speaker 1: that the prices, the price increases. of units are running 513 00:28:17,820 --> 00:28:20,780 Speaker 1: harder and higher and faster than houses. That's the main 514 00:28:20,820 --> 00:28:23,740 Speaker 1: point there. OK, Omar, well, we did cover this, Omar. 515 00:28:24,060 --> 00:28:26,080 Speaker 1: Do you know why all the data indicates is that 516 00:28:26,540 --> 00:28:29,720 Speaker 1: house prices in Melbourne are going down? However, council rates 517 00:28:29,740 --> 00:28:33,760 Speaker 1: are going up. And I think Diana explained that usefully, Omar. 518 00:28:34,100 --> 00:28:36,000 Speaker 1: And by the way, none of this is advice. Of course, 519 00:28:36,080 --> 00:28:39,959 Speaker 1: it's all information only. Henry, I wish you'd cover the 520 00:28:40,000 --> 00:28:44,520 Speaker 1: need to remove incentives around homes and get back to 521 00:28:44,680 --> 00:28:48,430 Speaker 1: houses as a place to live. The 30-year trend of 522 00:28:48,490 --> 00:28:51,210 Speaker 1: financialization of housing is really coming home to roost around 523 00:28:51,250 --> 00:28:54,410 Speaker 1: the world. Capital should really be invested in companies which 524 00:28:54,470 --> 00:28:57,930 Speaker 1: are productive, not houses. But I do concede it might 525 00:28:57,950 --> 00:29:00,870 Speaker 1: be hard to reverse the trend. How about some strong 526 00:29:00,930 --> 00:29:06,110 Speaker 1: tax disincentives for second homes? Well, Henry, I don't know 527 00:29:06,130 --> 00:29:09,100 Speaker 1: if you are familiar with the Victorian government, but they've 528 00:29:09,120 --> 00:29:14,700 Speaker 1: been doing exactly that. Exactly that. And guess what? As 529 00:29:14,760 --> 00:29:16,380 Speaker 1: we've already pointed out in the course of the show, 530 00:29:16,880 --> 00:29:19,540 Speaker 1: It's the state where house prices are weakest. In fact, 531 00:29:19,560 --> 00:29:22,640 Speaker 1: they're dropping. And there is a direct correspondent. It's not 532 00:29:22,880 --> 00:29:25,719 Speaker 1: entirely explained by a whole pile of new taxes that 533 00:29:25,740 --> 00:29:29,050 Speaker 1: came rolling down the line unexpectedly from the Victorian state government. 534 00:29:29,120 --> 00:29:32,210 Speaker 1: But it is to some extent associated with it because 535 00:29:33,050 --> 00:29:35,130 Speaker 1: that's exactly what they did recently. They brought in the 536 00:29:35,170 --> 00:29:37,130 Speaker 1: tax for second homes and holiday homes and all that 537 00:29:37,170 --> 00:29:41,060 Speaker 1: sort of thing. And I think it spooked investors. I 538 00:29:41,500 --> 00:29:44,040 Speaker 1: don't know where you come from on that, Diana. What's 539 00:29:44,060 --> 00:29:44,400 Speaker 1: your view? 540 00:29:45,040 --> 00:29:47,440 Speaker 2: I think the taxes in Victoria are definitely having an 541 00:29:47,480 --> 00:29:50,710 Speaker 2: impact as well as on some analysis that I've done. 542 00:29:51,030 --> 00:29:54,650 Speaker 2: Victoria is actually in a state of oversupply. compared to 543 00:29:54,750 --> 00:29:57,170 Speaker 2: the other state. Melbourne, I think, is probably not in 544 00:29:57,210 --> 00:30:00,380 Speaker 2: a state of oversupply, but maybe in some specific suburbs, 545 00:30:00,520 --> 00:30:03,900 Speaker 2: but in Victoria overall. We've seen in the last two 546 00:30:03,960 --> 00:30:08,180 Speaker 2: years a big increase in net outflow out of the state, 547 00:30:08,200 --> 00:30:11,540 Speaker 2: so going into other states, particularly into Queensland, some into 548 00:30:11,580 --> 00:30:15,780 Speaker 2: South Australia. And that's why we've seen areas like Adelaide 549 00:30:15,820 --> 00:30:19,860 Speaker 2: and Brisbane outperform because they've seen this net positive migration 550 00:30:19,960 --> 00:30:22,400 Speaker 2: into those states, whereas Victoria is now in a state 551 00:30:22,420 --> 00:30:24,870 Speaker 2: of outflow, which really ramped up after the pandemic. 552 00:30:25,210 --> 00:30:28,330 Speaker 1: Issue of incentives. In Henry, the incentives that really matter 553 00:30:28,370 --> 00:30:31,830 Speaker 1: in housing are negative gearing and capital gains tax discounts. 554 00:30:32,130 --> 00:30:34,670 Speaker 1: That is what everybody's into. And not to mention the 555 00:30:34,710 --> 00:30:38,740 Speaker 1: fact that the house, the home is a sacred cow 556 00:30:39,220 --> 00:30:41,820 Speaker 1: inside the financial system. And not only do you not 557 00:30:41,860 --> 00:30:44,890 Speaker 1: pay tax on it, capital gains tax, but it isn't 558 00:30:45,330 --> 00:30:50,630 Speaker 1: measured or assessed in accessing the pension, which means you 559 00:30:50,650 --> 00:30:52,670 Speaker 1: can have a $ 4 million house and get the pension. 560 00:30:53,230 --> 00:30:55,550 Speaker 1: And the other person who has a $ 400, 000 house can 561 00:30:55,570 --> 00:30:58,350 Speaker 1: also get the pension. And that is the sort of 562 00:30:58,410 --> 00:31:02,290 Speaker 1: incentives that are in there. Do you think... I'm not 563 00:31:02,310 --> 00:31:05,100 Speaker 1: going to ask you because everyone... And the obvious thing 564 00:31:05,140 --> 00:31:06,459 Speaker 1: is I could throw that to you and you're going 565 00:31:06,480 --> 00:31:09,479 Speaker 1: to say politicians will never go near it because it's dangerous. 566 00:31:09,530 --> 00:31:11,969 Speaker 1: But let's move it on a bit and ask you, Diana, 567 00:31:11,990 --> 00:31:14,790 Speaker 1: whether you think any of those particular incentives inside the 568 00:31:14,830 --> 00:31:17,250 Speaker 1: housing market are vulnerable economically. 569 00:31:18,350 --> 00:31:21,770 Speaker 2: So it is really hard to see massive changes to 570 00:31:21,810 --> 00:31:26,190 Speaker 2: those incentives. I think the only one that could potentially 571 00:31:26,580 --> 00:31:29,900 Speaker 2: be touched in the next 10 years or so would 572 00:31:29,960 --> 00:31:35,110 Speaker 2: be around valuing the home in the pension test or 573 00:31:35,190 --> 00:31:39,410 Speaker 2: trying to provide more incentives for retirees to downsize. I 574 00:31:39,410 --> 00:31:41,010 Speaker 2: know that they've tried that in the last few budgets. 575 00:31:41,030 --> 00:31:43,770 Speaker 2: It hasn't really worked or putting in place some sort 576 00:31:43,810 --> 00:31:45,750 Speaker 2: of death tax, but it's just, it would be so 577 00:31:45,810 --> 00:31:49,190 Speaker 2: hard to do. That sort of seems to be the 578 00:31:49,340 --> 00:31:54,100 Speaker 2: area that we're going towards or potentially limiting negative gearing 579 00:31:54,760 --> 00:31:58,980 Speaker 2: to one home or to new builds that could also 580 00:31:59,100 --> 00:32:03,810 Speaker 2: come up. But for now, I don't see anything changing 581 00:32:03,830 --> 00:32:05,530 Speaker 2: in the next few years. I think if we have 582 00:32:05,550 --> 00:32:08,350 Speaker 2: a broader review on tax, this could be something that 583 00:32:08,390 --> 00:32:11,630 Speaker 2: might come up, particularly around testing the home in the pension, 584 00:32:11,650 --> 00:32:12,910 Speaker 2: or at least some sort of limit. 585 00:32:13,650 --> 00:32:18,690 Speaker 1: They could certainly start to lift that. And again, if 586 00:32:18,730 --> 00:32:21,480 Speaker 1: you come to a situation where you can sit back 587 00:32:21,520 --> 00:32:23,860 Speaker 1: and say, well, whatever, people won't march in the streets 588 00:32:23,900 --> 00:32:26,460 Speaker 1: about it. If someone has a $ 5 million house and 589 00:32:26,480 --> 00:32:29,030 Speaker 1: they're not allowed to get the pension anymore, I think 590 00:32:29,130 --> 00:32:30,850 Speaker 1: people won't march in the streets about that, just like 591 00:32:30,870 --> 00:32:32,750 Speaker 1: they haven't marched in the streets about the 3 million 592 00:32:32,770 --> 00:32:35,410 Speaker 1: super tax for all the trouble around it. It is 593 00:32:35,430 --> 00:32:37,710 Speaker 1: in the broader community. They just nod their head and 594 00:32:37,760 --> 00:32:39,280 Speaker 1: they say, well, 3 million seems to be a lot 595 00:32:39,300 --> 00:32:42,710 Speaker 1: to have in super per capita. And that's an understandable 596 00:32:42,770 --> 00:32:45,340 Speaker 1: point of view as well. Okay. Hey, really interesting. Thank 597 00:32:45,360 --> 00:32:48,380 Speaker 1: you for your time. Thanks for coming on the show. Thanks, James. 598 00:32:48,400 --> 00:32:48,960 Speaker 2: It's been a pleasure. 599 00:32:49,520 --> 00:32:51,880 Speaker 1: Great to get, that was a wide ranging conversation. That's 600 00:32:52,000 --> 00:32:54,219 Speaker 1: probably as wide ranging an interview as you'll do for 601 00:32:54,270 --> 00:32:58,170 Speaker 1: some time, I imagine. So thanks for putting you through 602 00:32:58,190 --> 00:33:00,050 Speaker 1: your paces there. It was really good. And I think 603 00:33:00,090 --> 00:33:04,080 Speaker 1: it was great value for everybody. who tuned in. That 604 00:33:04,120 --> 00:33:08,880 Speaker 1: was Diana Messina, economist at AMP, folks. And hopefully you 605 00:33:08,920 --> 00:33:12,670 Speaker 1: can hear her video and see her video, which is 606 00:33:12,770 --> 00:33:14,930 Speaker 1: out there on, I saw it on LinkedIn. Lots of 607 00:33:15,090 --> 00:33:17,470 Speaker 1: very interesting comments. And you see her going down to 608 00:33:17,510 --> 00:33:21,270 Speaker 1: a childcare center. Keep the emails rolling. The moneypuzzle at 609 00:33:21,290 --> 00:33:26,120 Speaker 1: theaustralian.com.au is our email. Do mention us to a friend. 610 00:33:26,230 --> 00:33:28,260 Speaker 1: We'd like that. If you would, just mention us to 611 00:33:28,560 --> 00:33:32,430 Speaker 1: one person. about the show if you like it. That 612 00:33:32,850 --> 00:33:35,790 Speaker 1: would be a great way to give us some support. 613 00:33:36,650 --> 00:33:42,160 Speaker 1: And today's show was produced by Leah Samangalu. Talk to 614 00:33:42,180 --> 00:33:42,460 Speaker 1: you soon.