Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirkby, the Wealth editor at the Australian. Welcome aboard everybody.
Speaker 1: If you're an investor, it's worth knowing that this week
Speaker 1: may well be a turning point on rates, which are
Speaker 1: so important, of course to investors. The big banks have
Speaker 1: been cutting their deposit rates that they offer retail customers.
Speaker 1: Three of the big four have moved in the last
Speaker 1: few days, cutting their rates by about half a percent,
Speaker 1: roughly from a five percent or so to four and
Speaker 1: a half on the deposit. That means that the banks
Speaker 1: really do believe that rates are coming down. Cynically, of course,
Speaker 1: you might say they're moving well ahead of time and
Speaker 1: maybe moving ahead of any we even get. We'll talk
Speaker 1: about that in a moment. And we've also been talking
Speaker 1: about how all year. If you've listened to various shows,
Speaker 1: I've had several guests saying that the units are going
Speaker 1: to go better than standalone houses on price, and that
Speaker 1: is exactly what's been happening in recent times. You'll see
Speaker 1: that reported. And one other I thought quite topical news
Speaker 1: worthy item is today the major report on childcare has
Speaker 1: come out from Victoria University and it gives the lie
Speaker 1: of the landown childcare. Basically, it says that one in
Speaker 1: four Australians live in what they call it childcare desert,
Speaker 1: that is where there are three or more kids for
Speaker 1: each spot in the childcare center. There are regional towns
Speaker 1: and suburbs where those deats go off the deep end
Speaker 1: and there are six kids for every spot. And that's
Speaker 1: on the basis that you can even get into a childcare.
Speaker 1: My guest today is impeccably credential to talk about all
Speaker 1: this because a she's a economist at AMP B. She's
Speaker 1: a regular guest on the show. And see she just
Speaker 1: very interesting what would you call it a social media
Speaker 1: video about childcare and she filmed herself going down to
Speaker 1: the childcare center and speaking as an economist but also
Speaker 1: someone dashing to childcare, which I've you've never done that,
Speaker 1: You'll never forget it and you know all about it.
Speaker 1: It's Diana and Mossina of amp.
Speaker 2: How are you, Diana, Hi, James, I'm good. Thank you
Speaker 2: for having me on.
Speaker 1: Great to have you on, Great to have you on
Speaker 1: the thing about child care and Coree Sink if you will.
Speaker 1: But the thing about child care is you're.
Speaker 3: So interested in childcare, just remembering that I was on
Speaker 3: the board of the childcare center when we had kids
Speaker 3: at childcare, and I can remember actually being applying to
Speaker 3: for grants to renovate the place and all that sort
Speaker 3: of thing.
Speaker 1: And you're so involved, and then your kids move on,
Speaker 1: and well, it's only human. You're you're not as intensely
Speaker 1: interested as you were. But we will do that in
Speaker 1: a moment, folks. But I want to talk to Diana
Speaker 1: first of all about some big picture of things, because
Speaker 1: it's news to me actually that the big banks have
Speaker 1: been cutting the rates the pay depositors, and that to
Speaker 1: me is them really moving now. It's beyond theory. Now
Speaker 1: they are of the belief that rates are going forward.
Speaker 1: Do you think that tells us anything we didn't already
Speaker 1: know about where rates are going, Diana.
Speaker 2: Well, the bank's price, they're fixed rates, and the deposit
Speaker 2: rates of what money market expectations tell us, and money
Speaker 2: markets are pricing in a rate cut by the end
Speaker 2: of the year in Australia. Here four rate cuts in
Speaker 2: the US and money market expectations in Australia are very
Speaker 2: much influenced by what happens globally, particularly in the US,
Speaker 2: So we may not get a rate cut by the
Speaker 2: end of the year, but clearly the market has moved
Speaker 2: and is signaling that there are going to be rate
Speaker 2: cuts within the next twelve months. The market jumps around
Speaker 2: a lot. We can't necessarily take it to heart that
Speaker 2: this is exactly what's going to happen, but I think
Speaker 2: that's just what the banks are responding to, this change
Speaker 2: in money market expectations about where rates are going to go.
Speaker 2: The banks don't have any clue as to what the
Speaker 2: Reserve Bank is actually going to do because the Reserve
Speaker 2: Bank hasn't met yet. They are the ones that decide
Speaker 2: the rates on that day, So I think it's just
Speaker 2: them responding to what the financial markets are saying right now.
Speaker 1: How important are I thought that the depositor the depositors
Speaker 1: were very important to our local banks in terms of
Speaker 1: where they set their rates.
Speaker 2: Well, absolutely they are. We've been in this period where
Speaker 2: deposit rates have been extremely high over the past twelve
Speaker 2: to eighteen months, so this is a normalization to the
Speaker 2: rates that we've had.
Speaker 1: Are they high on what measure above inflation or historically or.
Speaker 2: The high relative to the last five to ten year average,
Speaker 2: the deposit rates have basically moved in line with the
Speaker 2: rate hikes and the very interest rates. About eighty five
Speaker 2: percent of the rate hikes have been passed onto the
Speaker 2: average variable rate. I usually look at the one that's discounted,
Speaker 2: because most of the banks are still giving discounts to
Speaker 2: the headline rates. Usually in most rate cycles, we see
Speaker 2: about ninety percent passed through from changes to the cash
Speaker 2: straight to the actual variable interest rates. So it's been
Speaker 2: a little bit less than normal.
Speaker 1: Well, I must say, folks, if you are thinking of
Speaker 1: lucking in some money on term deposit and you were
Speaker 1: waiting for the top, but they say, no one rings
Speaker 1: a bell at the top. Right, But this is as
Speaker 1: close as you'll get to it. I think where they're
Speaker 1: just starting what could be the first of a sequence
Speaker 1: of cuts. Okay, Now, the other thing that I wanted
Speaker 1: to tell to you about briefly was that unemployment turned
Speaker 1: out to be stronger than people thought, that the numbers
Speaker 1: behind the scenes were stronger. And I'm taking from that
Speaker 1: full employment to still here, and I'm taking from that
Speaker 1: that basically rental, the demand forens isn't going to change
Speaker 1: much because people will be able to pay them. There
Speaker 1: really is no sign up unemployment going the wrong way
Speaker 1: at the moment. I know the headline number moved ever
Speaker 1: so slightly. Oh, but could you explain what your interpretation
Speaker 1: of the unemployment numbers and recites.
Speaker 2: The labor market's been quite interesting in Australia. What we've
Speaker 2: seen is employment growth being quite high actually, but the
Speaker 2: unemployment rate trending up and the two moving in line
Speaker 2: doesn't necessarily make a lot of sense. Usually you would
Speaker 2: expect that if employment growth was slowing, you would see
Speaker 2: the unemployment rate go up. What's been happening in Australia
Speaker 2: is that we are seeing an increasing amount of people
Speaker 2: actually in the labor force, so people who are in
Speaker 2: the labor force either those who are working or looking
Speaker 2: for work, therefore technically unemployed. The participation rate in the
Speaker 2: labor force has gone up to a record high, so
Speaker 2: the number of people age of fifteen going into the
Speaker 2: labor force is at its highest level it's ever been
Speaker 2: in Australia. That's a result of high immigration into the
Speaker 2: country forcing people into the workforce, but also that people
Speaker 2: are feeling confident enough to go and try and find
Speaker 2: a job, which is why employment growth is still holding up,
Speaker 2: but the unemployment rate is moving up, just quite slowly.
Speaker 2: I'd say it bottomed at three and a half percent.
Speaker 2: It's now four point two percent. As you said, it's
Speaker 2: the unemployment rate is moving higher, but it's still not
Speaker 2: at a level where you've been becoming concerned about the
Speaker 2: state of the consumer. I think obviously the consumer has
Speaker 2: weakened in the past eighteen months, and we've seen that
Speaker 2: through lower retail spending, particularly in volumes per capita retail spending, overall,
Speaker 2: very weak consumer confidence, negative real disposable income growth, but
Speaker 2: wh're not at the point where consumers are having to
Speaker 2: double down on their mortgages and are forced to sell.
Speaker 2: We haven't seen a huge increase in arrears or delinquency rates.
Speaker 2: If the unemployment rate gets up a little bit higher,
Speaker 2: we think it will get to four and a half
Speaker 2: four point six percent. That's probably at a level where
Speaker 2: you might see some further awakening in consumer spending, but
Speaker 2: not enough where you're going to say levels of force
Speaker 2: selling and the property market.
Speaker 1: So those numbers from an investor's point of view, and
Speaker 1: say a property investor point of view, talk about defaults
Speaker 1: or bargains in the market where people are defaulting on
Speaker 1: their mortgages, folks, there is no signal in results, particularly
Speaker 1: from banks, that is happening in any significant fashion whatsoever. However, Diana,
Speaker 1: what about if I'm trying to make a decision as
Speaker 1: an investor on rates and the RBA is out there
Speaker 1: saying there's no rate till Christmas. The biggest bank in
Speaker 1: the country is out there cutting rates already because they
Speaker 1: well they can, but also of course caught it coming
Speaker 1: them for depositors that is, not borrowers. But the point
Speaker 1: I want to ask you is is the chance of
Speaker 1: a rate cut elevated then, and is it even worth
Speaker 1: waiting for.
Speaker 2: If you're looking to get into the market and you
Speaker 2: want a variable interest right, then you do have to
Speaker 2: wait for it because variable interest rates aren't being cut yet.
Speaker 2: Some of the fixed rates have come off their highs,
Speaker 2: but that was already happening even six months ago, when
Speaker 2: as I said before, the fixed rate moves with money
Speaker 2: market expectations around around interest rates. So it depends what
Speaker 2: sort of stage or in terms of the investment cycle.
Speaker 2: I think a rate cut is still worth waiting for
Speaker 2: in the sense that there is still the risk of
Speaker 2: a rate rise here. If you listen to what the
Speaker 2: Reserve Bank is saying, they still sound hawkish. If we
Speaker 2: get an upside surprise in inflation the next six months now,
Speaker 2: they could potentially lift interest rates again. If they're becoming
Speaker 2: concerned about inflation again.
Speaker 1: That means those banks would never cut their borrowing rates
Speaker 1: and would just lift those deposit rates back up.
Speaker 2: Well, that's usually how it works.
Speaker 1: Okay, keep that in mind, folks. You might think that
Speaker 1: it's a natural line to draw that if they're cutting
Speaker 1: their deposit rates, well, the lending rates must be coming down.
Speaker 1: Not necessary sssarily sorry, but don't make that assumption because
Speaker 1: you would be running ahead of yourself and the banks
Speaker 1: can run ahead of themselves if they wish their banks
Speaker 1: they're operating in different set of dynamics and you and I. Hey,
Speaker 1: one other thing I wanted to ask you about before
Speaker 1: we go to the break. A question in a while
Speaker 1: from O Mark really interesting about how that in his
Speaker 1: particular suburb, which must be in Melbourne, because the prices
Speaker 1: aren't going anywhere, the rates were going up at the
Speaker 1: same time councilor rates going up at the same time.
Speaker 1: I don't know if you look at this as an issue,
Speaker 1: but I do see a spot reports all the time
Speaker 1: about councils in funding, various funding crisis and emergencies with that.
Speaker 1: Have you looked at that at all. Whether council rates
Speaker 1: may go up even in suburbs where prices aren't going.
Speaker 2: Up, this is interesting. I think it probably reflects a
Speaker 2: lagged inflationary response from the council. So usually the council
Speaker 2: rights do have to respond to land values which have
Speaker 2: been going up alongside home prices. I mean, the home
Speaker 2: price index is basically a value of land and the
Speaker 2: cost of building, so land values are still going up
Speaker 2: across the nation. In Victoria and Melbourne in particular, it's
Speaker 2: been a different story. Melbourne price have been going down,
Speaker 2: as you mentioned. I think the council rting increases are
Speaker 2: probably reflecting just the high inflation environment that we've been in,
Speaker 2: and those types of rates like evening, utilities, insurance, all
Speaker 2: those types of rates that we pay usually tend to
Speaker 2: lag the broader inflation cycle. I think it's probably only
Speaker 2: a matter of time before we see some softer inflation
Speaker 2: in some of those council rates, but probably not outright deflation. Unfortunately,
Speaker 2: that's not the way they operate.
Speaker 1: Does that mean that the rating pieces might not be
Speaker 1: as severe as they have been.
Speaker 2: I think that they have to stop being as high.
Speaker 2: And we've basically already seen the peak in insurance premiums
Speaker 2: and insurance costs and finance costs as well. Those types
Speaker 2: of rates just tend to reflect what happened inflation a
Speaker 2: few months ago. And also, of course the specifics that
Speaker 2: go alongside that industry, like and insurance, they've had their
Speaker 2: own issues that have been going on that have led
Speaker 2: to high premiums and higher and these higher costs for consumers.
Speaker 2: But obviously the broader inflation inflationary environment impacts a lot
Speaker 2: of those rate setting agencies.
Speaker 1: Hey, I want to ask you one last thing. It
Speaker 1: came up once or twice on the show. In certain
Speaker 1: parts of the country and even in the big cities,
Speaker 1: the economics of property, particularly unit investments, was that the
Speaker 1: replacement cost of building apartment towers in some areas are
Speaker 1: as high, if not higher, than the cost of the
Speaker 1: apartments inside existing towers. And that's a really fundamental economic thing,
Speaker 1: isn't it That if you can get something and it's
Speaker 1: actually a discount on its replacement cost, then you really have,
Speaker 1: from a textbook point of view, were barred. Then apparently
Speaker 1: have you come across it, are you aware of it?
Speaker 1: Could you explain to even this is what why that's significant?
Speaker 2: I think that probably reflects the fact that the expectations
Speaker 2: for home values are still that they're going to go
Speaker 2: up in terms of the land value, but also that
Speaker 2: the cost of the materials the labor that go into
Speaker 2: building a potential new dwelling just continued to rise, and
Speaker 2: we've seen that in that new dwelling construction cost component
Speaker 2: of the Consumer Price Index. We see that in rents
Speaker 2: and in labor costs as well, particularly around construction, because
Speaker 2: we've seen that the infrastructure construction space has basically been
Speaker 2: crowding out the residential construction space, leading to high wages
Speaker 2: in the residential construction sector. So that probably explains that
Speaker 2: dynamic as well as this expectation that home prices will
Speaker 2: continue to rise in Australia.
Speaker 1: Yes, well, it's interesting. Certainly the numbers are there that
Speaker 1: in some parts that is the case. It may reflect
Speaker 1: that kind of inflation spike that reach hit builders for
Speaker 1: a while, and it may when you come across that
Speaker 1: if you can if you find a place that is
Speaker 1: where the existing stock is actually at a discount replacement value.
Speaker 1: Then you're really onto something. We take a short break,
Speaker 1: we're going to have a look at childcare. I expect
Speaker 1: that for most listeners. If you're involved with childcare, you're
Speaker 1: going to find this really interesting. If childcare is coming
Speaker 1: down the line in your life, you're going to find
Speaker 1: it really interesting. If you've passed the childcare part of
Speaker 1: your life, you might skip the segment, except to say,
Speaker 1: folks that there is also a property dimension here, of course,
Speaker 1: with big childcare listed groups and what's going on there.
Speaker 1: So we will deal with that in a moment, and
Speaker 1: then we'll have some questions. Hello, Welcome back to The
Speaker 1: Australian's Money Positive podcast. I'm James Kirby talking to Diana
Speaker 1: Mussina of AMP. Diana is an economist who's been on
Speaker 1: the show regularly. Now, I this wasn't my plan at
Speaker 1: all that but it's very useful that this major childcare
Speaker 1: report came out today from Victoria University. It's getting a
Speaker 1: lot of coverage around around the place. I see it
Speaker 1: was released exclusively to the ABC, which of course I
Speaker 1: would be very I know it about because I like
Speaker 1: these things to be released to everybody at the same time.
Speaker 1: Just to point there Victoria University, and it's a major report,
Speaker 1: really is. It looks at Australian childcare issues, it looks
Speaker 1: at overseas issues, and it looks at the availability of places.
Speaker 1: A couple of broad points. This situation has improved ever
Speaker 1: so slightly in recent times. That's one thing in terms
Speaker 1: of the supply of centers. But then there are spots
Speaker 1: all over the country where there is what they call deserts.
Speaker 1: Regional area is pretty obvious it wouldn't be a childcare center,
Speaker 1: but also lower associate economic areas and parts of the
Speaker 1: city where there's just bad luck, where there are less
Speaker 1: spots than there are children. So let's talk about macro
Speaker 1: first and then specifically your own experience here. Where are
Speaker 1: we on childcare? Do you think do you think it's
Speaker 1: improving broadly on a macro point of view in terms
Speaker 1: of a service locally.
Speaker 2: There's actually been a huge amount of change in the
Speaker 2: childcare sector in the last few years. The Labor Government
Speaker 2: introduced some new policies last year that increased the childcare
Speaker 2: benefit to many families, broadened it out, also gave some
Speaker 2: additional funds to the preschool sector, which is different to childcare.
Speaker 2: I think a lot of people think of as basically
Speaker 2: from one year to three and a half or four,
Speaker 2: but there's also this preschool sector. And Australia is quite
Speaker 2: strange in that we have some community funded preschools in
Speaker 2: some specific areas, but if you're lucky enough to live
Speaker 2: in that area, you get it. If you're not too bad,
Speaker 2: you have to pay one hundred and eight or two
Speaker 2: hundred dollars a day for continued childcare. So that and
Speaker 2: that's only something that I've discovered after becoming a parent myself.
Speaker 2: I think we still have a long way to go
Speaker 2: to solve some of the issues that you say around
Speaker 2: the right provisions of the number of centers in specific areas.
Speaker 2: We've seen a huge boom in demand for centers in
Speaker 2: terms of where people are living, so in their local
Speaker 2: areas there are no spots for children. But in areas
Speaker 2: like the CBD for example, childcare centers have actually had
Speaker 2: to close because less people are working in the city.
Speaker 2: A lot of them have actually emerged together in the
Speaker 2: CBDs as people have chosen to send their kids to
Speaker 2: more local centers. So this is the childcare dynamic is
Speaker 2: really changing. And then we've had also some large wage
Speaker 2: gains that have gone to the childcare sector, which reflects
Speaker 2: the fact that the age care sector had these wage
Speaker 2: gains last year and that pushed people out of childcare
Speaker 2: into agecare, so there's not enough stuff going back into
Speaker 2: child Hopefully these wage gains can actually encourage more people
Speaker 2: into the sector, and I personally think that the wage
Speaker 2: gains were very much needed for.
Speaker 1: That space and the services that are so important, and
Speaker 1: we just had run terribly behind in some of those
Speaker 1: services age childcare too. Now property perspective still with big picture,
Speaker 1: there was a time, perhaps there are still some believers
Speaker 1: out there that childcare could be a business. Not only
Speaker 1: could it be a business, successful business, but so successful
Speaker 1: that it could be listed on the stock market and
Speaker 1: we could all be investors in successful childcare centers. This
Speaker 1: idea was tabusht by Yeah ABC childcare Centers, which spectacularly
Speaker 1: went off the rails. This is some years ago, but
Speaker 1: that I mentioned it because from the ashes of that,
Speaker 1: if you like Ken good Start, and there are now
Speaker 1: really three big childcare chains in Australia. Good Start, which
Speaker 1: is a nonprofit and was created from the wreckage if
Speaker 1: you like, of the ABC child Care Centers group and
Speaker 1: it went under. Then there's Guardian, which is very big
Speaker 1: across the country and is currently for sale, owned by
Speaker 1: private equity group. And then there's G eight, which is
Speaker 1: a listed stock and is at least twenty or thirty
Speaker 1: percent lower now than it was five years ago. Not
Speaker 1: a successful stock, but was put forward to people as
Speaker 1: a property as much as a childcare business because they
Speaker 1: have property underneath them. I'm using this as a lead
Speaker 1: in to ask you, Dana, whether you think it's actually
Speaker 1: not that it's legitimate. I'm not interested in the sort
Speaker 1: of philosophical part about this, but whether childcare as a
Speaker 1: business is a feasible investment for private industry, and whether
Speaker 1: anyone could ever really expect to make money as an
Speaker 1: investor shareholder in listed childcare centers. Have you ever looked
Speaker 1: at that?
Speaker 2: To be honest, I think the answer is probably more no,
Speaker 2: because when I think about the long term drivers of
Speaker 2: a stock performance, I'm not a stock analyst, but when
Speaker 2: I think about generally what drives shares in the long term,
Speaker 2: it's profit growth, and I don't think fundamentally that childcare
Speaker 2: is a profitable investment. It's very highly regulated, so it
Speaker 2: has a lot of public sector involvement and funding, and
Speaker 2: I find it difficult to imagine that the profit margins
Speaker 2: are high or that you could potentially expect to be
Speaker 2: running high profit growth in that type of very highly
Speaker 2: regulated area. So I feel childcare, while it is privately
Speaker 2: provided in Australia, it has so much public influence, and
Speaker 2: I think that personally it should have more public influence.
Speaker 2: We should be going more down the path of some
Speaker 2: Scandinavian countries that are basically all regulated by the government,
Speaker 2: because the best examples of early childcare provision is one
Speaker 2: that is provided by the government, like our public primary schools.
Speaker 1: Now, tell me your own experience. Did you say two
Speaker 1: hundred bucks a day? Is that what it is now?
Speaker 2: It's a bit less than that, but in some for
Speaker 2: one child in some areas in Sydney, I've heard people
Speaker 2: paying two hundred dollars a day in areas like Paddington.
Speaker 2: Apparently that doesn't include any benefit that you get from
Speaker 2: the childcare rebate. A family income is now means tested
Speaker 2: up to about five hundred thousand dollars for a family, but
Speaker 2: it obviously steps down after a certain amount, so there
Speaker 2: is some benefit involved there. I think the bigger issue, though,
Speaker 2: is that we just don't have enough provision of public preschools.
Speaker 2: I think I mentioned that briefly before. So if you're
Speaker 2: lucky enough to live in an area where there's public preschools,
Speaker 2: that's great, and you could pay fifty seventy dollars a day,
Speaker 2: much cheaper rates than childcare amounts. But if you don't
Speaker 2: live in the areas where those are provided, then you're
Speaker 2: stuck to just putting your children into childcare, which is
Speaker 2: much more expensive. So again this government influence that's partly
Speaker 2: funded by state and local governments in terms of those preschools.
Speaker 2: So we really need to see more of that, I think,
Speaker 2: to solve some of the issues that we have in
Speaker 2: the childcare sector.
Speaker 1: So are you paying hundreds of dollars a week for childcare?
Speaker 2: Lucky I have some grandparents support and some childcare, so
Speaker 2: it's not five days of childcare.
Speaker 1: Oh it's tough. I know. We didn't have anything like
Speaker 1: that at all, of course, And I remember there was
Speaker 1: a we lived about I worked about twenty kilometers from
Speaker 1: the childcare center, and every day my wife used to
Speaker 1: bring them over in the morning and I just go
Speaker 1: down and get them in the late afternoon and there
Speaker 1: was a fine view relate. Yeah, to drive down this
Speaker 1: highway every.
Speaker 2: Day now two dollars a minute.
Speaker 1: Yeah, Oh I remember driving on this highway every afternoon
Speaker 1: with this fine hanging over my head. Whether I'd make
Speaker 1: it or not. Oh God. It's a tough phase. And
Speaker 1: if you haven't done it yet, As I say, folks,
Speaker 1: you will find that the childcare you have intense interest
Speaker 1: in the issue when you have people in childcare, just
Speaker 1: like age care. I expect it's the very same. All Right,
Speaker 1: We'll be back in the moment with some very interesting questions. Hello,
Speaker 1: Welcome back to the Australians Money Pozzlive podcast. Diane. I'm
Speaker 1: just going to read something first. There are some questions,
Speaker 1: but this was a comment and I'd like you if
Speaker 1: you have anything to say on this as well. So
Speaker 1: it's about the fire movement. I financial independence retire early.
Speaker 1: We did a special honor last week and we were
Speaker 1: skeptical not about it. I think some of the habits
Speaker 1: and principles of it are very good. I'm very interested
Speaker 1: in the first part financial independence. I was skeptical about
Speaker 1: how the possibilities of retiring early, and I thought the
Speaker 1: movement perhaps made that seem a little bit too easy.
Speaker 1: In any event, needless to say, and entirely fairly the
Speaker 1: Fire Movement in Australia, the Brenda who represents them and
Speaker 1: speaks for them and runs meetings once a week in Melbourne,
Speaker 1: I believe has I'm just editing from her response, but
Speaker 1: this is part of what she had to say. Right
Speaker 1: of reply, the media left to home in on the
Speaker 1: reduced spending to only live on rice and Bean's rhetoric
Speaker 1: and bit pick about being frugal and that we don't
Speaker 1: enjoy life as followers of the Fire movement. It's actually
Speaker 1: the opposite. The Fire movement is about plugging holes where
Speaker 1: money just escape for most people and using that to
Speaker 1: build portfolios in and out of super I would say
Speaker 1: you are correct that many pursue fire using shares and ETFs,
Speaker 1: particularly perhaps a third of the Fire Movement followers in Australia.
Speaker 1: I use property investments as part of their strategy or
Speaker 1: a combination of both. We advocate for things like comparing insurance,
Speaker 1: finding a better deal on bills, and yes, seeing where
Speaker 1: you can reduce spending, but only where it doesn't align
Speaker 1: with your values. Okay, thank you, Brenda. Have you come
Speaker 1: across the fire movement?
Speaker 2: Well, a lot of the research that we do at
Speaker 2: AMP shows that about ninety percent of people die with
Speaker 2: the majority of their super still intact, and they're not
Speaker 2: drawing down their super because of fear that they're not
Speaker 2: going to have enough to live on. So it is
Speaker 2: a massive issue. You need to give retirees the confidence
Speaker 2: to retire.
Speaker 1: Yes, do you think part of that is not so
Speaker 1: much fear but a determination to hand there to have
Speaker 1: an inheritance.
Speaker 2: Well, based on the surveys that I've seen within AMP,
Speaker 2: that's not the major issue. The major issue is actually
Speaker 2: this concern that they're not going to have enough to
Speaker 2: live on. So I guess it's not knowing how much
Speaker 2: they're spending or how much they want to spend every year.
Speaker 2: So not having a financial plan in place, perhaps not
Speaker 2: being concerned about the returns from their superb un worried
Speaker 2: that the returns are going to go down, that the
Speaker 2: actual value of their capital is going to fall, and
Speaker 2: leaving something for inheritance is probably the third or the
Speaker 2: fourth issue, but not the first.
Speaker 1: Interesting and thanks BRender, and we will come back to
Speaker 1: a fire movement. I want to see what people think
Speaker 1: about it. I know it's very popular, particularly in the US,
Speaker 1: and I know there's popular here and I would like
Speaker 1: to know, folks what you think about it. And I
Speaker 1: we had some replies, but I thought we'd have more.
Speaker 1: So let us know what you think, all right, Julie,
Speaker 1: I read it the weekend units are our performing houses.
Speaker 1: Is this a blip or something more important? Yes? I
Speaker 1: refer to that the preamble units are our performing houses, Diana,
Speaker 1: So are they a better investment?
Speaker 2: Everything goes through cycles, right, So we've seen houses outperform
Speaker 2: now basically through most of that post COVID recovery. Again,
Speaker 2: it depends what capital city you're looking at. It's not
Speaker 2: a national uniform market. There are differences. There are different
Speaker 2: performances across the different capital cities and even across the regions.
Speaker 2: The regions did so well after the initial stage of
Speaker 2: the pandemic, and now we're seeing those areas. For Melbourne,
Speaker 2: prices are declining. Unit values are getting some more demand
Speaker 2: because of high population growth. So a lot of the
Speaker 2: demand that's coming through is for units because a lot
Speaker 2: of the a lot of the immigration that's coming through
Speaker 2: is from students, and that's why we're seeing this increased
Speaker 2: demand for units, and also because houses outperformed before. So
Speaker 2: it's not to say that units are going to outperform forever.
Speaker 2: It's just at this current point in the cycle, this
Speaker 2: is what we're seeing.
Speaker 1: Is it there a reversion to the mean? Are you
Speaker 1: coming through with that economic concept?
Speaker 2: Well, a lot of the time, I think that everything
Speaker 2: does revert to its me. I guess the housing market
Speaker 2: is a little bit different because if it reverted to
Speaker 2: its mean, then we should have seen some bigger falls
Speaker 2: to home prices and we haven't. I think probably the
Speaker 2: better performance in units can continue for a little while
Speaker 2: longer because we've got this strong immigration coming through. The
Speaker 2: student numbers have declined and the government is clamping down
Speaker 2: on a lot of those visas, so we may see
Speaker 2: some weakness coming through later next year. But we're also
Speaker 2: seeing that there's a lower number of people that are
Speaker 2: living per dwelling, so we're obviously needing some more demand
Speaker 2: for things like units. We don't have enough housing supply
Speaker 2: in Australia as a nation, and particularly in New South
Speaker 2: Wales and Queensland, so people will be attracted to the
Speaker 2: unit market to get into the housing market and just
Speaker 2: to get their foot in the door. But I think
Speaker 2: eventually it's a difference between unit and house performance will
Speaker 2: probably revert to more normal.
Speaker 1: The gap, yeah, and I think the gap used to
Speaker 1: be like ten percent, and now it's thirty percent something
Speaker 1: like that. It's blown out as a death ratio. I
Speaker 1: don't know how they measure that ratio, but that ratio
Speaker 1: that measures the gap between the units and the houses,
Speaker 1: it blew out to about thirty percent nationwide from about
Speaker 1: ten percent nationwide, higher in some cities, of course. And
Speaker 1: now you see that the prices, the price increases of
Speaker 1: units are running harder and higher and faster than houses.
Speaker 1: That's the main point there, Okay, Omar, Well we did
Speaker 1: cover this, Omar. Do you know why all the data
Speaker 1: indicates is that how house prices in Meburn are going down, however,
Speaker 1: consul rates are going up. And I think Diana explained
Speaker 1: that usefully Omar. And by the way, none of this
Speaker 1: is the advice, of course, it's all information only. Henry.
Speaker 1: I wish you'd cover the need to remove incentives around
Speaker 1: homes and get back to houses as a place to live.
Speaker 1: The thirty year trend of financialization of housing is really
Speaker 1: coming home to roost around the world. Should really be
Speaker 1: invested in companies which are productive, not houses. But I
Speaker 1: do concede it might be hard to reverse the trend.
Speaker 1: About some strong tax dis incentives for second homes. Well, Henry,
Speaker 1: I don't know if you are familiar with the Victorian government,
Speaker 1: but they've been doing exactly that, exactly that, and guess what,
Speaker 1: As as we've already pointed out in the course of
Speaker 1: the show, it's the state where house prices our weakest.
Speaker 1: In fact, they're dropping and there is a direct correspondent.
Speaker 1: It's not entirely explained by a whole pilot new taxes
Speaker 1: that can rolling down the line unexpectedly from the Victoria
Speaker 1: state government, but it is to some extent associated with it,
Speaker 1: because that's exactly what they did recently. They brought in
Speaker 1: the tax for second homes and holiday homes and all
Speaker 1: that sort of thing, and I think it's booked investors.
Speaker 1: I don't know where you come from that, Diana, what's
Speaker 1: your view.
Speaker 2: I think the taxes in Victoria definitely having an impact
Speaker 2: as well as on some analysis that I've done, Victoria
Speaker 2: is actually in a state of oversupply. The other state, Melbourne,
Speaker 2: I think is probably not in a state of oversupply,
Speaker 2: but maybe in some specific suburbs. But in Victoria overall,
Speaker 2: we've seen in the last two years a big increase
Speaker 2: in net outflow out of the state, so going into
Speaker 2: other states, particularly into Queensland, some into South Australia, and
Speaker 2: that's why we've seen areas like Adelaide and Brisbane outperform
Speaker 2: because they've seen this net positive migration into those states,
Speaker 2: whereas Victoria is now in a state of outflow, which
Speaker 2: really ramped up after the pandemic.
Speaker 1: Issue of incentives in Henry. The incentives that really matter
Speaker 1: and housing our negative fearing and capital gains, tax discounts,
Speaker 1: that is what everybody's into. Not to mention the fact
Speaker 1: that the house, the home is a secret cow inside
Speaker 1: the financial system, and not only do you not pay
Speaker 1: tax on its capital against tax, but it isn't measured
Speaker 1: or assessed in accessing the pension, which means you can
Speaker 1: have a four million dollar house and get the pension
Speaker 1: and the other person who has a four hundred thousand
Speaker 1: dollar house can also get the pension. And that is
Speaker 1: the sort of incentives that are in there. Do you
Speaker 1: think I'm not going to ask you because everyone and
Speaker 1: the obvious thing is that I could throw that to
Speaker 1: you and you're going to see politicians will never go
Speaker 1: near it because it's dangerous. But let's move it on
Speaker 1: a bit and ask you, Diana, whether you think any
Speaker 1: of those particular incentives inside the housing market are vulnerable economically.
Speaker 2: So it is really hard to see massive changes to
Speaker 2: those incentives. I think the only one that could potentially
Speaker 2: be touched in the next ten years or so would
Speaker 2: be around valuing the home in the pension test, or
Speaker 2: trying to provide more incentives for retirees to downsize and
Speaker 2: know that they've tried that in the last few budgets
Speaker 2: that hasn't really worked, or putting in place some sort
Speaker 2: of death tax, but it's just it would be so
Speaker 2: hard to do. That sort of seems to be the
Speaker 2: area that we're going towards. Or potentially limiting negative gearing
Speaker 2: to one home or to new builds. That could also
Speaker 2: come up, but for now, I don't see anything changing
Speaker 2: the next few years. I think if we have a
Speaker 2: broader review on tax this could be something that might
Speaker 2: come up, particularly around testing the home in the pension
Speaker 2: or at least some sort of limit.
Speaker 1: They could certainly they could capit that. Yeah, and again,
Speaker 1: if you come to a situation where you can sit
Speaker 1: back and say well whatever, people won't march in the
Speaker 1: streets about it. They won't march if if someone has
Speaker 1: a five million dollar house and they're not allowed to
Speaker 1: get the pension anymore. I think people won't march in
Speaker 1: the streets about that, just like they haven't marched in
Speaker 1: the streets about the three million super tax. For all
Speaker 1: the trouble around it, it is in the broader community
Speaker 1: they just now their head and they say, well, three
Speaker 1: million seems to be a lot to happen super para capita.
Speaker 1: And that's an understandable point of view as well. Okay, hey,
Speaker 1: really interesting, Thank you for your time, Thanks for coming
Speaker 1: on the show.
Speaker 2: Thanks James, it's been a pleasure, great.
Speaker 1: To get if that was a wide ranging conversation, that's
Speaker 1: the probably as wide ranging and interview as you'll do
Speaker 1: for some time, I imagine. So thanks for putting you
Speaker 1: through your paces there. It was really good and I
Speaker 1: think it was great value for everybody who tuned in.
Speaker 1: That was Diana Mossina, economist, at amp folks and hopefully
Speaker 1: you can hear her video and see her video which
Speaker 1: which is out there on I saw it on LinkedIn.
Speaker 1: Lots of interesting comments and you see her going down
Speaker 1: to childcare center. Keep the emails rolling the money puzzle
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Speaker 1: today's show was produced by Leah Samangalou. Talk to you soon,