1 00:00:11,619 --> 00:00:14,650 Speaker 1: Hello and welcome to the Australian's Money Positive podcast. I'm 2 00:00:14,670 --> 00:00:18,250 Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody. 3 00:00:18,770 --> 00:00:24,090 Speaker 1: And my guest today is a demographer. He's a data animator. 4 00:00:24,170 --> 00:00:29,820 Speaker 1: He's a key influencer on trends and patterns that shape Australia, basically. 5 00:00:29,840 --> 00:00:33,920 Speaker 1: And for our purposes today on the Australian investment market, 6 00:00:34,260 --> 00:00:37,370 Speaker 1: property market in particular. He often writes for the Australian, 7 00:00:37,390 --> 00:00:39,570 Speaker 1: you might have guessed by now I'm talking, to Simon 8 00:00:39,670 --> 00:00:43,850 Speaker 1: Kustenmacher of the Demographics Group. How are you, Simon? 9 00:00:43,990 --> 00:00:45,480 Speaker 2: I'm very good. Thanks for having me on. 10 00:00:45,740 --> 00:00:48,480 Speaker 1: Delighted to have you on. Is a demographer still more 11 00:00:48,500 --> 00:00:50,520 Speaker 1: or less fair description of you? 12 00:00:51,120 --> 00:00:53,680 Speaker 2: I think so, yeah. So we very much do nothing 13 00:00:53,720 --> 00:00:55,870 Speaker 2: in our little company than to look at big fat 14 00:00:55,880 --> 00:00:58,970 Speaker 2: data sets all day long and trying to figure out 15 00:00:59,010 --> 00:01:01,510 Speaker 2: how the world works, trying to understand how Australia works. 16 00:01:01,550 --> 00:01:04,680 Speaker 2: And we always start with the big picture demographic data sets, 17 00:01:04,700 --> 00:01:07,360 Speaker 2: and then we feed in lots of, be this economic data, 18 00:01:07,400 --> 00:01:12,500 Speaker 2: be this sociological and even psychological data. That's just what 19 00:01:12,540 --> 00:01:14,690 Speaker 2: we all use in order to then tell a story 20 00:01:15,080 --> 00:01:17,510 Speaker 2: about how Australia might look into the future. 21 00:01:17,730 --> 00:01:22,430 Speaker 1: Right, okay. So what, for us, and to take it 22 00:01:22,450 --> 00:01:27,149 Speaker 1: that the audience are investors and interested anyway in what 23 00:01:27,550 --> 00:01:30,750 Speaker 1: the shape, the future shape of Australia, we're particularly interested 24 00:01:30,770 --> 00:01:34,100 Speaker 1: in as to how it will determine how things will 25 00:01:34,140 --> 00:01:37,720 Speaker 1: go for investors, for instance, for property investors, for example. 26 00:01:38,459 --> 00:01:40,640 Speaker 1: What to you, most of us are going to know 27 00:01:40,660 --> 00:01:43,580 Speaker 1: the basics, right? We're going to know that Australia's aging. 28 00:01:44,260 --> 00:01:46,300 Speaker 1: We're going to know that immigration is a sort of 29 00:01:46,340 --> 00:01:48,620 Speaker 1: tap that we can turn on and off, thankfully, and 30 00:01:48,810 --> 00:01:52,350 Speaker 1: can manage the economy to a great extent by being 31 00:01:52,410 --> 00:01:54,710 Speaker 1: able to do that. Not every country can do that 32 00:01:55,190 --> 00:01:59,420 Speaker 1: in such a sophisticated way as Australia. It also has 33 00:01:59,640 --> 00:02:03,940 Speaker 1: some big trends, I suppose, work from home has come 34 00:02:03,980 --> 00:02:06,880 Speaker 1: in and seems to be becoming a really deep trend. 35 00:02:06,920 --> 00:02:12,270 Speaker 1: But what to you is the outstanding demographic trend an 36 00:02:12,310 --> 00:02:14,130 Speaker 1: Australian property investor should know? 37 00:02:14,790 --> 00:02:17,010 Speaker 2: There are quite a few. I'd start with the most 38 00:02:17,190 --> 00:02:19,590 Speaker 2: obvious and basic one, and that is the aging of 39 00:02:19,630 --> 00:02:22,610 Speaker 2: the population. Everyone read this a million times beforehand. It's 40 00:02:22,669 --> 00:02:26,310 Speaker 2: no surprise to anyone. But the extent of the aging 41 00:02:26,620 --> 00:02:29,899 Speaker 2: of our society surprises people. And I always point people 42 00:02:29,980 --> 00:02:33,799 Speaker 2: to the important year of 85. 85 is the exact 43 00:02:33,940 --> 00:02:35,820 Speaker 2: half of us make it to 85. Half of us 44 00:02:35,860 --> 00:02:37,640 Speaker 2: won't make it to 85. That's the median age of 45 00:02:37,680 --> 00:02:40,040 Speaker 2: death at the moment. And of the cohort that make 46 00:02:40,060 --> 00:02:43,700 Speaker 2: it past 85, half of them need care on a 47 00:02:43,740 --> 00:02:47,540 Speaker 2: daily basis. And we are going to double the population 48 00:02:47,540 --> 00:02:49,900 Speaker 2: 85 plus in Australia in the next 14 years from 49 00:02:49,900 --> 00:02:55,769 Speaker 2: 580,000 people today to 1.2 million people in 14 years. 50 00:02:56,070 --> 00:02:58,990 Speaker 2: That is very soon and that is 100% going to happen. 51 00:02:59,110 --> 00:03:01,760 Speaker 1: One in 10 people will be over 85? 52 00:03:01,760 --> 00:03:04,750 Speaker 2: 1.2 million people. Yeah, exactly. A bit more, we'll grow 53 00:03:04,790 --> 00:03:07,500 Speaker 2: by then, but something like 8% or something. It's a 54 00:03:07,510 --> 00:03:11,460 Speaker 2: big number. Okay. And we then know already that there 55 00:03:11,520 --> 00:03:13,780 Speaker 2: is no chance in hell that we will have even 56 00:03:14,040 --> 00:03:17,460 Speaker 2: remotely enough aged care workers to look after the aging population. 57 00:03:17,500 --> 00:03:22,090 Speaker 2: It's utterly impossible. Even if we increase migration significantly, We 58 00:03:22,190 --> 00:03:24,799 Speaker 2: cannot have enough aged care workers in the system. So that, 59 00:03:24,840 --> 00:03:27,100 Speaker 2: of course, tells me that there will be massive demand 60 00:03:27,400 --> 00:03:30,119 Speaker 2: for family care. That, of course, then means we need 61 00:03:30,180 --> 00:03:33,580 Speaker 2: larger homes. If you cannot put mom into an aged 62 00:03:33,660 --> 00:03:37,940 Speaker 2: care home, she will be somewhere. And usually, ideally, in 63 00:03:38,020 --> 00:03:40,250 Speaker 2: many cases, at the very least, you'll have the family 64 00:03:40,340 --> 00:03:44,010 Speaker 2: unit step up. That, of course, has the challenge, where 65 00:03:44,030 --> 00:03:47,670 Speaker 2: do you put her? Because spare bedrooms are so forbiddingly 66 00:03:47,810 --> 00:03:51,010 Speaker 2: expensive that few families can actually pull this off. So 67 00:03:51,030 --> 00:03:54,530 Speaker 2: we are seeing an absolute aged care crisis coming at us. 68 00:03:55,230 --> 00:04:00,660 Speaker 2: If we put the human concerns aside and we look 69 00:04:01,360 --> 00:04:04,760 Speaker 2: purely through the investment lens here, aged care would be 70 00:04:04,820 --> 00:04:08,360 Speaker 2: an insane investment. It will be in extremely high demand. 71 00:04:08,920 --> 00:04:12,740 Speaker 2: And those players that operate, they will be very expensive 72 00:04:13,120 --> 00:04:17,070 Speaker 2: because shortage demands that prices go up. So that's a 73 00:04:17,810 --> 00:04:18,370 Speaker 2: sure win. 74 00:04:18,750 --> 00:04:22,190 Speaker 1: In the early stages of this pandemic, demographic shift. It 75 00:04:22,250 --> 00:04:24,860 Speaker 1: hasn't been a great investment. In fact, it's been an 76 00:04:25,300 --> 00:04:30,680 Speaker 1: area where investors have lost money. All the listed aged 77 00:04:31,140 --> 00:04:34,880 Speaker 1: care groups have been, as a general observation, very disappointing 78 00:04:34,900 --> 00:04:38,730 Speaker 1: for investors. And so do you think that would ever change? 79 00:04:39,589 --> 00:04:41,990 Speaker 2: I would argue that there will be a flight to quality. 80 00:04:42,270 --> 00:04:46,370 Speaker 2: So you will see more up and coming aged care venues. 81 00:04:46,810 --> 00:04:50,090 Speaker 2: And of course, they are now operating a completely different market. 82 00:04:50,630 --> 00:04:53,779 Speaker 2: Back in the day, you operated quite often with relatively 83 00:04:53,920 --> 00:04:58,120 Speaker 2: poor people, poor customers. Very soon, we have the baby 84 00:04:58,140 --> 00:05:01,760 Speaker 2: boomers moving into aged care facilities. The oldest baby boomer 85 00:05:01,900 --> 00:05:04,480 Speaker 2: is 79. They will very soon be in that stage 86 00:05:04,500 --> 00:05:07,180 Speaker 2: of the life cycle. And so this is a more cashed-up, 87 00:05:07,480 --> 00:05:11,840 Speaker 2: a richer generation that, of course, will completely reinvent this. 88 00:05:12,420 --> 00:05:15,820 Speaker 1: Yeah. Okay. What about the bigger houses then? Is what 89 00:05:15,839 --> 00:05:23,330 Speaker 1: you're saying … partially explaining the how investors and builders 90 00:05:23,450 --> 00:05:29,490 Speaker 1: and homeowners continue to want larger accommodation and can you 91 00:05:29,529 --> 00:05:32,550 Speaker 1: just remind us like per capita per square meter what's 92 00:05:32,570 --> 00:05:35,940 Speaker 1: the story in australia are we moving to bigger accommodation 93 00:05:36,100 --> 00:05:38,240 Speaker 1: or is that an illusion of my illusion. 94 00:05:38,120 --> 00:05:41,520 Speaker 2: So over overall our houses are getting bigger and our 95 00:05:41,860 --> 00:05:44,710 Speaker 2: lot of our plots of lands are getting smaller The 96 00:05:44,750 --> 00:05:49,310 Speaker 2: story is pretty simple. Land is outrageously expensive and we 97 00:05:49,350 --> 00:05:51,590 Speaker 2: want to live somewhere. And so we go in order 98 00:05:51,610 --> 00:05:54,029 Speaker 2: to make housing cheaper. The easiest way to make housing 99 00:05:54,070 --> 00:05:57,860 Speaker 2: cheaper is to minimize the land size that you occupy. 100 00:05:58,310 --> 00:06:00,460 Speaker 2: And so we've been seeing this all the while. The 101 00:06:00,500 --> 00:06:03,860 Speaker 2: personal preferences of families very much change. You do not 102 00:06:03,920 --> 00:06:07,120 Speaker 2: put two kids into a bedroom. There's a clear formula 103 00:06:07,160 --> 00:06:09,440 Speaker 2: that Australians have one bedroom for mom and dad, one 104 00:06:09,480 --> 00:06:12,770 Speaker 2: bedroom for each kid. And then a spare bedroom, you know, 105 00:06:12,790 --> 00:06:14,990 Speaker 2: an office if you are knowledge workers that work from home. 106 00:06:15,370 --> 00:06:18,480 Speaker 2: So a family with two kids needs four bedrooms. That 107 00:06:18,510 --> 00:06:22,159 Speaker 2: is a lot. Right now, and for the next 13 years, 108 00:06:22,640 --> 00:06:25,460 Speaker 2: we have the biggest generation of them all, the millennials, 109 00:06:25,700 --> 00:06:29,460 Speaker 2: making babies, starting their families. That means they move out 110 00:06:29,560 --> 00:06:33,390 Speaker 2: of their inner city hipster apartments in your Fitzroy's, your 111 00:06:33,450 --> 00:06:36,540 Speaker 2: Surrey Hills, your Fortitude Valley's. And they are looking for 112 00:06:36,640 --> 00:06:37,679 Speaker 2: family-sized homes. 113 00:06:37,839 --> 00:06:39,840 Speaker 1: Do you assume they will look for homes at least 114 00:06:39,920 --> 00:06:42,120 Speaker 1: as large as they came from? 115 00:06:42,440 --> 00:06:46,510 Speaker 2: So that's the ideal. So if there's housing preference research 116 00:06:46,550 --> 00:06:48,910 Speaker 2: that asks people, yeah, you know what, of course you 117 00:06:48,990 --> 00:06:51,130 Speaker 2: all deal with financial constraints. It doesn't matter how rich 118 00:06:51,150 --> 00:06:53,150 Speaker 2: you are. There are certain financial constraints that you're operating with. 119 00:06:53,529 --> 00:06:55,969 Speaker 2: What are the things that you're willing to compromise on 120 00:06:56,010 --> 00:06:58,010 Speaker 2: and which are the things you're not willing to compromise on? 121 00:06:58,490 --> 00:07:01,560 Speaker 2: The number of bedrooms is the most important thing for people. 122 00:07:01,960 --> 00:07:04,320 Speaker 2: They're willing to compromise on the quality of the build, 123 00:07:04,460 --> 00:07:07,320 Speaker 2: on the location of this type of the dwelling. But 124 00:07:07,339 --> 00:07:09,940 Speaker 2: the number of bedrooms are the most important bit. 125 00:07:10,520 --> 00:07:11,120 Speaker 1: Is that right? 126 00:07:11,140 --> 00:07:11,600 Speaker 2: Yeah. 127 00:07:11,620 --> 00:07:13,820 Speaker 1: And there's no innovations going on there in the way 128 00:07:13,860 --> 00:07:14,840 Speaker 1: of smaller bedrooms? 129 00:07:14,860 --> 00:07:17,680 Speaker 2: Of course, we are shrinking the bedrooms. That very much 130 00:07:17,740 --> 00:07:20,680 Speaker 2: is happening as well. Because you say, yeah, the kids 131 00:07:20,700 --> 00:07:23,560 Speaker 2: deserve privacy. Whatever it is, the study doesn't need to 132 00:07:23,600 --> 00:07:27,100 Speaker 2: be all that big, to be honest. The master bedroom 133 00:07:27,120 --> 00:07:28,880 Speaker 2: needs to be big enough for a big bed. But 134 00:07:29,200 --> 00:07:31,640 Speaker 2: we have been shrinking those dwellings. And quite often people say, 135 00:07:32,270 --> 00:07:35,970 Speaker 2: That's stupid. We are jeopardizing the quality of life here. 136 00:07:37,010 --> 00:07:40,070 Speaker 2: But the reason our land gets so expensive is, of course, 137 00:07:40,110 --> 00:07:42,750 Speaker 2: a bit silly considering how big we are as a country. 138 00:07:43,250 --> 00:07:45,370 Speaker 1: It just makes me think, it leads me to a 139 00:07:45,730 --> 00:07:47,910 Speaker 1: larger point, which I wanted to bring up with you. 140 00:07:47,950 --> 00:07:49,870 Speaker 1: I really want to know where you're coming from on this. 141 00:07:50,550 --> 00:07:52,910 Speaker 1: Standing back from it, you would have thought that if 142 00:07:52,930 --> 00:07:55,440 Speaker 1: there's an ageing of Australia, that many of that aged 143 00:07:56,060 --> 00:07:58,880 Speaker 1: cohort might like to leave the larger cities to somewhere 144 00:07:59,540 --> 00:08:03,600 Speaker 1: more pleasant and are more relaxed. And we also had 145 00:08:03,640 --> 00:08:07,000 Speaker 1: a big shift in COVID to the tree change, seed change. 146 00:08:08,020 --> 00:08:12,120 Speaker 1: Standing back from it, is that happening in any serious 147 00:08:12,260 --> 00:08:14,040 Speaker 1: way demographically? 148 00:08:14,750 --> 00:08:18,050 Speaker 2: Yes, quite a few of those pandemic trends are persisting 149 00:08:18,130 --> 00:08:21,090 Speaker 2: to a smaller degree. So the working from home phenomenon, 150 00:08:21,170 --> 00:08:25,390 Speaker 2: we quite quickly realized that the people that work fully remotely, 151 00:08:25,730 --> 00:08:29,570 Speaker 2: fully from home is actually relatively small. Most people work 152 00:08:29,630 --> 00:08:31,620 Speaker 2: in a hybrid way. It doesn't matter whether you go 153 00:08:31,680 --> 00:08:33,500 Speaker 2: to the office one day per week or five days 154 00:08:33,540 --> 00:08:35,540 Speaker 2: per week. As long as you go to the office, 155 00:08:35,600 --> 00:08:40,460 Speaker 2: sometimes you stay within a magical two-hour drive-time radius of 156 00:08:40,540 --> 00:08:43,660 Speaker 2: the CBD. So you can draw this two-hour drive-time radius 157 00:08:43,760 --> 00:08:48,830 Speaker 2: around all CBDs in the country, and it's population boom inside, 158 00:08:49,390 --> 00:08:55,850 Speaker 2: and it's crickets outside of that two-hour drive-time radius. It's 159 00:08:55,870 --> 00:09:01,239 Speaker 2: nice and quiet there. And of course, the retirees, they 160 00:09:01,380 --> 00:09:04,059 Speaker 2: always were a cohort that could move wherever they wanted 161 00:09:04,340 --> 00:09:08,430 Speaker 2: because they were not shackled by their place of work anymore. 162 00:09:08,929 --> 00:09:12,070 Speaker 2: And so the downsizer narrative that some people expected with 163 00:09:12,090 --> 00:09:15,689 Speaker 2: the baby boomers to occur is much smaller than it 164 00:09:15,809 --> 00:09:20,480 Speaker 2: actually was expected, simply because baby boomers are not at 165 00:09:20,640 --> 00:09:23,500 Speaker 2: scale doing the gold watch retirement. Where it's the gold 166 00:09:23,559 --> 00:09:25,760 Speaker 2: watch on the Friday and then it's golf course until 167 00:09:25,780 --> 00:09:29,130 Speaker 2: you drop. That's not what they do. They increasingly slide 168 00:09:29,170 --> 00:09:32,820 Speaker 2: into retirement. They reduce their working hours three days per week, 169 00:09:32,860 --> 00:09:34,819 Speaker 2: two days per week, a bit of consulting here and there. 170 00:09:35,080 --> 00:09:37,059 Speaker 2: Maybe you take a really long break in the middle 171 00:09:37,100 --> 00:09:39,479 Speaker 2: of the year, go on a Rhine River cruise or 172 00:09:39,520 --> 00:09:43,400 Speaker 2: something like this. And ultimately, that means that you are 173 00:09:43,520 --> 00:09:46,140 Speaker 2: shackled to the CBD for longer, because why would you 174 00:09:46,179 --> 00:09:48,860 Speaker 2: give up your large scale family home that is in 175 00:09:49,340 --> 00:09:53,170 Speaker 2: comfortable commuting distance to move elsewhere? to retirement destination. 176 00:09:53,309 --> 00:09:56,620 Speaker 1: So has downsizing not matched forecasts of downsizing? 177 00:09:56,960 --> 00:10:00,199 Speaker 2: It's much exaggerated, the whole downsizing narrative. It of course 178 00:10:00,240 --> 00:10:02,980 Speaker 2: does happen and people do move to Noosa. That's true. 179 00:10:03,340 --> 00:10:06,240 Speaker 2: But ultimately, we are staying put. And if you talk 180 00:10:06,280 --> 00:10:09,230 Speaker 2: to Australians, older Australians, they'll tell you things like, I 181 00:10:09,260 --> 00:10:11,730 Speaker 2: want to be carried out of the family home. That 182 00:10:11,770 --> 00:10:15,790 Speaker 2: seems to be the ultimate goal in life. Unfortunately, while 183 00:10:15,910 --> 00:10:17,830 Speaker 2: most people say they want to do this, only 14% 184 00:10:17,830 --> 00:10:20,450 Speaker 2: of us die in the family home. We ultimately still 185 00:10:20,510 --> 00:10:22,350 Speaker 2: die in hospice or hospitals. 186 00:10:22,590 --> 00:10:25,130 Speaker 1: How about downsizing within the neighborhood, within the zone? 187 00:10:25,460 --> 00:10:28,900 Speaker 2: That's, of course, not possible because the baby boomers that 188 00:10:29,000 --> 00:10:31,460 Speaker 2: are living in big family homes, if they want to 189 00:10:31,500 --> 00:10:37,220 Speaker 2: downsize locally, there are no comfortable two-bedroom apartments or smaller 190 00:10:37,240 --> 00:10:41,470 Speaker 2: dwelling availables because these are dominated by those family homes 191 00:10:41,650 --> 00:10:44,420 Speaker 2: and They did not add any stock over the last 192 00:10:44,460 --> 00:10:47,800 Speaker 2: decades because the bastions of the baby boomer family homes 193 00:10:47,840 --> 00:10:51,300 Speaker 2: are also the NIMBY bastions that blocked development because they 194 00:10:51,320 --> 00:10:54,980 Speaker 2: wanted to retain the built environment, the atmosphere of the 195 00:10:55,040 --> 00:10:57,340 Speaker 2: area that they lived in. And now they cannot downsize. 196 00:10:57,720 --> 00:10:59,559 Speaker 1: It would suggest to me, maybe I'm wrong, tell me 197 00:10:59,580 --> 00:11:05,400 Speaker 1: what you think, downsizer type accommodation in any suburb will 198 00:11:05,440 --> 00:11:08,800 Speaker 1: be highly valued in the near future because there's such 199 00:11:08,870 --> 00:11:09,730 Speaker 1: little supply of it. 200 00:11:10,760 --> 00:11:13,599 Speaker 2: Exactly. And to be perfectly blunt, we're operating in a 201 00:11:13,640 --> 00:11:16,120 Speaker 2: property market where there is a shortage of all types 202 00:11:16,160 --> 00:11:19,370 Speaker 2: of housing in all locations. Not to be too flippant 203 00:11:19,400 --> 00:11:22,610 Speaker 2: about it, but whatever you build, we'll find a buyer. 204 00:11:22,790 --> 00:11:24,810 Speaker 1: Sure. People will buy or rent anything. What do you 205 00:11:24,830 --> 00:11:28,250 Speaker 1: think in the nature of property formation, what type of 206 00:11:28,290 --> 00:11:30,510 Speaker 1: property do you think will be the most in demand 207 00:11:31,750 --> 00:11:32,430 Speaker 1: in the near future? 208 00:11:32,710 --> 00:11:37,620 Speaker 2: In the near future, family-sized homes for millennials. Millennials cannot 209 00:11:37,720 --> 00:11:40,530 Speaker 2: put the families that they're making into the dwellings they're 210 00:11:40,580 --> 00:11:43,739 Speaker 2: currently in. That's impossible. So we know that over the 211 00:11:43,780 --> 00:11:46,260 Speaker 2: next 13 years or so, the biggest generation of them 212 00:11:46,400 --> 00:11:49,960 Speaker 2: all moves from the inner suburbs of our big cities 213 00:11:50,040 --> 00:11:52,560 Speaker 2: to wherever they can find a three and four bedroom dwelling. 214 00:11:53,080 --> 00:11:55,119 Speaker 2: Of course, if you talk to the urban planners, they say, yo, 215 00:11:55,540 --> 00:11:58,130 Speaker 2: we want heaps more three and four bedroom dwellings in 216 00:11:58,150 --> 00:12:00,370 Speaker 2: the middle suburbs. We need to densify our cities. Our 217 00:12:00,390 --> 00:12:03,290 Speaker 2: cities are much too sprawled out. Absolutely correct, they are. 218 00:12:03,570 --> 00:12:06,390 Speaker 2: And they should have been built differently. But the cheapest 219 00:12:06,450 --> 00:12:09,910 Speaker 2: way of building housing in the here and now is 220 00:12:10,000 --> 00:12:12,260 Speaker 2: to bulldoze a bit of land on a greenfield site 221 00:12:12,360 --> 00:12:15,040 Speaker 2: and put a cheap box on top. It is much, 222 00:12:15,100 --> 00:12:18,400 Speaker 2: much more expensive on a square meter basis to build 223 00:12:18,480 --> 00:12:21,980 Speaker 2: medium density or high density. And if you operate a 224 00:12:22,000 --> 00:12:25,599 Speaker 2: city like Melbourne that grows at 100,000 people per year, 225 00:12:26,179 --> 00:12:29,920 Speaker 2: you need housing fast. And Melbourne, of course, has no 226 00:12:30,020 --> 00:12:33,290 Speaker 2: physical boundaries around it. You can just pancake the city 227 00:12:33,450 --> 00:12:36,550 Speaker 2: out and out. You then build infrastructure problems for the 228 00:12:36,590 --> 00:12:39,730 Speaker 2: future and whatever, and you build an absolutely unmanageable, terrible city, 229 00:12:40,370 --> 00:12:42,489 Speaker 2: but that's neither here nor there in the short term. 230 00:12:43,070 --> 00:12:44,990 Speaker 2: So that's one of the big conundrums that we have. 231 00:12:45,890 --> 00:12:50,000 Speaker 1: Just keeping it on national picture, you mentioned that millennials 232 00:12:50,010 --> 00:12:51,319 Speaker 1: were the biggest. What do you mean? 233 00:12:51,880 --> 00:12:55,400 Speaker 2: So millennials are the biggest generation. They're not the biggest 234 00:12:55,520 --> 00:12:57,679 Speaker 2: birth cohort. We always talk about the baby boomers being 235 00:12:57,700 --> 00:12:59,520 Speaker 2: the biggest birth cohort because we had 3.8 kids in 236 00:13:01,059 --> 00:13:05,400 Speaker 2: per family, so these are big families. But millennials saw 237 00:13:05,440 --> 00:13:07,800 Speaker 2: the benefit over the last two decades of being amped 238 00:13:07,860 --> 00:13:11,449 Speaker 2: up by migration. So they are much more multicultural generation, 239 00:13:11,470 --> 00:13:13,010 Speaker 2: if you will, as baby boomers. And so they're much 240 00:13:13,030 --> 00:13:16,390 Speaker 2: bigger in numbers. And now they are all on the move. 241 00:13:16,530 --> 00:13:19,429 Speaker 1: They're the dominant cohort in Australia. 242 00:13:19,770 --> 00:13:20,210 Speaker 2: Absolutely. 243 00:13:20,530 --> 00:13:24,189 Speaker 1: As we speak. And just remind your listeners what a 244 00:13:24,210 --> 00:13:24,830 Speaker 1: millennial is. 245 00:13:25,990 --> 00:13:29,599 Speaker 2: Millennials are people born in the 80s and 90s. So 246 00:13:29,620 --> 00:13:32,290 Speaker 2: these are people, the oldest millennial is in their early 40s, 247 00:13:32,340 --> 00:13:33,840 Speaker 2: the youngest one is in their mid-20s. 248 00:13:33,920 --> 00:13:35,900 Speaker 1: So it seems to me there's two huge trends. There's 249 00:13:35,920 --> 00:13:37,940 Speaker 1: the aging of Australia, and this is the doubling of 250 00:13:37,960 --> 00:13:43,050 Speaker 1: the over-85s. And then there is the millennial, to simplify it, 251 00:13:43,190 --> 00:13:47,689 Speaker 1: moving from their inner-city barista neighborhood to the middle suburbs. 252 00:13:47,870 --> 00:13:50,929 Speaker 1: They hope to find a family home. They hope. Which 253 00:13:50,990 --> 00:13:54,390 Speaker 1: would suggest to me that the standalone family home, it's 254 00:13:54,410 --> 00:14:00,850 Speaker 1: been highly prized. And its valuations have risen faster than 255 00:14:01,030 --> 00:14:04,910 Speaker 1: units for a long time. And it would suggest to 256 00:14:04,950 --> 00:14:06,690 Speaker 1: me that's going to keep going if that is the 257 00:14:06,790 --> 00:14:08,270 Speaker 1: demographic undercurrent. 258 00:14:09,990 --> 00:14:14,050 Speaker 2: Absolutely. Just to be fair, millennials all need three and 259 00:14:14,110 --> 00:14:18,290 Speaker 2: four bedrooms very soon. Are we building them fast enough? No. 260 00:14:18,610 --> 00:14:20,950 Speaker 2: So they will go up further in price. All the while, 261 00:14:20,970 --> 00:14:23,450 Speaker 2: we're not seeing the benefits of actually baby boomers in 262 00:14:23,470 --> 00:14:26,460 Speaker 2: the next 10 years vacating their three and four bedroom dwellings. 263 00:14:26,920 --> 00:14:30,540 Speaker 2: because they are not downsizing. They're hanging on the workforce 264 00:14:30,580 --> 00:14:33,460 Speaker 2: for longer. They don't see the point in selling the 265 00:14:33,500 --> 00:14:37,510 Speaker 2: family home just yet, because it massively increases in value. 266 00:14:37,850 --> 00:14:39,370 Speaker 2: And if you sell, you have to do the whole 267 00:14:39,410 --> 00:14:42,150 Speaker 2: stupid stamp duty stuff and whatever. It's a nuisance. And 268 00:14:42,170 --> 00:14:45,850 Speaker 2: you don't have the ideal downsizer unit nearby where it 269 00:14:45,870 --> 00:14:48,320 Speaker 2: makes sense to downsize for you. So they will stay. 270 00:14:48,660 --> 00:14:51,620 Speaker 2: So the demand for three and four bedroom goes through 271 00:14:51,660 --> 00:14:54,620 Speaker 2: the roof. It's absolutely gigantic. But there's also a bit 272 00:14:54,640 --> 00:14:57,390 Speaker 2: of a... To be honest, for the millennials that need 273 00:14:57,600 --> 00:15:00,300 Speaker 2: family homes now in the next 10 years, I don't 274 00:15:00,340 --> 00:15:03,080 Speaker 2: have any positive news for them. If I'm talking to 275 00:15:03,120 --> 00:15:06,780 Speaker 2: people that are 20 that only need their family-sized homes 276 00:15:06,920 --> 00:15:09,080 Speaker 2: in 15 years' time or so, I'm a bit more 277 00:15:09,120 --> 00:15:12,600 Speaker 2: optimistic for them because by then you'll have all the 278 00:15:12,660 --> 00:15:15,560 Speaker 2: baby boomers die out of their homes and so you'll 279 00:15:15,580 --> 00:15:19,380 Speaker 2: see this massive surge of supply in the market. So 280 00:15:19,400 --> 00:15:22,120 Speaker 2: that should then soften house prices, whether this is a 281 00:15:22,140 --> 00:15:25,280 Speaker 2: slowdown of growth, whether this is actually price reduction, who knows. 282 00:15:25,860 --> 00:15:28,230 Speaker 2: but it'll be easier for people that are 20 than 283 00:15:28,260 --> 00:15:30,010 Speaker 2: it is now for people that are 30. 284 00:15:30,010 --> 00:15:31,790 Speaker 1: Interesting. All right, we'll take a short break. We'll be 285 00:15:31,830 --> 00:15:39,390 Speaker 1: back in a moment. Hello, welcome back to the Australian's 286 00:15:39,430 --> 00:15:42,060 Speaker 1: Money Puzzle podcast. I'm James Kirby, and I'm talking to 287 00:15:42,120 --> 00:15:47,220 Speaker 1: Simon Kustenmarker of the Demographics Group, who is a demographer... 288 00:15:47,230 --> 00:15:50,940 Speaker 1: and well-known demographer and writer for The Australian and is 289 00:15:51,340 --> 00:15:55,580 Speaker 1: well-known of course generally in media as a spokesman or 290 00:15:55,600 --> 00:15:59,280 Speaker 1: a commentator on trends in population which I always find 291 00:15:59,300 --> 00:16:03,160 Speaker 1: very interesting as it informs trends in property. Now in 292 00:16:03,180 --> 00:16:05,410 Speaker 1: the first segment we did talk about two big trends, 293 00:16:05,650 --> 00:16:09,570 Speaker 1: the ageing of Australia. Population over 85 is going to double. 294 00:16:09,970 --> 00:16:12,350 Speaker 1: There's lots of ways you can look at that and 295 00:16:12,390 --> 00:16:16,580 Speaker 1: be aware of that and how you invest. Similarly Simon 296 00:16:16,620 --> 00:16:20,480 Speaker 1: was mentioning how the millennial, the largest cohort of all 297 00:16:20,500 --> 00:16:23,720 Speaker 1: born in the eighties and nineties, currently in their inner 298 00:16:23,780 --> 00:16:27,120 Speaker 1: city pads. Once they have kids, they've got to go 299 00:16:27,160 --> 00:16:30,490 Speaker 1: out to the middle suburbs, unless they want to be 300 00:16:30,510 --> 00:16:33,170 Speaker 1: falling over each other inside in their small house. So 301 00:16:33,190 --> 00:16:36,010 Speaker 1: they do, and he's laying it out that will be 302 00:16:36,050 --> 00:16:39,110 Speaker 1: very competitive in the near future. So there are two 303 00:16:39,210 --> 00:16:42,830 Speaker 1: major trends. We didn't really zone in on work from home, Simon. 304 00:16:43,300 --> 00:16:45,820 Speaker 1: I mean, it's a trend that's emerged in our lifetime 305 00:16:46,560 --> 00:16:50,300 Speaker 1: in a serious manner. People always did it. I mean, 306 00:16:51,000 --> 00:16:52,980 Speaker 1: just to reflect on that, do you think the COVID 307 00:16:53,020 --> 00:16:57,540 Speaker 1: period changed work from home in any structural fashion? And 308 00:16:57,580 --> 00:17:00,880 Speaker 1: how might that affect property going forward? 309 00:17:01,570 --> 00:17:04,170 Speaker 2: Working from home is here to stay. Once you give 310 00:17:04,550 --> 00:17:07,010 Speaker 2: people a right, it's very hard to take it away. 311 00:17:07,109 --> 00:17:09,390 Speaker 2: You can see this in the US with gun rights. 312 00:17:09,590 --> 00:17:12,050 Speaker 2: Once you give people a certain right, taking this away 313 00:17:12,070 --> 00:17:15,150 Speaker 2: is very tough. So people will want to work from home. 314 00:17:15,630 --> 00:17:17,560 Speaker 2: Of course, you see this in New South Wales where 315 00:17:17,600 --> 00:17:21,120 Speaker 2: a government tries to force the government employees back. We'll 316 00:17:21,160 --> 00:17:23,660 Speaker 2: see how this plays out. I think it's very unfavourable 317 00:17:23,760 --> 00:17:28,180 Speaker 2: and I think that for the next foreseeable future, it 318 00:17:28,200 --> 00:17:31,300 Speaker 2: is workers who hold the leverage. Workers can make the 319 00:17:31,359 --> 00:17:34,310 Speaker 2: calls simply because we are running out of workers. That 320 00:17:34,350 --> 00:17:38,750 Speaker 2: is another very important demographic truism in the coming decade. 321 00:17:39,130 --> 00:17:42,970 Speaker 2: There's a skills shortage right now. The skills shortage is 322 00:17:43,369 --> 00:17:45,730 Speaker 2: not really linked to the pandemic. Yes, the pandemic made 323 00:17:45,780 --> 00:17:48,500 Speaker 2: it worse because we said, hey, no financial support for 324 00:17:48,540 --> 00:17:51,200 Speaker 2: temporary visa holders, so they buggered off. That created a 325 00:17:51,240 --> 00:17:53,899 Speaker 2: dip of 300,000 people in a workforce of 14 million. 326 00:17:54,140 --> 00:17:56,540 Speaker 2: That had an impact. But the skills shortage will still 327 00:17:56,619 --> 00:17:58,270 Speaker 2: be here in the next 10 years because what we 328 00:17:58,310 --> 00:18:02,149 Speaker 2: are seeing is the big court of baby boomers leaving 329 00:18:02,170 --> 00:18:04,169 Speaker 2: the world of work. They, of course, allowed to retire. 330 00:18:04,210 --> 00:18:06,050 Speaker 2: It's fine. They worked hard. But at the other end 331 00:18:06,090 --> 00:18:08,430 Speaker 2: of the spectrum, we have a slightly smaller court entering 332 00:18:08,450 --> 00:18:11,320 Speaker 2: the world of work. As if this imbalance wasn't bad enough, 333 00:18:11,690 --> 00:18:14,490 Speaker 2: For the next 13 years, we have millennials making babies. 334 00:18:14,630 --> 00:18:16,570 Speaker 2: That means they go on parental leave, at least for 335 00:18:16,590 --> 00:18:19,130 Speaker 2: a little bit. And so they temporarily leave the world 336 00:18:19,150 --> 00:18:19,450 Speaker 2: of work. 337 00:18:20,270 --> 00:18:24,010 Speaker 1: Didn't immigration traditionally plug those problems? 338 00:18:24,750 --> 00:18:27,990 Speaker 2: It could plug those problems because in the past, we 339 00:18:28,020 --> 00:18:31,340 Speaker 2: had relatively small cohorts retiring year after year. Now we 340 00:18:31,400 --> 00:18:35,300 Speaker 2: have this impact of this gigantic baby boomer cohort leaving. Yes, 341 00:18:35,660 --> 00:18:38,220 Speaker 2: and this is why I'm absolutely convinced that we will 342 00:18:38,260 --> 00:18:41,640 Speaker 2: continue a high migration approach in this country. which, of course, 343 00:18:41,680 --> 00:18:44,500 Speaker 2: sometimes people criticize for saying, hey, right now we have 344 00:18:44,520 --> 00:18:47,160 Speaker 2: a housing shortage and why are we still taking in migrants? 345 00:18:47,460 --> 00:18:49,919 Speaker 2: Maybe we should, you know, put the brakes on for 346 00:18:49,960 --> 00:18:53,639 Speaker 2: now for a bit. But ultimately, a slowing migration creates 347 00:18:53,680 --> 00:18:56,800 Speaker 2: more problems than it solves. And quite often, I think 348 00:18:56,859 --> 00:19:00,320 Speaker 2: it's just a cheap political way of saying we tackle 349 00:19:00,359 --> 00:19:03,720 Speaker 2: the housing affordable issue by saying we slow down migration 350 00:19:03,850 --> 00:19:06,350 Speaker 2: because it's very convenient, isn't it, politically? You say housing 351 00:19:06,410 --> 00:19:10,850 Speaker 2: affordability is the fault of a non-voting cohort. Easy. And 352 00:19:10,910 --> 00:19:14,550 Speaker 2: of course, you're saying that I ticked my speaking point 353 00:19:14,650 --> 00:19:16,990 Speaker 2: about housing affordability. I don't need to talk about as 354 00:19:17,030 --> 00:19:19,869 Speaker 2: a government in all the ways that I'm complicit in 355 00:19:19,910 --> 00:19:22,720 Speaker 2: driving up house prices. Because you could get rid of 356 00:19:22,760 --> 00:19:26,800 Speaker 2: stamp duty. You could get rid of franking credits, negative gearing. 357 00:19:26,920 --> 00:19:29,280 Speaker 2: You could first home buyer grants. They only drive up 358 00:19:29,300 --> 00:19:32,320 Speaker 2: house prices. There are plenty of policies there that drive 359 00:19:32,340 --> 00:19:35,129 Speaker 2: house prices up. But if you were tackling them, if 360 00:19:35,150 --> 00:19:37,790 Speaker 2: you were dumb enough to tackle them like Bill Shorten was, 361 00:19:38,220 --> 00:19:41,100 Speaker 2: you're guaranteed to not be voted in because you still 362 00:19:41,200 --> 00:19:43,919 Speaker 2: operate in a country where the majority, two thirds of 363 00:19:44,020 --> 00:19:46,250 Speaker 2: all voters own their home and they don't want to 364 00:19:46,270 --> 00:19:46,490 Speaker 2: go down. 365 00:19:47,050 --> 00:19:49,550 Speaker 1: But back to the work from home and the difference 366 00:19:49,590 --> 00:19:51,760 Speaker 1: it might have made if it did make a difference 367 00:19:51,820 --> 00:19:55,500 Speaker 1: to property investing. What's your initial reaction there? 368 00:19:55,520 --> 00:19:58,419 Speaker 2: So what it does is traditionally people wanted to avoid 369 00:19:58,440 --> 00:20:01,500 Speaker 2: the soul-destroying commute and so they moved as close to 370 00:20:01,520 --> 00:20:04,060 Speaker 2: the CBD as they could afford. Now that working from 371 00:20:04,080 --> 00:20:05,580 Speaker 2: home is a thing and you know, yeah, you only 372 00:20:05,600 --> 00:20:06,960 Speaker 2: need to go to the office every now and then, 373 00:20:07,290 --> 00:20:10,899 Speaker 2: we widened our perimeters. So all of a sudden, and 374 00:20:10,940 --> 00:20:12,820 Speaker 2: this is where we look at this two-hour drive time 375 00:20:12,880 --> 00:20:15,159 Speaker 2: radius from the CBD, all of a sudden a wider 376 00:20:15,260 --> 00:20:19,020 Speaker 2: area is considered acceptable. You're willing to commute longer if 377 00:20:19,060 --> 00:20:20,640 Speaker 2: you only go into the office one or two days 378 00:20:20,680 --> 00:20:23,109 Speaker 2: a week. Then the hour and a half commute each 379 00:20:23,150 --> 00:20:25,869 Speaker 2: way or whatever is fine. Whereas in the past, this 380 00:20:25,890 --> 00:20:27,030 Speaker 2: would have been ridiculous. 381 00:20:27,590 --> 00:20:29,190 Speaker 1: It would have been hell because you were doing it 382 00:20:29,230 --> 00:20:31,129 Speaker 1: five days, but you can do it two days. And 383 00:20:31,170 --> 00:20:34,170 Speaker 1: do you see in the numbers any reflection of that 384 00:20:34,340 --> 00:20:42,189 Speaker 1: kicking in? For instance, city zones... becoming more popular or 385 00:20:42,250 --> 00:20:45,950 Speaker 1: more expensive, that perhaps could be explained in some way 386 00:20:45,990 --> 00:20:46,649 Speaker 1: by that trend. 387 00:20:46,950 --> 00:20:50,300 Speaker 2: Yeah, we see the fastest growing areas in all capital 388 00:20:50,320 --> 00:20:53,800 Speaker 2: cities is the urban fringe. That's because this is where 389 00:20:53,840 --> 00:20:56,640 Speaker 2: you build greenfield development sites, so you can build relatively 390 00:20:56,700 --> 00:21:00,300 Speaker 2: cheap housing at scale fast. You build the three, four 391 00:21:00,340 --> 00:21:04,240 Speaker 2: bedroom stock that those millennials want, and you are just 392 00:21:04,400 --> 00:21:05,940 Speaker 2: in the commutable distance. 393 00:21:06,990 --> 00:21:10,020 Speaker 1: When you say fastest growing, you mean... Building growth. 394 00:21:10,280 --> 00:21:13,480 Speaker 2: Meaning population growth. I measure everything in population growth. But yeah, 395 00:21:13,500 --> 00:21:15,840 Speaker 2: this is where, if you look at the big cities, 396 00:21:15,859 --> 00:21:19,160 Speaker 2: they see growth everywhere right now. But it's the fringe, 397 00:21:19,320 --> 00:21:22,540 Speaker 2: it's like a belt around the urban fringe that is 398 00:21:22,560 --> 00:21:24,120 Speaker 2: an absolute boom town. 399 00:21:24,560 --> 00:21:26,780 Speaker 1: Have you seen any zones where there was price depreciation 400 00:21:26,840 --> 00:21:28,500 Speaker 1: because of work-from-home trends? 401 00:21:28,980 --> 00:21:32,480 Speaker 2: No, not really. Because you'd say, in a sense, the 402 00:21:32,600 --> 00:21:36,159 Speaker 2: inner suburbs would have seen a weakening, theoretically, in an 403 00:21:36,240 --> 00:21:39,450 Speaker 2: environment where we didn't also see massive population growth. And 404 00:21:39,470 --> 00:21:42,179 Speaker 2: so because you have growth wherever you look, essentially in 405 00:21:42,200 --> 00:21:44,940 Speaker 2: the big cities, prices don't fall. And then, of course, 406 00:21:45,000 --> 00:21:47,699 Speaker 2: prices didn't fall during the pandemic because we had, even 407 00:21:47,720 --> 00:21:50,160 Speaker 2: though we had negative population growth, people left the country. 408 00:21:50,760 --> 00:21:53,300 Speaker 2: We had super low interest rates. And if interest rates 409 00:21:53,359 --> 00:21:56,580 Speaker 2: are super low, people are happy to bid a lot 410 00:21:56,600 --> 00:21:59,120 Speaker 2: of money for their houses. And so that drove up prices. 411 00:21:59,680 --> 00:22:02,110 Speaker 2: And now we have this crazy shortage and interest rates 412 00:22:02,190 --> 00:22:04,709 Speaker 2: are going up and up. And we still see high 413 00:22:04,730 --> 00:22:07,869 Speaker 2: prices that don't really see them fall, structurally speaking. 414 00:22:09,290 --> 00:22:10,469 Speaker 1: One of the things I want to ask you, which 415 00:22:10,530 --> 00:22:12,290 Speaker 1: is an economic question, but I'm sure you're across it, 416 00:22:12,330 --> 00:22:16,250 Speaker 1: was this notion, very strong concept, I think, that what happened, 417 00:22:16,590 --> 00:22:19,560 Speaker 1: we had this extraordinary period where interest rates went to 418 00:22:19,600 --> 00:22:23,960 Speaker 1: zero and they fell from whatever, a long-term average of 7% 419 00:22:23,960 --> 00:22:28,680 Speaker 1: to zero for some years. And in that time, being 420 00:22:28,740 --> 00:22:32,570 Speaker 1: roughly half the five years, maybe seven years running up 421 00:22:32,609 --> 00:22:34,790 Speaker 1: to about a year and a half ago, two years ago, 422 00:22:35,530 --> 00:22:38,750 Speaker 1: What occurred in the property market was a capitalization of 423 00:22:38,830 --> 00:22:43,429 Speaker 1: interest rate changes, as reflected in what you're saying, that 424 00:22:43,590 --> 00:22:46,550 Speaker 1: basically people could bid more because the loans were cheaper 425 00:22:46,590 --> 00:22:49,369 Speaker 1: than they ever had been before. That period is now over. 426 00:22:50,270 --> 00:22:53,490 Speaker 1: So I'm asking you, do you think we will... Do 427 00:22:53,510 --> 00:22:57,790 Speaker 1: you think it's possible... People say property is very expensive. Yes, 428 00:22:57,850 --> 00:23:01,540 Speaker 1: it is on a historical and international measure. Do you think... 429 00:23:02,340 --> 00:23:04,790 Speaker 1: we could have a repeat in the next decade of 430 00:23:04,830 --> 00:23:06,810 Speaker 1: the sort of price appreciation we had in the last 431 00:23:06,830 --> 00:23:10,810 Speaker 1: decade that included that period of capitalization of interest rates. 432 00:23:10,830 --> 00:23:13,429 Speaker 2: Yeah, the way that I look at interest rates is, 433 00:23:13,450 --> 00:23:15,310 Speaker 2: you know, it would be, of course, fun to have 434 00:23:15,350 --> 00:23:18,110 Speaker 2: lower interest rates again, but I don't see that happening 435 00:23:18,250 --> 00:23:21,310 Speaker 2: because the RBA is fighting an uphill battle against demographics. 436 00:23:21,670 --> 00:23:24,040 Speaker 2: The RBA wants us to spend less money. That's why 437 00:23:24,080 --> 00:23:26,020 Speaker 2: they put up the interest rates because high interest rates 438 00:23:26,060 --> 00:23:29,000 Speaker 2: are deflationary. But what we're seeing in the next decade 439 00:23:29,080 --> 00:23:32,000 Speaker 2: is that we see the biggest generation ever, the millennials, 440 00:23:32,440 --> 00:23:34,760 Speaker 2: Moving through the highest spending phase of the life cycle. 441 00:23:34,780 --> 00:23:37,510 Speaker 2: They completely move through the mid-40s. That's the phase of 442 00:23:37,550 --> 00:23:39,390 Speaker 2: the life cycle where you spend more money than ever 443 00:23:39,430 --> 00:23:42,190 Speaker 2: before or ever after. Because you already had quite a 444 00:23:42,450 --> 00:23:43,950 Speaker 2: couple of promotions, so you have a lot of money 445 00:23:43,970 --> 00:23:46,510 Speaker 2: to spend. You already had all the kids that you 446 00:23:46,530 --> 00:23:49,250 Speaker 2: will ever have. So you have a lot of costs 447 00:23:49,310 --> 00:23:51,390 Speaker 2: associated with those kids. You have a big fat mortgage. 448 00:23:51,410 --> 00:23:52,040 Speaker 1: You can't save. 449 00:23:53,040 --> 00:23:55,699 Speaker 2: Every penny that you earn. No matter the scenario, it 450 00:23:55,720 --> 00:23:57,420 Speaker 2: goes out the door, back into the economy. 451 00:23:57,440 --> 00:24:00,650 Speaker 1: It really sucks for those people in the mid-40s. 452 00:24:00,930 --> 00:24:05,470 Speaker 2: And so the millennials will spend no matter what, guaranteed, 453 00:24:05,510 --> 00:24:08,730 Speaker 2: the biggest generation. Also, the richest generation, the baby boomers, 454 00:24:09,250 --> 00:24:11,949 Speaker 2: they're now moving into retirement. And traditionally, they would have 455 00:24:11,970 --> 00:24:16,260 Speaker 2: been meant to become a poor, penny-pinching pensioner cohort. But 456 00:24:16,280 --> 00:24:19,260 Speaker 2: they're not because they benefit from high house prices. They 457 00:24:19,320 --> 00:24:21,740 Speaker 2: all own their own homes. So they feel richer on paper, 458 00:24:21,780 --> 00:24:24,730 Speaker 2: the wealth effect. Plus, they own the vast majority of 459 00:24:24,770 --> 00:24:27,870 Speaker 2: cash savings. They benefit from high interest rates. Why would 460 00:24:28,010 --> 00:24:30,990 Speaker 2: the richest cohort stop spending money? So for the next decade, 461 00:24:31,020 --> 00:24:34,260 Speaker 2: we have this weird setup where the richest cohort and 462 00:24:34,280 --> 00:24:37,179 Speaker 2: the biggest cohort definitely want to spend money. And so 463 00:24:37,200 --> 00:24:39,580 Speaker 2: what do you do as an RBA? You can't just say, yeah, 464 00:24:39,600 --> 00:24:42,540 Speaker 2: we'll easily cut rates as long as everyone is spending 465 00:24:42,580 --> 00:24:48,160 Speaker 2: like crazy. So keep the rates elevated as a lower degree. 466 00:24:48,300 --> 00:24:52,469 Speaker 2: But we will spend money. like crazy. And so you 467 00:24:52,490 --> 00:24:54,790 Speaker 2: create this suffering at the bottom end of society. 468 00:24:55,950 --> 00:24:59,230 Speaker 1: It requires a consistent elevation of interest rates. 469 00:24:59,330 --> 00:25:02,510 Speaker 2: Is that what you're... Yeah, I'm saying structurally speaking, I 470 00:25:02,550 --> 00:25:04,760 Speaker 2: would say the interest rates want to be higher in 471 00:25:04,780 --> 00:25:07,879 Speaker 2: this decade than they were in the past decade. 472 00:25:08,580 --> 00:25:12,000 Speaker 1: Okay. Food for thought, folks. Very interesting. And you might just, 473 00:25:13,020 --> 00:25:15,080 Speaker 1: in terms of context, in terms of what Simon is saying, 474 00:25:15,340 --> 00:25:17,760 Speaker 1: also keep in mind that the savings that were built 475 00:25:17,820 --> 00:25:20,970 Speaker 1: up during the pandemic... have been effectively drained, with the 476 00:25:21,010 --> 00:25:24,270 Speaker 1: exception of mortgage money. It's been quite obvious and has been, 477 00:25:24,290 --> 00:25:26,370 Speaker 1: I mean, the savings rate, first of all, fell from 478 00:25:26,390 --> 00:25:28,930 Speaker 1: a long-term average of 6% back to about 1% now. 479 00:25:29,780 --> 00:25:33,300 Speaker 1: And the savings buffer that was built up during COVID, 480 00:25:34,020 --> 00:25:37,020 Speaker 1: as you will be aware, has been almost entirely drained 481 00:25:37,119 --> 00:25:40,679 Speaker 1: from the system. And people use that just basically for 482 00:25:40,720 --> 00:25:42,840 Speaker 1: ongoing living expenses. It was one of the things that 483 00:25:42,960 --> 00:25:45,879 Speaker 1: cushioned people in the last year, so it won't be 484 00:25:45,920 --> 00:25:48,900 Speaker 1: cushioning them next year. Okay, short break, back in a moment. 485 00:26:01,670 --> 00:26:04,590 Speaker 1: Hello and welcome back to the Australian's Money Puzzle podcast. 486 00:26:04,630 --> 00:26:08,570 Speaker 1: Standing away or stepping away from daily news and weekly 487 00:26:08,609 --> 00:26:11,149 Speaker 1: topics this week and looking at the big picture with 488 00:26:11,210 --> 00:26:15,560 Speaker 1: Simon Kussenmacher of the Demographics Group. He's a demographer and 489 00:26:15,660 --> 00:26:18,410 Speaker 1: very much across Australia. big trends in Australia. We've been 490 00:26:18,430 --> 00:26:23,040 Speaker 1: talking about the big trends in society. I wanted to 491 00:26:23,160 --> 00:26:25,600 Speaker 1: just zone in at the end of the show Simon 492 00:26:25,780 --> 00:26:33,710 Speaker 1: on place and region in very broad terms. Queensland seems 493 00:26:33,830 --> 00:26:36,030 Speaker 1: to be in many ways the state of the future 494 00:26:36,050 --> 00:26:39,810 Speaker 1: from a property perspective. It's consistently strong. In recent years, 495 00:26:39,830 --> 00:26:43,730 Speaker 1: it had a long, dull period, admittedly, until maybe three 496 00:26:43,750 --> 00:26:45,710 Speaker 1: years ago. It was pretty flat. Brisbane prices had a 497 00:26:45,810 --> 00:26:48,730 Speaker 1: long history of trouble. The city was overbuilt. Then it 498 00:26:48,770 --> 00:26:52,800 Speaker 1: had floods. Then there was COVID, etc. But it's been 499 00:26:52,840 --> 00:26:58,020 Speaker 1: steaming along since that time. And more broadly... internal migration 500 00:26:58,080 --> 00:27:02,540 Speaker 1: continues in that direction from New South Wales and from Melbourne. 501 00:27:03,359 --> 00:27:05,860 Speaker 1: How important is that? And what do you think of that? 502 00:27:05,880 --> 00:27:08,820 Speaker 1: I won't say consensus, but very commonly held opinion that 503 00:27:08,900 --> 00:27:12,250 Speaker 1: Queensland is where the property action might really centralize in 504 00:27:12,270 --> 00:27:15,010 Speaker 1: the future. Sydney being sort of, in some extent, full 505 00:27:15,050 --> 00:27:17,670 Speaker 1: to the gills and Melbourne being able to be overbuilt 506 00:27:17,750 --> 00:27:18,270 Speaker 1: if needs be. 507 00:27:19,570 --> 00:27:22,369 Speaker 2: Yeah, so I'm very optimistic about Southeast Queensland. And I, 508 00:27:22,410 --> 00:27:24,919 Speaker 2: of course, as a demographer, look at Southeast Queensland as 509 00:27:24,960 --> 00:27:27,840 Speaker 2: a single city, as a single conurbation. The local mayors, 510 00:27:27,900 --> 00:27:29,680 Speaker 2: the Tom Tate of the world would, of course, hate this. 511 00:27:30,160 --> 00:27:33,540 Speaker 2: But if you view it southeast Queensland as a single city, 512 00:27:33,700 --> 00:27:36,560 Speaker 2: you realize how powerful this can be. It is the 513 00:27:36,640 --> 00:27:39,520 Speaker 2: best connected of the three big capital cities then because 514 00:27:39,540 --> 00:27:42,640 Speaker 2: you have a string of pearls of three international airports 515 00:27:42,780 --> 00:27:46,270 Speaker 2: across the eastern seaboard. You have three CBDs. You could 516 00:27:46,350 --> 00:27:50,170 Speaker 2: even extend it to Toowoomba with a big regional airport. 517 00:27:50,530 --> 00:27:53,609 Speaker 2: So the most important challenge that this region has is 518 00:27:53,650 --> 00:27:57,200 Speaker 2: to improve the connectivity between its hubs. And this is 519 00:27:57,270 --> 00:28:01,050 Speaker 2: what actually the Olympic Games was meant to push. It 520 00:28:01,070 --> 00:28:03,890 Speaker 2: was meant to do this. It was meant to do 521 00:28:03,930 --> 00:28:05,810 Speaker 2: an Olympics on the cheap and use all the money 522 00:28:06,230 --> 00:28:10,430 Speaker 2: to build infrastructure. So that, of course, drives the region additionally. 523 00:28:10,470 --> 00:28:13,490 Speaker 2: So you have the fighting chance to get Olympic infrastructure 524 00:28:13,530 --> 00:28:16,810 Speaker 2: money into a city to a degree that neither Melbourne 525 00:28:16,850 --> 00:28:19,230 Speaker 2: or Sydney have. So that works in their favor. The 526 00:28:19,290 --> 00:28:21,480 Speaker 2: only problem is that we now realize, oh, Lord, We 527 00:28:21,520 --> 00:28:24,070 Speaker 2: have no workers. If we take all the workers to 528 00:28:24,090 --> 00:28:27,530 Speaker 2: build our infrastructure, they are not building residential. That hurts 529 00:28:27,570 --> 00:28:30,630 Speaker 2: the market there. And of course, 2009, we realized that 530 00:28:30,750 --> 00:28:34,030 Speaker 2: infrastructure is inflationary. So we can't build too much because 531 00:28:34,050 --> 00:28:39,150 Speaker 2: we don't want to add to the inflationary pressures. That said, though, ultimately, 532 00:28:39,190 --> 00:28:41,450 Speaker 2: they will build more infrastructure in Melbourne or Sydney in 533 00:28:41,470 --> 00:28:44,110 Speaker 2: the coming decade that will push them up. And of course, 534 00:28:44,150 --> 00:28:47,310 Speaker 2: you will have retirees continuing to move to Queensland. We 535 00:28:47,350 --> 00:28:49,830 Speaker 2: have now a big code of retirees ahead. So this 536 00:28:49,870 --> 00:28:53,360 Speaker 2: will come dry for the economy as well. And of course, 537 00:28:53,620 --> 00:28:56,700 Speaker 2: each of those big cities, Sunshine Coast, Gold Coast, Brisbane, 538 00:28:57,100 --> 00:28:59,720 Speaker 2: now have a CBD very much in their own right. 539 00:29:00,160 --> 00:29:04,680 Speaker 2: So they then create jobs and then attract populations. The 540 00:29:04,740 --> 00:29:07,220 Speaker 2: problem now is that Brisbane is, of course, becoming more 541 00:29:07,240 --> 00:29:10,260 Speaker 2: and more expensive. And so you're still in competition, the 542 00:29:10,280 --> 00:29:12,920 Speaker 2: big cities with each other. So that slows growth a 543 00:29:12,980 --> 00:29:15,780 Speaker 2: bit down. But then you look at the Gold Coast. 544 00:29:16,290 --> 00:29:18,170 Speaker 2: This is a region that has it all. It's a 545 00:29:18,210 --> 00:29:21,000 Speaker 2: retiree destination. It's a lifestyle destination. It has a CBD 546 00:29:21,020 --> 00:29:23,380 Speaker 2: in their own right. It also acts as an overflow 547 00:29:23,520 --> 00:29:27,440 Speaker 2: suburb of the people that cannot live in Brisbane. So 548 00:29:27,480 --> 00:29:30,460 Speaker 2: they have it all. It's perfect. It's a work-from-home destination 549 00:29:30,500 --> 00:29:30,780 Speaker 2: as well. 550 00:29:31,140 --> 00:29:32,770 Speaker 1: It sounds like you have no problem at all with 551 00:29:32,790 --> 00:29:36,850 Speaker 1: the consensus about Queensland basically having tickings. 552 00:29:36,930 --> 00:29:38,650 Speaker 2: Especially not if you talk about the Gold Coast or 553 00:29:38,670 --> 00:29:41,600 Speaker 2: Sunshine Coast. Very optimistic. there. I would say the same 554 00:29:41,630 --> 00:29:45,400 Speaker 2: is to a slightly lesser degree true for Geelong. Geelong 555 00:29:45,420 --> 00:29:50,740 Speaker 2: will be an absolute massive growth machine because it's the 556 00:29:50,840 --> 00:29:54,880 Speaker 2: overflow suburb of Melbourne and increasingly has an industry, a 557 00:29:54,900 --> 00:29:59,580 Speaker 2: CBD in their own right. There's nothing holding Geelong back either. 558 00:29:59,950 --> 00:30:03,160 Speaker 2: We then go further and we look at guaranteed trends 559 00:30:03,220 --> 00:30:04,740 Speaker 2: in the next 10 years will be an increase in 560 00:30:04,780 --> 00:30:08,280 Speaker 2: military spending. So who will benefit from more military spending? 561 00:30:08,340 --> 00:30:12,000 Speaker 2: It's a Darwin, it's a Townsville, it's an Adelaide, maybe 562 00:30:12,020 --> 00:30:14,590 Speaker 2: a Cairns to a smaller degree. But so you see 563 00:30:14,610 --> 00:30:18,550 Speaker 2: that these big shifts definitely will be mirrored in our 564 00:30:18,710 --> 00:30:20,330 Speaker 2: urban investments as well. 565 00:30:21,190 --> 00:30:24,710 Speaker 1: Very good. Some great new ideas there that we haven't 566 00:30:24,760 --> 00:30:27,090 Speaker 1: come upon on the show before, many of them We 567 00:30:27,130 --> 00:30:29,530 Speaker 1: often bounce off, but we don't sit down and talk 568 00:30:29,570 --> 00:30:31,350 Speaker 1: about them properly because we haven't had the right person 569 00:30:31,370 --> 00:30:34,469 Speaker 1: to talk to. But we did today. So, Simon Kustumarko, 570 00:30:34,490 --> 00:30:36,490 Speaker 1: thank you very much for being on the show. Very interesting. 571 00:30:36,530 --> 00:30:37,690 Speaker 1: We'll talk to you again, I'm sure. 572 00:30:37,710 --> 00:30:39,690 Speaker 2: It's been a delight. Lovely. 573 00:30:39,730 --> 00:30:42,310 Speaker 1: Thank you, Simon. And folks, keep those emails coming if 574 00:30:42,350 --> 00:30:48,370 Speaker 1: you can. themoneypuzzle at theaustralian.com.au One other thing. Do mention 575 00:30:48,410 --> 00:30:51,010 Speaker 1: us to someone you know in your circle. It would 576 00:30:51,030 --> 00:30:53,780 Speaker 1: be great to just tell them about the show. And 577 00:30:53,840 --> 00:30:56,160 Speaker 1: today's show was produced by the SM Angle. Talk to 578 00:30:56,170 --> 00:31:00,720 Speaker 1: you soon. Thank you.