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A look at a post-pandemic economy
The month of June drew to a close amid one of the most uncertain years. As the world adjusts to the ‘new normal’ of post-pandemic life, Victoria marked the end of June by receding into lockdown as a mini COVID-19 outbreak swept through the suburbs. Toilet paper, hesitantly returning to the shelves as coronavirus case numbers per day in Australia dwindled, was once more bulk-purchased from the stores. Yesterday, Premier Daniel Andrews announced that international flights are to be diverted over the next two weeks, as new case numbers loom over 50 in Melbourne. 75 new cases were recorded on Jun 29, then 64 on Jun 30.
The impact of this is likely to set back the improvement that had been observed throughout June. National consumer sentiment was on an upward track, rising from 88 points in May to 94 points, just 2 per cent below the pre-pandemic average. While this still indicated that Australians were more pessimistic than optimistic about the economy (any index score below 100 indicates negative sentiment), this was a hopeful lift in the consumer mindset. Victoria was, on average, more pessimistic than the broader Australian nation, recording an index score of 75.3, while NSW had a score of 84.2. This cautious rise in consumer sentiment, however, is likely to recede with the new lockdown announcement.
A similar story can be expected for auction rates, which have been bouncing back. The latest figures from the week ending Jun 27 show Sydney leading preliminary auction clearance rates at 64.4% with 529 scheduled auctions, a significant markup from the 434 of the same time last year. Melbourne clocked in at 59.4% and 527 respectively. Exact figures have proven unreliable indicators of real estate market trends in pandemic times, however. A broader look at market trends indicates that there has been an uptick in auction clearance as a result of lifting lockdown restrictions, which are now again lowering into place.
Unemployment remains a persistent issue, rising to 7.1% in May. Since February, employment has fallen by 838,000, with spikes in the number of people unemployed or underemployed. 673,000 people have dropped out of the labour market since. Research released by Roy Morgan, which generally tends to indicate higher unemployment rates than the ABS, places the unemployment rate at 14.8%, more than double that of ABS’s 7.1%. And it does seem that Roy Morgan’s research is more reflective of the current economy; even the ABS concedes that had all those who had lost work in the past two months actively sought work, the unemployment rate would be at 11.3%. Currently, many of those unemployed are not actively looking for work—this removes them from the calculation of the unemployment rate.
There does appear to be some resurgence on the horizon, however; SEEK reports that after an initial 70% decline, job ads are now 68.3% of ore-pandemic levels. However, there is still much uncertainty to face. For one, government stimulus packages such as the JobKeeper scheme are rolling back in September, as well as the six-month grace period extended to mortgages by Australian banks, the potential impact of which may land hard and heavy on the Australian economy.
A statement from RBA governor Lowe also indicates that the cash rate is likely to remain low for the next few years as the Australian economy strives to recuperate.
Keeping afloat: how is the government propping up the economy amidst a global pandemic?
1. The Home Builder Scheme
After the JobKeeper scheme, which received widespread criticism and is due to be rolled back in September, the Scott Morrison administration has announced a new stimulus package, this one set to be even more controversial than the last. Valued at $688 million, the Home Builder scheme funds $25,000 grants for home renovations between 4 June and 31 December. The grant is available for applicants earning under $200,000 per annum (under $125,000 for single applicants; under $200,000 for couples) and will apply to new homes valued up to $750,000 for renovations between $150,000 and $750,000. In other words, the property’s value after renovations must be under $1.5 million.
The Federal government asserts that the scheme will boost employment in the construction sector and aims to have 30,000 new homes built by Christmas. As for who is likely to benefit the most from this scheme, data indicates that Melbourne’s South Eastern suburbs have the highest volume of homes that fit the Home Builder’s criteria
Property experts weighing in on the scheme have a range of opinions on the scheme, though the majority seems to edge toward criticism. Brendan Coates, Program Director at Grattan Institute is openly critical of the Home Builder scheme, bluntly describing it as ‘classic retail politics but lousy economics’[5]. Most property experts appear to be more moderate, acknowledging that the scheme would likely provide an uplift in construction activity and an upward pressure on prices, but noting that the effect is likely to be minimal due to the small window of opportunity and the specificity of the market subset the scheme targets. Fewer still have nothing but praises for the scheme, though Mario Biasin, CEO of Metricon Homes is among those who describe it as ‘an outstanding opportunity for individuals’ that ‘will encourage the building of new dwellings across a range of income earners’.
An opinion that many share is that the $688 million funding being poured into the Home Builder Scheme would have been better utilised on supporting affordable housing, which remains severely undersupplied across Australian real estate. Doing so would target a greater subsection of the population, while achieving sorely needed social and economic outcomes.
In related news, the Victorian Property Council also presented a new proposal worth $1.7 billion, targeted at boosting development activity. The seven-point plan hopes to stimulate $24.4 billion worth of economic activity, as well as tackle rising unemployment by creating or protecting 315,000 jobs. The plan proposes initiatives such as: tripling first home owners grants for new dwellings, deferral of stamp duty, fast-tracking projects, relaxing planning controls, removing brakes on development activity and so on.
2. Fast-tracking: the construction race
While it is yet to be seen if this plan will be taken up, state governments across Australia are already fast-tracking projects in an effort to prop up building and development sectors, which have seen a significant lag since the onset of the pandemic. Victoria, for example, is fast-tracking seven projects with a cumulative value exceeding $1 billion to kick-start the state economy. The projects are scattered across the state, from Docklands to Glen Iris, North Melbourne to Geelong, spread across residential, civic and other real estate sectors.
It is not only building projects that are being fast-tracked—infrastructure investment is being boosted as well. A $1.5 billion federal funding will be injected into ‘smaller, ready-to-go, priority projects’ (or ‘shovel-ready’), a third of that funding being reserved for roadworks. According to Morrison, this would primarily involve cutting down the development approval processing time, delays in which cost the industry over $300 million per year.
Soon after this, the Morrison administration announced that it would also be pushing forward with 15 infrastructure projects, altogether worth more than $72 billion. Projects on this priority list include: Inland Rail (Melbourne-Brisbane); Marinus Link (TAS-VIC); Olympic Dam extension (SA); emergency town water projects (NSW); and road, rail and iron ore projects (WA).
While many are eager to see less red tape surrounding the cumbersome approval process, as well as to see progress being made in long-overdue infrastructure projects, the fast-tracking of projects inevitably creates greater risks[9]. Professor of Construction Management, Martin Loosemore warns that a disregard of appropriate controls in favour of speed and economic support could lead to long-lasting consequences.
3. Infrastructure and Policy
Infrastructure has not been left in the dust, even as the effects of the pandemic marched on and Australia sank into tis first recession in decades. Focus on the property industry, which is already battered from last year’s downturn and the revelations of the building crisis, is not only on strengthening and supporting it economically; new policies continue to be formulated in an effort to combat the systemic flaws in the building industry that led to the Opal Tower scandal, Melbourne’s Neo200 fire and the Mascot Towers debacle.
New South Wales saw a further tightening on building regulations over June, with two new bills being approved which will provide the Building Commissioner, David Chandler with more power, including the right to withhold settlements to developers who do not meet the new criteria and have delivered subpar projects. Developers will also be rated based on their past history through a joint venture with data analytics company Equifax. Chandler’s aim is to improve transparency and accuracy of developer portfolios. The changes are expected to be implemented by September this year.
Furthermore, New South Wales passed new laws that introduce a registration scheme for professional engineers, placing it among three Australian states that require compulsory registration of engineers. A similar law was passed in Victoria last year.
Victoria is also accelerating the Cladding Rectification Program, a $600 million dollar plan that tackles the use of flammable cladding in residential apartment buildings. Cladding Safety Victoria, which is leading the effort, is working with ‘a group of reputable builders’ to rectify building cladding at zero-profit.
Up-and-Coming Projects
Atlassian’s new skyscraper, located in the heart of Sydney CBD, is set to become the world’s tallest hybrid-timber tower. 40 stories high and valued at over $1 billion, the tower’s design is of a glass and steel facade, geared toward sustainability with built-in solar panels and indoor and planted terraces with natural ventilation. Atlassian hopes to begin construction in 2021, with a completion date in 2025.
Construction for Victoria’s $11 billion Metro Tunnel is also underway. The project will dig twin tunnels across Melbourne, and is on track to be completed in 2025. Upon completion, the Metro Tunnel will provide ‘an end-to-end rail line from Sunbury in the west to Cranbourne/Pakenham in the south east’. (ET)