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Impact unclear as unemployment rises

Ben Ashley and Rhys PrkaThe West Australian
The rise of unemployment may cause many concerns but according to CoreLogic Australia Head of Australian Research Eliza Owen, it is not uncommon for some housing markets to perform well when unemployment rises.
Camera IconThe rise of unemployment may cause many concerns but according to CoreLogic Australia Head of Australian Research Eliza Owen, it is not uncommon for some housing markets to perform well when unemployment rises. Credit: phototechno/Getty Images/iStockphoto.

With Western Australia’s unemployment rate expected to hit double figures by December, sitting at 8.7 per cent as of June, many have speculated on the impact to the housing market.

That impact, however, is not yet clear.

Australian Bureau of Statistics (ABS) Labour Force data indicates that between March and May, 835,000 Australians were unemployed.

The May unemployment rate nationally sat at 7.1 per cent, while underemployment was at 13.1 per cent.

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The concern around a massive rise in unemployment after government stimulus initiatives like JobKeeper end has been abated by the extension of such programs.

In a recent blog post, CoreLogic Australia Head of Australian Research Eliza Owen said high unemployment was not always to the detriment of housing prices.

“Historically, increases in the unemployment rate have not necessarily led to house price falls,” she said. “In fact, the opposite had been the case.

“The unemployment rate and the monthly growth rate in Australian dwellings have been moderately, positively correlated at about 0.5 for the past two decades.

“This means housing growth rates have fallen when unemployment has fallen, and housing growth rates have risen in times when unemployment has risen.”

Ms Owen said while this might seem counterintuitive, it was not uncommon for some housing markets to perform well when unemployment rose.

“That is because when unemployment surges and the economy weakens, the monetary response has been to lower the cash rate,” she said. “The cheaper cost of debt actually creates growth in housing for those who can still afford to buy.”

REIWA President Damian Collins said while unemployment would likely rise in the coming months, largely, the nature of the jobs predominantly impacted had a minimal direct effect on the housing market.

“A lot of the jobs affected were in the hospitality and retail spaces,” he said. “And a lot of those were part-time casual and casual positions.

“Many of the people in these jobs weren’t necessarily buying houses.”

Ms Owen said according to ABS data, the majority – 59.7 per cent – of those who lost their jobs between March and May were in part-time work.

“About 40 per cent of the decline in total employed were among those aged between 15 and 24. Given the typical first homebuyer is aged 25 to 34, it is unlikely many of those who have lost work in this age group would have mortgage debt,” she said.

While the impact may not be direct, Ms Owen said the economic impact of the job losses on the economy would be significant and would have an indirect effect. The reason for this was because even though workers in some of the heavily affected fields like tourism and accommodation were less likely to hold mortgage debt, they were more likely to rent.

“So, the current declines in employment will likely have an indirect impact on housing prices, through weaker rental demand and downside risk for higher rental vacancies, lower rents and deteriorating yields,” she said.

According to SQM Research, the rental vacancy in Perth is sitting at 1.5 per cent for June 2020, levels last seen in October 2013, and a drop of 1.7 per cent from last year.

Ray White WA CEO Mark Whiteman said in his group, rentals had performed surprisingly strong.

“I can only comment on our group, and what has been surprising is the relatively low number (as a percentage of the total) of tenants who are now on reduced rents or who are in danger of being evicted with the Ray White group,” he said.

“So, one would think that any adverse effects will be mitigated by the positivity of the local WA economy.”

Mr Whiteman said while he was reticent to bring out the crystal ball, high unemployment was a worry for the whole economy and would affect the housing market, but emphasised the importance of being positive.

“Unfortunately nothing about the current environment is typical,” he said.

“Naturally we would all like to see lower unemployment. Job security gives people confidence and provides opportunity which encourages people to invest, both in business and in property.

“What we need to be careful of is defaulting to a doomsayer mindset as some have.

“What we know is the market today is strong and as we get more businesses back to more normal levels of functioning, employment will most likely improve. This could be a boost for the WA economy, provided we keep the COVID-19 spread under control like the government has so far.”

Mr Collins echoed these statements and said the gradual tapering off of the assistance programs should result in the Perth market remaining stable for the foreseeable future.

“You could see some months where it drops down a little bit, some months where it goes back up a bit,” he said. “But certainly those doom and gloom forecasts people were saying three to four months ago, they’re going to be shown to be very, very wrong indeed.”

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