Danielle Austin - 29 Jun, 2020

How will high unemployment affect Australia’s property market

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Economists are predicting that house prices are likely to drop as a follow-on effect of the high unemployment rate caused by the Coronavirus pandemic. As an economic recession looks likely to impact Australians in the coming months, if not years, experts are watching both unemployment and housing prices as indicators of how the market will be performing in the near future.

As economists brace for an impending recession many are also predicting high unemployment and low house prices, two key indicators of economic recession. Historically the two tend to be correlated, with higher unemployment driving up buyer uncertainty and reducing house prices. As job losses increase around Australia the property market is expected to take a hit. The health of the Australian property market in the coming years will depend entirely on unemployment rates and how the country manages mass unemployment.

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Commonwealth Bank recently warned that Australian house prices could fall dramatically if the coronavirus pandemic led to an extended period of high unemployment and economic downturn. Commonwealth’s predictions would see the unemployment rate in Australia average 8.25% for the year before dropping back to 6.5% by 2022. Based on this they would also expect house prices to drop by 11% over the next three years, and all four big banks are predicting similar double digit house price declines over the next few years. The bank also announced that they had already received 144,00 requests for home loan repayment deferrals due to the coronavirus pandemic.

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Currently Australia’s unemployment rate has held mostly steady through several months of the coronavirus pandemic, but it could take time for the effect of business downtown to be felt by employers and workers. As of May 16, Australia’s unemployment rate was 6.2%, up a full percentage point from 5.2% as recorded in April, despite the ABS claiming that almost 600,000 Australian workers lost their jobs between March and April, a little less than 20,000 per day. This marks the highest unemployment rate since July 2015 but remains significantly lower than during the economic recession between 1990 and 1992 when the unemployment rate tipped over 10%.

Despite this, and even after a range of financial packages have been announced in the past months, the federal treasury has predicted that the unemployment rate could rise to as much as 10% by the end of June. At present the JobKeeper scheme is predicted to have kept 5.5% of the Australian workforce employed, stopping the unemployment rate from rising to 11.7%, well above the historic lows of the 1990s recession.

Under-employment is also likely to soon affect property buyers and lead to the reduction of house prices. While business may keep workers employed, keeping the unemployment rate lower, many of those works are facing the possibility or reality of temporarily reduced hours or pay rates. Between March and April the rate of under-employment, that is working fewer hours than wanted, increased from 9.8% to 13.7%. The total hours worked by Australian employees dropped 9.2% in the same month, a steeper decline than ever seen in history. By comparison in the major recessions during the 1980s and 1990s hours worked fell by only 6% and over an 18-month period. These under-employed workers may not be eligible for Government subsidies given that they are still employed, but a reduced income is likely to discourage potential homebuyers.

The near future of the property market

Government restrictions during the Coronavirus pandemic has already had a severe impact on Australia’s property market. Although house prices have to date remained relatively stable, asking prices for listed properties fell by as much as 4% in March and new property listings were down 40% by mid-March. The effects of the coronavirus pandemic could take time to take full effect on markets, but economists from SQM Research predict that a worst-case scenario, involving a second wave of virus outbreaks, could see the housing market fall by up to 30%.

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Many factors are yet to take effect on the market, including rising unemployment rates, lowered household incomes and halts on immigration. For the investment property market rising rental vacancy rates and lowered rental incomes could also have effect on property sales.

Due to the steep decline in both unemployment and under-employment it’s predicted that house prices could fall by as much as 10 or 15% in the next twelve months.

An economic recession of any scale, however, does present opportunities to buyers in the right position to score a property at a bargain price. House prices have largely been on the rise for the last decade and a potential decline could be an opportunity for buyers who thought property was out of reach. Recession will likely make lending standards higher due to job uncertainty, but buyers will also benefit from historically low interest rates. A recession also leads to less competition among buyers and with homes likely to be sitting longer on the market sellers may be more willing to drop prices or offer other incentives.

How are unemployment rates set to change?

Action has been taken in recent months to boost Australian employment, but the Government has predicted it could take up to five years to get the economy back up to speed. Changes were implemented to the existing JobSeeker scheme that saw additional payments granted to Australians out of work and actively seeking employment. The boosted payments were to initially help Australians out of work due to the coronavirus pandemic and encourage spending to lift a slowing economy. Alongside the coronavirus supplement, necessary requirements to be eligible for JobSeeker payments were also temporarily relaxed allowing more Australians to access payments faster.

Funding for the Job Keeper scheme was also announced which subsidises employee wages for businesses impacted by the coronavirus pandemic. Eligible business can claim a fortnightly payment of $1500 for each eligible employee until September 27. Business may be eligible if they have lost 30 to 50% of their revenue during the pandemic.

The Federal Government recently released the latest scheme to improve the economy. JobMaker is an effort to revitalise the economy by improving Australia’s vocational education system. The program seeks to encourage young Australians to enrol in courses that will prepare them for jobs of the future. Over three to five years the program will boost the vocational education and training programs and providers around the country.

With international borders closed there will a marked reduction in skilled migrant intake. This will create a skills shortage in Australia that leaves potential for thousands of jobs for workers ready to upskill. The JobMaker program will focus on making changes within the training sector to prepare it for enrolments of workers looking to upskill to fill these roles. Prime Minister Scott Morrison said the government would look to increase funding transparency and performance monitoring, and better coordinate the subsidies, loans and other sources of funding, to achieve its goals and help ensure people who should be trained by VET systems don’t end up in universities.

It is expected that the Government will announce further tax and industrial relations reforms as part of the JobMaker agenda.


Words by Danielle Austin

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