Where We Work & Live
Where we work and where we live are intertwined. There’s often discussion about work-life balance or more to the point that there’s no balance. This tends to mask a more pragmatic look at our working lives and how this has a big impact on the shape of our cities and how this flows onto the demand and the cost of housing. Both prices and rentals.
Today’s working environment is very different from 50 years ago and the recent demise of car manufacturing and the rise of high-tech industries are just two examples at opposite ends of the growth curve.
In the early 1960s manufacturing accounted for 26% of employment, today it’s more like 7%. Back in the 1960s the financial sector was highly regulated. It was not until 1983 that a floating exchange rate was introduced. And the dollar’s value last peaked in 2013 and all the while finance jobs have generally kept growing.
We’ve also seen periods where our economy was dominated by just one enterprise, in the 1960s it was wheat and wool and more recently it’s been mining. But these sectors while creating lots of wealth and taking up lots of resources and capital investment are not big direct employers. Unlike car manufacturing which helped create entire suburbs even cities like Elizabeth in South Australia.
Looking for Growth
The end of the mining infrastructure boom and the closure of car manufacturing by Holden, Ford and Toyota have been very high-profile events. According to the ABS there are 8.43 million Australians in full-time employment and 3.87 million in part-time work.
Where and how these jobs function has a very real impact on the demand for housing. While some regional and remote centres have grown during different ‘boom’ stages, it is our cities that are more heavily impacted by patterns of work and employment and the RBA has recently highlighted a few trends that will impact future demand and affordability.
To help explore this relationship here’s a summary of the five big areas of employment:
- Finance & Insurance Services 9.7%
- Administration & Support Services 9.3%
- Health Care & Social Assistance 5.8%
- Retail Trade 5.6%
- Rental, hiring and real estate 4.7%
Three other industries that account for big chunks of activity and to a degree capital expenditure are: agriculture 2.4%, construction 2.3% and mining 1.3%.
The number of areas in decline includes manufacturing and wholesale trade and to a much lesser extent entertainment & recreation and accommodation & food services. Although in the latter group there’s often a point made that investment has been lagging because of the extent resources consumed by the mining sector. Plus, we might just all be working too hard with less time for entertainment and holidays.
However, there’s general optimism that the accommodation sector is looking for much stronger growth and hence much more employment. A single new large CBD hotel can create hundreds of jobs.
Construction jobs have also been big job-generators increasing from 927,000 in May 2007 to 1,110,400 in May 2017. There are predictions of further growth above 10% over the next 5-years.
As the supply of new dwellings construction is expected to fall over the next three years, it will be growth in infrastructure jobs associated with many big projects, that are predicted to take over from housing construction. If this happens and the supply of new housing slows, more price pressures may well result.
The shift to infrastructure projects is already well entrenched which is partly shown by the sectors that currently have the leading level of wage growth, that’s architects and engineers. Many of these roles are lead generation jobs with construction and manufacturing following.
When looking at the relationship between employment and the demand for housing we see evidence of several job and wage clusters. According to the RBA three areas are set to dominate, healthcare (already our third largest jobs market), late or no general retirement age as the baby boomers stay in the workforce and the continued drift of jobs to CBD locations with the later including technology, finance, information services and education.
This is a pattern we also see repeated when looking at incomes. Healthcare is the third fastest area of wage growth mainly concentrated among GPs, followed by IT and communications, accounting and finance managers. Mining and healthcare wages are also generally on the increase.
For the housing market, what all these trends point to is continued strong demand around key employment clusters, that will in many areas increase demand for inner-city and CBD housing, both to buy or rent.
We see this happen even when markets ‘cool’ there remains strong demand in key locations close to strong employment clusters. Prices in these areas can often sit comfortably above the wider market.
And little help will come via the baby-boomers leaving their city homes, as many do not intend to retire anytime soon. However, when looking at carers these positions will generally be far more evenly spread as we deal with an aging population and the trend towards aging ‘in-place’. Retail trade is also less concentrated away from CBD locations, but is still highly regional.
As wages and jobs are concentrated this will also create more pressure on the provision of infrastructure, in particular transport and schools.
The big employers in finance and insurance services and technology are already driving demand for CBD office space and their workforce will remain concentrated in key inner-suburban and CBD locations where density will have to increase to meet demand.
Our ability to attract big ticket tech and IT development jobs to centres like Sydney and Melbourne is partly tied into the supply of nearby or at least accessible housing.
The government and administrative sectors and major medical facilities can undertake a degree of decentralisation but in the past, this has only had a very marginal impact.
Our employment patterns look set to be city-centric for a long time to come and this will heavily impact the demand for apartments in well located areas.