Hello, and welcome to the Australian's Money Puzzled podcast. I'm James Kirby, the Wealth editor at the Australian. Welcome aboard everybody, and my guest today is a demographer. He's a data and the major He's a key influencer on trends and patterns that shape Australia basically and for our purposes today, on the Australian investment market property market in particular. He
often writes for The Australian. You might have guessed by now I'm talking to Simon kusten Macher of the Demographics Group. How are you, Simon, I'm very good, Thanks, Nding Neil, delighted to have you on. Is a demographer still more or less fair description of you?
I think so. Yeah. So we very much do nothing in our little company then to look at big fat data sets all day long and trying to figure out how the world works, trying to understand how Australia works. And we always start with the big picture demographic data sets, and then we feed in lots of be this economic data, be this sociological and even psychological data. That's just what we all use in order to then tell a story about how Australia might look into the future.
Right, okay, so what for us? And to take it that the audience are investors and interested anyway in what the shape the future shape of Australia. Were particularly interested in it as to how it will determine how things will go for investors, for instance, for property investors, for example, what to you? Most of us are going to know the basics, right, We're going to know that Australia is aging.
We're gonna know that immigration is a sort of tap that we can turn on and off, thankfully, and can manage the economy to a great extent by being able to do that. Not every country can do that in such a sophisticated way as Australia. It also has some big trends. I suppose work from home has come in and seems to be becoming a really deep trend. For what to you is the outstanding demographic trend and Australian property investors should know.
There are quite a few. I'd start with the most obvious and basic one, and that is the aging of the population. Everyone read this a million times beforehand. It's no surprise to anyone, but the extent of the aging of our society surprises people, and I always point people to the important year of eighty five. Eighty five is the exact half of us make it to eighty five.
Half of us won't make it to eighty five. That's the median age of death at the moment, and of the core that make it past eighty five, half of them need care on a daily basis. And we are going to double the population eighty five plus in Australia in the next fourteen years from five hundred and eighty thousand people today to one point two million people in fourteen years. That is very soon, and that is one hundred percent going to happen.
One in ten people will be over eighty five.
One point two million people exactly. We're a bit more, we'll grow by then, but something like eight percent or something. It's a big number. And we then know already that there is no chance in hell that we will have even remotely enough aged care workers to look after the aging population. Is utterly impossible. Even if we increase migration as significantly, we cannot have enough age care workers in
the system. So that of course tells me that there will be massive demand for family care that, of course then means we need larger homes. If you cannot put Mom into an aged care home, she will be somewhere, and usually ideally in many cases at the very least, you'll have the family unit step up. That of course has the challenge how where do you put her? Because spare bedrooms are so forbiddingly expensive that few families can actually pull this off. So we are seeing an absolute
age care crisis coming at us. If we put the you know, the human concerns aside, and we put this looked purely through the investment lens, here, aged care will be an insane investment. It will be an extremely high demand and those players that operate, they will be very expensive. Because shortage demands the prices go up. So that's a short win.
In the early stages of this demographic shift, it hasn't been a great investment. In fact, it's been an area where investors have lost money on all the listed age care groups have been, as a general observation, very disappointing for investors. And so do you think that would ever change?
I would argue that there will be a flight to quality, so you will see more up and coming age care venues, and of course they are now operating a completely different market. Back in the day you operated quite often with relatively poor people, poor customers. We have very soon we have the baby boomers moving into aged care for facilities. The oldest baby Woma is seventy nine. They will very soon
be in that stage of the life cycle. And so this is a more cash down, a richer generation that of course will completely reinvent this.
Yeah, okay, what about the bigger houses then, is that is what you're saying partially explaining the how investors and builders and homeowners continue to want larger accommodation And can you just remind us by per capita per square meter, what's the story in Australia. Are we moving to bigger accommodation or is that an illusion of my illusion?
So over overall our houses are getting bigger and our lot of our lots of lands are getting smaller. The story is pretty simple. Land is outrageously expensive, and we want to live somewhere, and so we've got in order to make housing cheaper. The easiest way to make housing cheaper is to minimize the land size that you occupy. And so we've been seeing this all the while, well, the personal preferences of families very much change. You do
not put two kids into a bedroom. There's a clear formula that Australians have one bedroom for mom and dad, one bedroom for each kid, and then a spare bedroom, you know, an office if you are knowledge workers that work from home. So a family with two kids needs four bedrooms. That is a lot. Right now and for the next thirteen years. We have the biggest generation of
them all the millennials, making babies, starting their families. That means they move out of their inner city hipster apartments in your Fitzroy's, your Surrey Hills, your four de two valleys, and they are looking for family sized homes.
Do you assume they will look for homes at least as large as they came from.
So that's the ideal. So if there's housing preference research that asks people, yeah, you know what, of course, you all deal with financial constraints. Doesn't matter how rich you are. There a certain financial constraints that you're operating with. What are the things that you're willing to compromise on at which other things you're not willing to compromise on the number of bedrooms is the most important thing for people. They're willing to compromise on the quality of the build,
on the location of this type of the dwelling. But the number of bedrooms are the most important bit, is that right?
Yeah, And so there's no innovations going on there in the way of smaller bedrooms.
Of course we are shrinking the bedrooms. That very much is happening as well, because you say, ah, the kids deserve privacy whatever it is that the study doesn't need to be all that big to be honest, the master bedroom needs to be big enough, a big bed. But that we have been shrinking those swellings and quite often people say that's stupid, we're jeopardizing the quality of life here. But the reason our land gets so expensive is of course a bit silly considering how big we are as a country.
It just makes me think. It leads me to a larger point which I wanted to bring up with you. I really want to know where you're coming from on this selling back from it, we were thought that if there's an aging of Australia, that many of that age cohort might like to lead the larger cities to somewhere more pleasant, are more relaxed, and we also had a big shift in COVID to the treat change sea change. Standing back from it, is that happening in any serious way demographically.
Yes, quite a few of those pandemic trends are persisting to a smaller degree, so they're working from home phenomenon. We quite quickly realized that the people that work fully remotely fully from home is actually relatively small. Most people work in a hybrid way. Doesn't matter whether you go to the office one day per week or five days per week, as long as you go to the office. Sometimes you stay within a magical two hour drive time
radius of the CBD. So you can draw this two hour drive time radius around all CBDs in the country, and its population boom inside and its crickets outside of that two hour drive time radius. It's nice and quiet there. And of course the retirees that they always were a collde that could move wherever they wanted because they were
not shackled by their place of work anymore. And so the downsizer narrative that some people expected with the baby boomers to occur is much smaller than it actually was expected, simply because baby boomers are not at scale doing the gold watch retirement, where it's the gold watch on the Friday and then it's golf course until you drop. That's not what they do. They increasingly slide into retirement. They reduce their working hours three days per week, two days
per week, a bit of consulting here and there. Maybe you take a really long break in the middle of the year, got on a Rhine River cruise or something like this, And ultimately that means that you are shackled to the CBD for longer, because why would you give up your large scale family home that is in comfortable commuting distance to move elsewhere to retirement destination.
So has downsizing not matched forecasts of downsizing.
It's much exaggerated. The whole downsizing narrative, of course does happen, and people do move to Noosa, that's true, but ultimately we are staying put. And if you talk to Australians, older Australians, they'll tell you things like I want to be carried out of the family home. That seems to be the ultimate god in life. Unfortunately, while most people say they want to do this, only fourteen percent of us die in the family home. Will ultimately still die in hospitals or hospitals.
What about downsizing within the neighborhood, within the zone.
That's of course not possible because the baby womans that are living in big family homes, if they want to downsize locally, there are no comfortable to bedroom apartments or smaller dwelling availables because these are dominated by those family homes and they did not add any stock over the
last decades. Because the bastions of the baby woman family homes are also the nimbi bastions that they've blocked development because they wanted to retain the built environment, the atmosphere of the area they lived in, and now they cannot downsize.
It would suggest to me maybe I'm wrong. Tell me what you think downsize or type accommodation in any suburb will be highly valued in the near future because there's such little supply of it.
Exactly, and to be perfectly blunt to be operating in a property market where there is a shortage of all types of housing in all locations. Not to be too flippant about it, but whatever you build will have will find a buyer.
Sure people will buy or rent tenanting. What do you think in the nature of property formation. What type of property do you think will be the most in demand in the near future.
In the near future, family sized homes for millennials. Millennials cannot put the families that they're making into the dwellings they're currently in. That's impossible. So we know that over the next thirteen years or so, the biggest generation of them all moves from the inner suburbs of our big cities to wherever they can find a three and four bedroom dwelling. Of course, if you talk to the planners, they say, yo, we want heaps more three and four
bedroom dwellings in the middle suburbs. We need to densify our cities. Our cities are much too sprot out. Absolutely correct, they are, and they should have been built differently. But the cheapest way of building housing in the here and now is to build us a bit of land on a greenfield side and put a cheap box on top. It is much much more expensive on a square meter basis to build medium density or high density. And if you operate a city like Melbourne that grows at one
hundred thousand people per year, you need housing fast. And Melbourne, of course has no physical boundaries around it. You can just pancake the city out and out and do you then build infrastructure problems for the future and whatever. You build an absolutely unmanageable, terrible city. But that's neither here nor there in the show term. So that's one of the big conundrums that we have.
Just keeping it on national picture, you mentioned that millennials were the biggest.
What do you mean so millennials are the biggest generation. They're not the biggest birth code. We always talk about the baby boomost being the biggest birth code because we had three point eight kids per families, that these are big families. But millennials saw the benefit of the last two decades of being empt up by migration. So they are much more multicultural generation, if you will, as baby wooms, and so they're much bigger in numbers and now they are all on.
They are the dominant cohort in Australia absolutely as we speak. And just remind your listeners what a millennial is.
Millennials are people born in the eighties and nineties. So these are people. The oldest millennials in the early forties. The youngest one is in their mid twenties.
So it seems to be there's two huge trends. There's the aging of Australia and this is the doubling up the over eighty fives, and then there is the millennial to simplify, moving from their inner city barista neighborhood to the middle suburbs. They hope to find a family home.
They hope, which would suggest to me that the standalone family home is it's been highly prized and its valuations have risen faster than units for a long time, and it was suggest to me that's going to keep going if that is the demographic undercurrent.
Absolutely, just to be fair, millennials or need three and four bedrooms very soon. Are we building them fast enough? No, so they will go up further in price. All the while we're not seeing the benefits of actually baby boomers in the next ten years vacating they are three in four bedroom dwellings because they are not downsizing. They're hanging
on in the workforce for longer. They don't see the point in selling the family home just yet because it massively increases in value, and if you sell, you have to do the whole stupid stamp to these stuff and whatever. It's a nuisance and you don't have the ideal downsizer unit nearby. What makes sense to downside for you, so they will stay. So the demand four, three and four bedroom goes through the roof. It's absolutely gigantic, But there's
also a bit of a to be honest. So the millennials that need family homes now in the next ten years, I don't have any positive news for them. If I'm talking to people that are twenty that only need their family sized homes in fifteen years time or so, I'm a bit more optimistic about them for them because by then you'll have all the baby boomers die out of their homes and so you'll see that massive search of supply in the market. So that should then soften house prices.
Whether this is a slowdown of growth, whether this is actually price reduction, who knows. But it'll be easier for people that are twenty than it is now for people that are thirty.
Interesting, all right, we'll take a short break. We'll be back in a moment. Hello, Welcome back to The Australian's Money Puzzle podcast. I'm James Kirby and I'm talking to Simon kusten Marker of the Demographics Group, who is a demographer and well known demographer and read for The Australian and is a well known of course generally in media as a spokesman or a commentator on trends in population, which I always find very interesting as it informs trends
in property. Now, in the first segment we did talk about two big trends the aging of Australia. The population over eighty five is going to double. There's lots of ways you can look at that and be aware of that in how you invest. Similarly, Simon was mentioning how the millennial, the largest cohort of all born in the eighties and nineties, currently in their inner city pads. Once they have kids, they've got to go out to the middle suburbs unless they want to be falling over each
other inside in their small house. So they do, and he's laying it out that will be very competitive in the near future. So there are two major trends. We didn't really zone in on work from home Simon. I mean, it's a trend that's emerged in our lifetime in a serious manner. People always did it. I mean, just to reflect on that, do you think the COVID period changed work from home in any structural fashion, and how might that affect property in the going forward.
Working from home is here to stay. Once you give people a right, it's very hard to take it away. You can see this in the US with gun rights. Once you give people a certain right, taking this away is very tough. So people will want to work from home. Of course, you see this in New South Wales where a government tries to force the government employees back. We'll see how this plays out. I think it's very unfavorable and I think that for the next well, for seeble future,
it is workers who hold the leverage. Workers can make the courts simply because we are running out of workers. That is another very important demographic druism in the coming decade. There's a skilled shortage right now. The skilled shortage is not really linked to the pandemic. Yes, the pandemic made it worse because we said, hey, in no financial support for temporary visa holders, so they bucked off. That created a dip of three hundred thousand people in a workforce
of fourteen million. That had an impact, But the skilled shortage will still be here in the next ten years because what we are seeing is the big court of baby boomers leaving the world of work. They of course allowed to retire. It's fine, they worked hard. But at the other end of the spectrum we have a slightly smaller cord entering the world of work. As if this imbalance wasn't bad enough, for the next thirteen years, we
have millennials making babies. That means they go on parental leave at least for a little bit, and so they temporarily leave the world of work.
This didn't immigration traditionally plug those problems.
It could plug those problems because in the past we had relatively small cords retiring year after year. Now we have this impact of this gigantic baby boomer cord leaving. Yes, and this is why we I'm absolutely convinced that we will continue a high migration approach in this country, which of course sometimes people criticize for saying, hey, right now we have a housing shortage, and why are we still
taking in migrants. Maybe we should put the brakes on for now for a bit, But ultimately, as slowing migration creates more problems than it solves, and quite often I think it's just a cheap political way of saying we tackle the housing affordable issue by saying we slow our migration because it's very convenient, isn't politically you say housing affordability is the fault of a non voting court. Easy, And of course you're saying that I ticked my speaking
point about housing affordability. I don't need to talk about as a government in all the ways that I'm complicit in driving up house prices. Because you could get rid of stamp duty, you could get rid of Franklin credits, negative gearing, and you could first home bio grants. They only drive up house prices. There are plenty of policies
there that drive house prices up. But if you were tackling them, if you were dumb enough to tackle them, like Bill Shorten Boss, you're guaranteed to not be voted in because you still operate the country where the majority two thirds of all voters own their home and they don't want to down.
But back to the work from home and the difference it might have made if it did make a difference to property investing, what's your initions reaction there?
So what it does is traditionally people wanted to avoid the solstry and commute, and so they moved as close to the CVD as they could afford. Now that working from home is a thing, and you know, yeah, you only need to go to the office every now and then we widened our perimeters. So all of a sudden, and this is where we'd look at this two hour drivetime radius from the CBD. All of a sudden, a wider area is considered acceptable. You're willing to commute longer.
If you're only going to the office one or two days a week, then the hour and a half commute each way or whatever is fine, Whereas in the past this would have been ridiculous.
It would have been hell because you were doing it five days. But you can do it two days. And do you see in the numbers any reflection of that kicking in, for instance, city zones becoming more popular or more expensive that perhaps could be explained in some way by that trend.
Yeah, we see the fastest growing areas in all capital cities is the urban fringe. That's because this is where you build greenfield development sites, so you can build relatively cheap housing at scale fast you build the through four bedroom stock that those millennials want, and you are just in the commutable distance.
When you say fastest growing you mean building growth.
Meaning population growth. I measure everything in population growth. But yeah, this is where the if you look at the big cities, they see growth everywhere right now, but it's the fringe. It's like a belt around the old fringe. That is absolute boom town.
Have you seen any zones where there was price appreciation because of work from home trends?
No, not really, because you would say, in a sense the inner suburbs would have seen a weakening theoretically in an environment where we didn't also see massive population growth. And so because you have growth wherever you look, essentially in the big cities, prices don't fall. And then, of course prices didn't fall during the pandemic because we had even though we had negative population growth, people left the country.
We had super low interest rates, and if interest rates are super low, people are happy to bid, you know, a lot of money for their houses, and so that drove up prices. And now we have this crazy shortage and interest rates are going up and up, and we still see high prices that don't really see them fall.
Structurally speaking, one of the things I want to ask you, which is an economic question, I'm sure you're across it. Was this notion very strong concept. I think that what happened we had this extraordinary period or interest rates went to zero and they fell from whatever in long term average seven percent to zero for some years. And in that time being roughly have the five years, six maybe seven years running up to about two a year and
a half ago, two years ago. What occurred in the property market was a capitalization of interest rate changes as reflected on what you're saying that basically people could bid more because the loans were cheaper than they ever have been before. That period is now over, So I'm asking you do you think we will Do you think it's possible? People say it. Property is very expensive, Yes, it is
on a historical and international measure. Do you think we could have a piece in the next decade of the sort of price appreciation we had in the last decade that included that period of capitalization of interest Yeah.
The way that I look at interest rates is, you know, it would be, of course fun to have lower interest rates again, but I don't see that happening because the RBA is fighting an uphill battle against demographics. The RBA wants us to spend less money. That's why they put up the interest rates because high interest rates are deflationary. But what we're seeing in the next decade is that we see the biggest generation ever, the millennials, moving through
the highest spending phase of the life cycle. They completely move through the mid forties. That's the phase of the life cycle we spent more money than ever before or ever after because you already had quite a couple of promotions, so you have a lot of money to spend. You have you already had all the kids that you will ever have, so you have a lot of costs associated with those kids. You have a big fed movie.
You can't save every penny.
That you earn, no matter the scenario, goes out the door back into the economy, really accepting the forty year, and so the millennials will spend no matter what guarantee. The biggest generation also the richest generation, the Baby boomers. They are now moving into retirement and traditionally they would have been meant to become a poor penny pinching pensioner cohort, but they're not because they benefit from high house prices.
They all own their own homes, so they feel richer on paper the wealth effect, plus they own the vast majority of cash savings. They benefit from high interest rates. Why would the richest core would stop spending money. So for the next decade we have this weird set up where the richest cord and the biggest court definitely want to spend money. And so what do you do as
an RBA. You can't just stay Yeah, we'll easily cut rates as long as everyone is spending like crazy, So keep the rates elevated as as a lower degree is. But we will spend money like crazy, and so you create the suffering at the bottom end of society.
It requires a consistent elevation of interest rates.
Is that what you Yeah, I'm saying. Structurally speaking, I would say the indust rates want to be higher in the next in this decade then they were in the past decade.
Okay, food for thought, folks. Very interesting, and you might just in terms of context in terms of what timon the saying. Also keep in mind that the savings that were built up during the pandemic have been effectively drained
with the exception of mortgage money. It's been quite obvious and has been I mean the savings race first of all, but from a long term average of six percent back to about one percent now and the savings buffer that was built up during COVID, as you will be aware, has been almost entirely drained from the system and people use that just basically for ongoing living expenses. It was one of the things that cushioned people in the last year,
so it won't be cushioning them next year. Okay, shortbreak back in a moment, Hello and welcome back to The Australian's Money Positive podcast, Standing Away or stepping away from daily news and weekly topics this week and looking at the big picture with Simon Kussen Marcher of the Demographics Group. He's a demographer and very much across the big trends in Australia. We've been talking about the big trends in society. I wanted to just zone in at the end of
the show Simon on place and region. In very broad terms. Queensland seems to be in many ways the state of the future. From a property perspective, was consistently strong in recent years. I had a long, dull period. Admittedly, until maybe three years ago it was pretty flat. Brisbane prices had a long history of trouble. The city was overbuilt. Then it had floods, then there was COVID et cetera.
But it's been steaming along since that time, and more broadly, internal migration continues in that direction, from New South Wales and from Melbourne. How important is that and what do you think of that? I would say consensus but very commonly held opinion that Queensland is where the property action might really centralize in the future, Sydney being sort of in some extent full to the gills and Melbourne being able to be overbuilt it needs be.
Yeah, so I'm very optimistic about Southeast Queensland, and I, of course, as a demographer, look at Southeast Queensland as a single city, as a single conurbation. The local mayors, the tom Taates of the world would of course hate this, but if you view at south Southeast Queensland as a single city, you realize how powerful this can be. It is the best connected of the three big capital cities.
Then because you have a string of pearls of three international airports across the Eastern seaboard, you have three CBDs. You could even extend it to Woomba with a with a big regional airport. So the most important challenge that this region has is to improve the connectivity between its hubs and this is what actually the Olympic Games was meant to push. It was meant to do. This was meant to do an Olympics on the cheap and use all the money to build infrastructure, so that of course
drives the region. Additionally, so you have the fighting chance to get Olympic infrastructure money into a city to a degree that neither Melbourne nor Sydney have, so that works in their favor. The only problem is that we now realized, oh lord, we have no workers. If we take all the workers to build our infrastructure, they are not building residential.
That hurts the market there. And of course all nine we realized that infrastructure is inflationary, so we can't build too much because we don't want to add to the inflationary pressures. That said, though, ultimately they will build more infrastructure in Melbourne or Sydney in the coming decade. That will push them up. And of course you will have retirees continuing to move to Queensland. We have now a big cod of retirees ahead, so this will come drive
the economy as well. And of course each of those big cities Sunshin Coast, Gold cost Brisbane now have a CBD very much in their own right, so they then create jobs and then attract populations. The problem now is that Brisbane is of course becoming more and more expensive and so you're still in competition the big cities with each other, so that slows growth a bit down. But then you look at the Gold Coast. This is a
region that has it all. It's a retire redestination, it's a lifestyle destination, has a CBD in their own right. It also acts as an overflow suburb of the people that cannot live in Brisbane, so they have it all. It's perfect. It's a work from home destination as well.
It sounds that you have no problem at all with the consensus about Queensland being basically having tickets.
Especially not if you talk about the Gold Coast or Sanchion Coast. Very optimistic there. I would say the same is to a slightly lesser degree true for Geelong. Geelong will be an absolute massive growth machine because it's the overflow suburb of Melbourne and increasingly has an industry a CBD in their own right. There's nothing holding Geelong back either. We then go further, and we look at guaranteed trends in the next ten years will be an increasing military spending.
So who will benefit from more military spending. It's a Darwin, it's a town's will, it's an Adelaide. Maybe it can'st to a smaller degree, but so you see that these big shifts definitely will be mirrored in our urban investments as well.
Very good. Some great new ideas there that we haven't come upon on the show before. Many of them we often bounce off, but we don't sit down and talk about them properly because we haven't had the right present to talk to. But we did today. So Simon kustum marka thank you very much for being on the show. Very interesting. We'll talk to you again. I'm sure it's been a delight lovely Thank you, Simon, and folks, keep those emails coming if you can the money puzzle at
the Australian dot com dot AU. One other thing, do mention us to someone you know in your circle. It would be great to just tell them about the show. And today's show was produced by the same ango. Talk to you soon. A foot