Weekly economic briefing: Census 2016 – We’re becoming a nation of renters…and stressers

The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox!

In this week’s blog:

Australian economic briefing
UK economic briefing
International economic briefing

Australian economic briefing by David Rumbens

This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia.

Census 2016: We’re becoming a nation of renters…and stressers

The recently released 2016 Census data has been grabbing headlines, revealing that two-thirds of Australia’s 23.4 million strong population now lives in capital cities, which are growing at twice the speed of the rest of the country.

But the data also goes well beyond telling us ‘where’ we are living, by also revealing ‘how’ we are living, and provides a fresh perspective on some of the longer term trends in Australia’s home ownership.

For this purpose, households can be classified into three main types – those who own their properties outright, those who are still paying off their mortgages, and those who are renting.

Of these, it’s the proportion of outright home owners is going down. In 2006, 35.5% of Australian households were outright owners, but this dropped to 33.2% in 2011, and has now fallen again – to 32.2% in 2016.

As a result, more people are today either paying off mortgages or renting. Households that are still paying off their homes accounted for 35.0% of households in 2006, but rose to 35.8% in 2016. The prevalence of renters also rose, from 29.5% of households in 2006 to 32.1% in 2016.

That is unless you live in New South Wales or Tasmania – the only two Australian states where more households are outright owners than mortgage payers.  These states have seen falling proportions of households that are still paying off their mortgages, although the prevalence of renters has increased.

While the proportion of outright owner households in Victoria is on par with that in New South Wales, Victoria has a far lower proportion of renters (29.8% to New South Wales’ 33.0%).  In Queensland, on the other hand, 35.5% of households are renters, a proportion second only to the Northern Territory, where the number is a staggering 52.8%.

Is renting more affordable than a mortgage? Plenty of concerns have been raised around the size of new mortgages being written, and whether these can be supported if Australian economic conditions worsen. Those concerns are legitimate (particularly once interest rates begin to rise or if unemployment worsens). However as of 2016, there were still many households where the cost of rent was placing more strain on household budgets than mortgage repayments. Spending 30% or more of total household income on rent payments or mortgage repayments can be used as indicators of rental stress and mortgages stress respectively.

According to the 2016 Census data, 11.5% of all Australian households were in rental stress, while 7.2% were in mortgage stress. This compares to 10.4% for rental stress and 9.9% for mortgage stress in 2011.

Over the 2011 to 2016 period, median rent payments in Australia increased at an average annual rate of 3.3%, much higher than the equivalent average CPI growth rate of 1.9%, and at a time when wage growth has been subdued.

Yet over the same period, median mortgage repayments actually decreased. This was largely driven by interest rates, which fell by 3.0 percentage points. However, compared to 2006, when interest rates were notably higher, median mortgage repayments have increased substantially.

The graphic below shows how the current rates of rental and mortgage stress vary across Australia. New South Wales and Queensland have the highest rates of rental stress (12.8% and 12.9% of households respectively), while Western Australia has the highest proportion of households in mortgage stress.

At the other end of the spectrum, the most ‘relaxed’ home owners are in Tasmania (where only 5.1% of households are in mortgage stress), while higher incomes support a lower level of rental stress in the ACT (8.0% of households).

Data source: 2016 Census, ABS

Every state and territory has more households in rental stress than mortgage stress. While low interest rates have propelled house prices upwards and driven many households towards renting, they have also eased the overall burden of mortgage stress. That will provide some reassurance for the RBA, though there still remain legitimate concerns that mortgage stress would lift as interest rates rise again.

All in all, the Census data shows that Australia is moving towards a lower share of outright home ownership, more renters and more financial stress from renting.

For more information on the Australian brief, please contact the co-authors, David Rumbens and Emma Grey.

 

UK economic briefing by Ian Stewart

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/

Post-election dip in UK business confidence

  • The latest Deloitte survey of UK Chief Financial Officers, released this morning, shows a fall in business optimism in the wake of the General Election on 8th June.
  • Despite speculation that the result of the election could mean a closer long term relationship between the UK and the EU, CFO concerns about Brexit have risen. Brexit continues to top the CFO risk list. 72% of CFOs expect some negative long-term effects on the business environment as a result of the UK’s departure from the EU, up from 60% in the first quarter.
  • CFO perceptions of uncertainty facing business have risen, a development which seems to reflect both the outcome of the General Election and concerns about growth. Worries about UK growth have risen and are now seen as posing a greater risk to business than at any time in two and a half years. Such concerns rank second on CFOs’ risk list after Brexit.
  • For much of the last three years external risks have been the focus of CFO concern. But the worries about geopolitics and growth overseas which dominated CFO concerns in 2015 and 2016 have receded. A recovery in emerging markets and the euro area, and an easing of political risk in the euro area, have pushed emerging markets and the euro area to the bottom of the worry list. Today CFOs see Brexit and the prospect of slower UK growth as being the main risks.
  • Business sentiment has been on a roller coaster ride in the last 18 months, slumping on the surprise referendum result before staging a strong recovery and then falling back in the wake of the General Election. Many factors have been at work, but Brexit has been a consistent concern. Such concerns eased in the run up to the General Election in the wake of the government’s announcement of its broad negotiating aims for Brexit.
  • Although CFO confidence has taken a knock since the election, sentiment and risk appetite are well above the levels seen last summer. Favourable financial conditions and an improving global backdrop seem to be partially offsetting the effects of domestic uncertainties for UK CFOs.
  • To read the full report and download the dataset please click on the link – https://www2.deloitte.com/uk/en/pages/finance/articles/deloitte-cfo-survey.html

OUR REVIEW OF LAST WEEK’S NEWS

The UK FTSE 100 equity index ended the week down 0.42% at 7,351.

Central Banks in the West seem to be more actively debating the case for interest rate rises. UK economic data released over the last week have been generally weak.

International economic briefing by Ian Stewart

Economics and business

  • Minutes of June’s Federal Reserve meeting confirmed that US policymakers are planning further interest rates rises
  • The minutes of the European Central Bank’s (ECB) June meeting revealed a debate over ending its own programme of monetary stimulus
  • An external member of the UK’s Monetary Policy Committee, Michael Saunders, said “households should prepare” for interest rates to rise
  • The disposable income of UK families fell in Q1 for the third quarter since the UK voted to leave the EU
  • US manufacturing activity rose to its highest level in three years, according to the Institute of Supply Management
  • North Korea launched a missile capable of reaching the US. A US military commander said the US and South Korea are prepared for war with North Korea
  • The Institute for Fiscal Studies estimates that three-quarters of UK student loans will never be fully paid off
  • The UK’s trade deficit widened
  • UK services sector growth fell to a four-month low in June
  • UK productivity declined by 0.5% in Q1, the first fall since 2015
  • Car sales in the UK fell in June for the third month running
  • UK industrial production and construction output fell faster than expected in May
  • China’s $9tn bond market, the third-largest in the world, opened up to foreign investors for the first time
  • Business confidence among Japan’s large manufacturers reached its highest level in over three years
  • The IMF warned world leaders that the “myopic pursuit of zero-sum policies”, such as protectionism, jeopardise the global recovery
  • The German Chancellor, Angela Merkel, put the economy at the forefront of her election campaign, pledging full employment and income tax cuts
  • David Cameron, the former Conservative leader, insisted austerity should not be abandoned and that it was too soon to “let spending and borrowing rip”

Brexit and European politics

  • The EU and Japan, who together account for 19% of global GDP and 38% of global exports, struck a free-trade deal
  • Japan’s prime minister, Shinzo Abe, hailed the deal as “the birth of the world’s largest, free, industrialised economic zone”
  • The European Commission’s president added it was “the most important bilateral trade agreement ever concluded by the EU” and “there is no protection from protectionism”
  • The European Commission published an independent report which concluded the “UK [should] remain part of the European Research Area”
  • UK ministers, Jeremy Hunt and Greg Clark, have said they want to continue to “work closely” with the European Medicines Agency after Brexit
  • The director general of the CBI called for an indefinite delay in the UK’s departure from the EU’s single market and a transition phase
  • The EU’s chief Brexit negotiator, Michel Barnier, warned that “no deal is a return to a distant past”
  • The Financial Conduct Authority has been excluded from Brexit talks with the European Securities and Markets Authority, according to the Financial Times
  • Research conducted by the London School of Economics shows six out of ten Britons want to keep EU citizenship, with respondents paying an average of £400 to do so
  • Findings of the ECB review into moving euro currency trading to the mainland Europe from London showed any shift “would [have to] be gradual”
  • The Wall Street Journal reports that EU regulators and officials are attempting to attract London finance companies by offering cheap rents and protection of bankers’ bonuses
  • Frankfurt announced it would offer an exemption from aspects of its labour laws, such as large redundancy payments, to banks seeking an EU base
  • In a bid to stem the flow of migrants to its coast, Italy reached a deal with France and Germany which would help fund the Libyan coast guard

And finally…

  • Leaders of India’s ruling BJP Party congratulated a mother in a Rajasthan village who named her new-born daughter GST, after the Goods and Service Tax which was adopted on the same day and has been touted as ‘India’s biggest single tax reform to date’ by the central government – tax-o-namists

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