What does full employment mean for our property markets?

The Australian Bureau of Statistics Labour Force statistics for January, released last week, showed that our unemployment rate remained unchanged at 5.0%.

Digging deeper into the figures revealed employment participation was at an historic high of 69.5% and that Australia created an additional 330,000 jobs during the past year, almost 264,000 of which were full-time positions.

Putting that into perspective, over the past five years Australia has created an average of 271,209 jobs annually and on average almost 159,000 of those were full-time jobs. In the past year we created 264,000 new jobs, showing how strong our economy is.

The question investors should be asking is: With our economy likely to continue to be strong on the back of our resources boom and now that we are at what most would consider full employment, what are the implications for our economy and our property markets?

And like most things in life the outcomes will be good and bad …

Firstly, it is likely that competition for skilled employees will lead to wage increases. And that will flow through the economy in a number of ways. When people feel secure in their jobs and wealthy they tend to spend more. Think about it … higher wages generally lead to increased discretionary spending due to increased disposable incomes. People spend on new gadgets, new cars and new houses. That is likely to have an inflationary effect and will lead to rising interest rates later in the year.

The good news is that full employment will underpin our property markets. Sure, our property markets have stalled, but with full employment and few people having difficulty keeping up mortgage payments property prices will not drop as dramatically as some overseas commentators suggest. While the flat property market will mean people may not move home as often Australians are more likely to use increased disposable income to renovate homes and increase the value of their properties.

What about immigration?

Those job numbers mean our government will need to revisit the immigration debate, because it should be fairly obvious that we need more skilled labour. Over the five years to June 2009 Australia welcomed an average of 237,180 overseas migrants each year. At the last election the Federal Government announced that it was planning to cut migration back to around 170,000 people annually.

With the unemployment rate already tight, participation rates at all-time highs, more baby boomers reaching retirement age and fewer migrants coming to Australia who is going to fill all the jobs we keep creating?

As I’ve mentioned in previous blogs, we have no choice. We need to increase the number of skilled immigrants coming to Australia. Remember, most of those new Australians will move to our main capital cities, where the jobs are. They are all going to need to live somewhere and they will rent or buy a property. Skilled immigrants tend to bring with them considerably more money than unskilled immigrants and they are more likely to buy a new home.Many will be happy living in apartments, considering they have come from countries where high-density living is the norm.

Putting it all together the outlook for property is positive because our strong economy and prosperous society underpins our real estate markets.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.