About now, school children around Australia are getting their report cards which explain how they performed during the year. The report card will tell their parents whether their kids improved, and how they performed relative to their class mates in critical subject areas.
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Being an educator, I am used to providing report cards around this time of the year. So I thought that I would provide a report card on the Illawarra economy.
Real Estate Prices: Went backwards this year – but still above state average
According to the latest figures from Corelogic to the end of November, the wealth of the typical Illawarra household, most of which is tied up in their home, fell by around 6.5 percent over the last 12 months. Illawarra house prices have been falling month-by-month since about the middle of this year, ending the bull run over the previous five years which saw property prices rise a staggering 70 percent. Homeowners, however, are still up by more than 63 percent relative to where they were six years ago. House prices for NSW have now been falling for 14 months after rising 67 percent over the previous five years. In the last 12 months, the average homeowner in NSW has experienced a 7.3 percent fall in their wealth. These figures suggest Illawarra homeowners are doing better than their broader NSW counterparts.
Building Approvals: Dramatic improvement – outperformed NSW
Building approvals are one of the leading indicators for any economy, because building projects approved today will be constructed over the coming 18 to 36 months thereby supporting economic activity. Last week the ABS published Illawarra building approvals data to October this year. We won’t know the figure for the full year until around February, but we do know the result for almost 85 percent of 2018.
Building approvals for the Illawarra burst through the $1 billion barrier for the year to October 2018, coming in at $1.1 billion. This represents a staggering quarter of a billion dollar increase on the same period last year - a 31 percent improvement. This is the first time in at least five years that building approvals have passed $1 billion over the first 10 months of the year. Furthermore, the increase in building approvals dramatically outperformed building approvals for NSW which fell by one percent for the year to October relative to the same time last year.
Given that the Illawarra labour force is around 150,000, this means that around 7500 people have been snatched from the jaws of unemployment in the region in the last 12 months alone.
While the appetite for building projects given falling house prices may seem puzzling, remember property developers who bought Illawarra real estate 18 or more months ago are still sitting on a massive development profit, but need to develop and sell their property in order to realise that profit. The slide in house prices suggests that some may have raced in to develop and flip their property over the last year to beat the slide which could make their development unprofitable.
Unemployment: Improved – outperformed NSW
The unemployment rate measured by the Australian Bureau of Statistics tends to fluctuate over time because it is based on a relatively small sample of people. For this reason, economist often fit trend lines to unemployment data so that the true underlying trend is visible.
In the Illawarra the trend unemployment rate for the last five years has improved dramatically, from around seven percent in October 2012 to just below five percent at the moment. Over the past 12 months, trend unemployment in the Illawarra region has also improved from around 5.4 percent 12 months ago to just below five percent at the moment. Given that the Illawarra labour force is around 150,000, this means that around 7500 people have been snatched from the jaws of unemployment in the region in the last 12 months alone. The local economy has outstripped NSW, with trend unemployment across the state declining by only about one quarter of one percent over the last 12 months.
Overall Performance – a good year
Unemployment and building approval figures for the year suggest the regional economy is performing very well. However, the decline in house prices over the last seven months is a cause for concern in the longer term, as building projects start looking less attractive and household wealth starts to take a hit. All in all, we are up for a good start to the new year. However, as the broader state economy continues to weaken, it will pull our economy down with it – though our region as always is putting up a good fight.
Alex Frino is Professor of Economics and Deputy Vice-Chancellor (Global Strategy) at UOW.
