The Illawarra's economic dream run still has a way to go

COVID had a massive and damaging impact on our local economy. But how are we sailing two years on? And what of the future? Let's have a look at unemployment, house prices and building approvals.

Globally, the unemployment rate after COVID was dramatically low. Remember when restaurants were only half open because they couldn't get staff and dishwashers were paid $90 per hour?

The Illawarra, of course, was not immune to this trend. According to the Australian Bureau of Statistics (ABS), unemployment in the local region declined dramatically and hit a 25-year low of 1.7 per cent in February this year.

Global commentators provided two convincing explanations for the low post-COVID unemployment rates.

First, the "great resignation" that we witnessed immediately after COVID as people cheesed off with their bosses resigned, caused businesses to hold onto their staff even if they didn't need them because it was so difficult to hire staff.

Another good explanation was that COVID caused people to re-assess their lives.

We are increasingly seeing people opt to work three or four day weeks and take time out from their jobs to create their own work-life balance.

It seems COVID created the realisation of mortality in people, and some decided they would rather sit around doing nothing for two days a week than go to work.

Unemployment has started to tick up over the last few months. The last ABS unemployment rate figure for the Illawarra was three per cent in July this year.

Is the dream over for workers? I don't think so.

A bunch of illustrious economists used to say that the natural rate of unemployment - read minimum rate of unemployment - was around three per cent. Well, it seems we are still within that dream rate.

That said, the recent trend in the unemployment rate suggests the dream could soon be over for workers.

According to data from Corelogic, real estate prices hit an all-time high in the Illawarra region in April last year.

Surprisingly, prices increased over that dreamy period called the pandemic.

They then began marching down as the Reserve Bank of Australia (RBA) started ratcheting up interest rates.

The RBA's aggressive increases in interest rates over the last 15 months was equivalent of doubling interest rates every three months - a staggering pace.

The decline in property prices that followed was equally dramatic. From May last year to around January this year, real estate prices in the Illawarra region fell by 13 per cent.

This was, of course, caused entirely by the RBA's pace of interest rate rises forcing home buyers out of the market. Is the dream over for homeowners? Perhaps not.

Despite the best efforts of the RBA, property prices in the Illawarra region have resumed a slow and steady upward march since February this year.

In fact, property prices since February have increased by almost four per cent to the end of August. At this rate, it will take another year for real estate prices to return to all-time highs assuming the RBA doesn't do anything hasty.

Building approvals are important for two reasons. First, the construction sector is one of the largest pieces of our economy - providing jobs and money for a large portion of people.

Second, it's an old trick of the trade for economists. Building approvals tend to be the best predictor of economic activity that we have. What is approved today is typically built over the next 24 to 36 months.

COVID had a dramatic impact on building approvals.

In 2020, building approvals in the Illawarra region collapsed from what was an all-time high of $1.4 billion worth of building approvals for the year to June 2019 to around $0.9 billion for the year to June 2020.

What happened next was even more surprising.

Building approvals returned to pre-COVID levels in the following year.

What's even more staggering is that despite the RBA jacking up interest rates, building approvals in the Illawarra region in the last 12 months hit a record high of $1.6 billion. Clearly, the dream is certainly not over for the construction sector!

What's more, if the oldest trick in the economists' book holds true, the record high in building approvals for the Illawarra says that we will continue our dream run for the next little while!