Episode Details

Approximately half of Australia’s population is currently in a lockdown, and this may continue for another few months until vaccine target levels are reached. I wanted to discuss what impact this may have on the property market and the broader economy.

Of course, there are wide ranging impacts

The impact of Covid lockdowns can be wide-ranging. Dealing with the challenges of home schooling, not seeing family, not enjoying your normal pastimes, business failures, job losses, mental health challenges and so on. Of course, we all have a tremendous amount of empathy for the various ways that lockdowns are negatively impacting people’s lives. That said, the aim of this blog is to focus purely on economic impacts only.

What we learnt from previous lockdowns

The lockdowns in Australia during 2020 and around the world taught us some valuable lessons, as there were some common themes, namely:

§ Low-income earners tend to be impacted to a much greater extent. In fact, it is not uncommon for higher income earners to avoid any negative financial impacts from being in lockdown, because as they can work from home, they retain their employment and income.

§ Because people cannot undertake their normal (non-lockdown) activities, we observe two economic trends. Firstly, people save more money (i.e. the savings rate spikes), which improves their financial position. Secondly, people tend to spend more on durable goods – although this trend will probably diminish at some point – how many new appliances do we really need!

§ Whilst an increase in business failures hasn’t yet been reflected in insolvency statistics, it stands to reason that each successive lockdown (Melbourne’s onto its 6th) puts an increasing amount of pressure on some businesses, as their financial resources deplete. Anecdotally, unfortunately I have observed a greater number of business closures in the Melbourne CBD over the past couple of months.

§ Overall economic demand does tend to bounce back strongly and quickly. At a macro level, demand for spending by higher income earners tends to more than compensate for lower levels of demand by income earners.

But we don’t have JobKeeper anymore?

The federal government’s Covid-19 Disaster Payment provides an income of $750 per week to those that have lost 20 hours or more of work during a lockdown. The highest JobKeeper payment during 2020 was $1,500 per fortnight, so this is on par.

However, according to Deloitte Access Economics, only about 2 million Australian’s were accessing this Disaster Payment in August 2021, compared to 6 million that accessed JobKeeper in March 2020. That means less money from government assistance is being pumped into the Australian economy. That said, the JobKeeper program was widely criticised for its untargeted nature e.g. some large businesses claimed JobKeeper and subsequently declared record profits and dividends (e.g. Harvey Norman). As such, perhaps this Disaster Payment package is more efficient and still just as effective. Regardless, the Australian federal government will rack up more than $1 trillion of debt from supporting the economy through Covid, so it isn’t going to stop now. I expect the federal government will provide more support should it be needed.

Apartment rental incomes will be under pressure

Renting an apartment tends to be more affordable than renting a house. As such, apartments are tenanted by a higher proportion of lower income earners. Whilst the federal gover