Episode 138 | The shift in the standard of property: What are buyers looking for? | Simon Kuestenmacher, The Demographics Group

How will the need for additional rooms and more living space, alter what people sell and what they will buy in the future.
Welcoming back Director of Research of The Demographics Group, Simon Kuestenmacher. Simon was a guest back in Episode 40 where he outlined the potential problems of Australia's aging population and the current population growth. In this episode we breakdown the impact of COVID on society, specifically how our behaviours and attitudes to work have adjusted and ultimately understanding how this will translate into what people buy in the future to accommodate societies new lifestyle needs.

Here’s what we covered:

• Will we feel the effects of COVID for years to come?

• What will happen to the inner cities around Australia?

• Will big business continue to have CBD based offices or will they adapt?

• What is the trend in businesses working from home?

• What are the pros and cons of working from home?

• Why will having an additional room be crucial for working from home?

• When will the fringes of each city's CBD see growth due to the WFH movement?

• What will be the biggest demographic changes in Australia?

• How might migration return to normal?

• Will reverse mortgages become more prominent?

This weeks Dumbo:

• Purchasing a 1 bedroom apartment

RELEVANT EPISODES:
Episode 40 | Simon Kuestenmacher
Episode 132 | Mark McCrindle 
Episode 133 | Alice Stolz

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Send in your questions to: questions@theelephantintheroom.com.au

EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded in August, 2020.

Veronica Morgan: As we pass the six month Mark of living with the Corona virus in this country. We wondering about the permanent impact of COVID-19 on people's perception of higher density, living proximity to urban centers, public transport, changes to work and other aspects of living that we've always taken for. Granted,

Veronica Morgan: Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent buyer's agent cohost of Foxtel's location, location, location, Australia, and author of auction ready.

Chris Bates: Anud I'm Chris, right? It's mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage the services of a professional.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website, as well as download our free full forecast report, which experts can you trust to get it right? The elephant in the room.com did I use.

Veronica Morgan: In this episode, we're joined by a demographer Simon Kuestenmacher Back when we last spoke to Simon in episode 40, he gave us insights into the implications of our aging population. Coupled with population growth. We talked about how these factors were shaping our urban environments and how we live clearly a lot has changed since then with population growth, virtually halted. If you haven't heard of Simon before you're in for a treat because he's a living, breathing research machine, as well as being a demographer. He's a data scientist, speaker advisor writer, media commentator, geographer, and holds a master's in philosophy. Back in 2017, Simon became the director of research for the demographics group and works alongside probably Australia's best known demographer. Although I think Simon's giving him a run for his money now, Bernard salt. In this episode, we are keen to access Simon's mind to gain insight into how changing demographics and attitudes will affect our needs and desires for housing. Thank you so much for joining us Simon.

Simon Kuestenma...: Thank you for having me back.

Chris Bates: Good to chat to you always really enjoy it. I wonder if covert is going to be something we look back on in 20 to 30 years, time that something that truly did change the world. Do you think that's going to be the case?

Simon Kuestenma...: Um I guess it really depends on how fast we are getting this thing under control, but I think that definitely in the short to medium term call, it will actually change the, the structure of Australian cities very much because we're right now in the process of realigning this as, as, as we speak, if you will.

Veronica Morgan: And when you say the structure, what do you mean?

Simon Kuestenma...: Oh, I'm, I'm thinking for example, at end of the emptying of the inner city, we had this big surge of population in the inner cities for four decades now happening because we build so many new knowledge jobs, these jobs they'd like to class the, in these guys, scrapers in our inner cities and then all of those lower, skilled support jobs that provide services to those office tower workers.

Simon Kuestenma...: Now that group were forced to work from home. We have seen a temporary emptying of the inner cities and for some people not for all by any means the working from home thing will become a more more more permanent solution, more permanent adage to their workweek. We will see more and more people work two, three days per week from the from the home office and only go to the inner city for two days a week, maybe to, to do the face to face meetings, which will still be off importance for many, many sectors. But we now so that we can run a business with a smaller working from home workforce, which then leads us to think, what do you do if you're big employer, let's say you you, you currently lease 10 floors in a tower in, in Sydney, in Barangaroo, and the next time your lease comes up for renewal, you will be okay by just leasing out seven or eight floors, you will minimize your footprint because at any given day, a higher share of your workforce will be working from home.

Simon Kuestenma...: So we see that the big employers are not escaping the city is, but they are minimizing the footprint and we'll have fewer people at any given time for, for quite a while in the inner cities, which then means there are fewer people that need to provide support services you know brew coffee, clean offices, etc, for those people as well. So the inner city is not the hottest game in town at all for a couple of years, I would expect.

Chris Bates: But do you think that ultimately companies will still want to have this CBD base? And if they only need less space, now they can potentially afford to go to the CBD rather than needing a big office in the outer suburbs. Now they can potentially say, well, actually as a business, we can potentially just, you know, set that up in the CBD where you know, we're going to be around the action more. Do you think that's going to compensate a little bit?

Simon Kuestenma...: I I'd say that might be compensation from some second tier companies that I actually I'm still doing well, a that then all of a sudden see affordable office space popping up in the inner city. And then you can have a much more lucrative address. You can have a more accessible office space. That makes a lot of sense, but only for those select few players that are currently not in the inner city and that are currently well. So then there are not too many players out there since many, many businesses took a hit, but there are still industries that are, that are growing. They're 19 official industries in in Australia and not all of them are seeing population decline. That's also important to remember that that six out of the 19 industries actually saw growth over the last quarter.

Veronica Morgan: Let's talk about that.

Simon Kuestenma...: We saw, we saw a big job growth in the utility sector. That's the electricity that's water services agriculture saw big job growth, public ed, public admin, and safety. That makes sense in, in a, in a pandemic, in the climate of job loss, you're not deleting jobs, you're you, you're just holding on to all your employees, even take them on a financial services actually grew just a bit as did real estate services for now. But I think there's a leg and then we will see real estate jobs actually go down and take a hit once the data for the next quarter will be released and also wholesale trade. So, so small increase, but all other industries. So, so massive it's of course.

Chris Bates: So in that work from home sort of a percentage, I remember chatting to you and if it was on the podcast or even just having a coffee with you once and you kind of bursted one of my bubbles, cause I thought the work from home movement was much greater than it actually was. And you said, well, based on the census, it was very few. Can you kind of give us some things, just the numbers on what percentage were working home in the last census and what you think it potentially will be in the next year?

Simon Kuestenma...: Yeah, so it's one of my favorite statistics that we can look at from, from the census staff. And I remember 2011 census data suggests that at 4.1% of the workforce work from home on census day, 4.1%. And so when the 2016 census count came off as a front of the first thing, I was keen to check out, there's like, surely there's this big, this big surge of people working from home, or then it turned out 4.4% of the people worked from home. So not much at all. And now we're not quite sure because all the working from home data for the lockdown period in Australia actually rely on surveys, but they differ.

Simon Kuestenma...: But we think right around half of the workforce might be working from home, which is insane compared to the current data. And this will of course change. If we actually live in a post COVID world, meaning the virus is defeated and we can go back to normal that we won't see 50% of the people working from home, but I can quite easily imagine a scenario where 10%. So that's more than doubling the 2016 census results of will be working at home as of the next census, which will be held in 2021.

Veronica Morgan: I find this working for home thing quite interesting because obviously as we went through the first lockdown, everyone, a lot of commentary around, well, this just proves that people can work from home. It's just proves that office spaces are redundant. It's just proves a whole bunch of stuff. Right. And so everyone's thinking, well, great. I can have a completely mobile remote workforce. And then you see the pendulum swinging the other way now towards the central bit where they're saying, well, it's good in certain circumstances, it's good up to a point. It's good. You know, you're saying, you know, two to three days a week, perhaps. But we do need face to face and there's, there's absolute benefits of actually working in a cohesive in one space. So there's, there's quite a lot of literature sort of coming out a lot of, a lot of studies on this. And I am curious to know, I guess what you think, you know, as a demographer, what you think some of the pros and cons of this whole working from home, you know, movement and this, this period of time that we're going through, how, how you think that they can shape the way that we think about this in a, not so much, a reactive way, but a really constructive way.

Simon Kuestenma...: This is almost, this goes into the area of career advice work from home, perfectly fine if you are established in your job. And if you have an extremely close working relationship to your superiors, if you work for a large company some sort of big bank, some sort of big consultancy firm, accounting firm, maybe and you are in your early years of the career, being able, being seen is super important. The people who make decisions about their career, don't spend time with you an awful lot anyway. So you really need to make yourself seen, and that is difficult. So the ex of becoming known to the big bosses of actually then scoring a promotion will be much more difficult working from home and onboarding a new team member on working from home is very different because you don't get to know people on this, on this intense, personal level.

Simon Kuestenma...: Of course, people do lots of weekly catch ups and whatever, but I think it particularly works well if you already have an established working relationship. So once businesses keep or start growing again, I think then the working from home trend will slow. But that said, we'll see more people who have the flexibility of taking their job home with them whenever it suits them. So that means we will see a big spike of working from home in comparison to the last census, but it will not be as big as we might think now that everybody is working from home currently,

Chris Bates: And it's not gonna suit everyone and everyone's life and family dynamic and their current home you know, some are more extroverted, introverted, you know, love to, you know, it terms of the roles as well. Some are, you know, very collaborative, some are very, you know, getting through stuff. Um and so it's, it's very interesting to kind of know that not every job's the same and not everything's going to kind of play out. There's also the mental health element, right? So you know, working from home, you know, five days a week, you know, potentially, you know, you get cabin fever and, you know, getting the perspective of the world, but then working from the city five days a week is probably not great either in terms of work life balance. So it's, it's really hard to know how things are going to play out at a macro level, isn't it?

Simon Kuestenma...: Absolutely. And so we do know from, from research into you know, working a behavior that you can roughly separate the workforce into what I call integrators and separators, they are, the separators are the people who want to have a clear differentiation between work life and home life is becoming very, very difficult if you work from home. The integrators on the other hand are people who are very happy to work all the time and work early in the morning, work late at night, but in between go out, manage their kids to all of those things. Those guys won't struggle with working from home, but the separators who prefer to keep things different into clear categories of clear boxes, if you will, they will struggle and they will go home. I will go home. They will go back to the office rather aroma sooner than, than later. But of course, one other thing that really impacts the working from home quality is just your home. You really need a separate attorney. You need an additional bedroom in your house to be working from home and the larger your family is, the more important is additional bedroom yeah. Becomes. And then we see that for many people that has been a struggle.

Simon Kuestenma...: If we know a young couple that lives in a one bedroom apartment, that's really difficult when somebody is on the zoom call, the other one needs to sit in the bathtub and work from there. Things become really, really messy simply because the homes aren't equipped for, for the working from home realities.

Veronica Morgan: I did read, I did read an article about this couple that were living in a tiny, tiny apartment in Canada. They are 26 square meters or something. And they were basically saying, what are, what I call the whole tiny house movement was. But the other thing that I, that I can I think is quite interesting is that we've been hearing. And when we interviewed Alice Stoltz from domain, for instance, we looked at, we talked about search data and the rising inquiries for looking for property with with the home office, which has a bit of a no brainer, but also the rise of inquiry or searching activity outside the CB, the cities.

Veronica Morgan: And so looking for in that K the, sorry, the two hour drive radius of major CBDs people, the N and, you know, the assumption is that millennials are now going to say, great. We can move out to more affordable areas. We can go up the mountains or up the coast or down the coast, and we can still commute every few days. But we can work remotely most of the time, but there's an assumption with that, that you're going to stay with sort of with the same job or the same employer potentially, or the same type of industry. There's sort of a lot of assumptions that you need to make, that you're going to stick to a certain path workwise, if you're gonna make that big commitment in terms of where you live, would you say that that's something that people need to be considering Simon?

Simon Kuestenma...: Oh, of course. Very much so. And so, when we talk about housing decision making processes, we talk about a central reference point. So whenever you look for housing, you pick some sort of central reference point. Usually that is your location of work your office, for example, and tip because all of the office jobs that we edit to Melbourne or Sydney are our class that in the CBD, then all those workers want to live as close as possible to that, to that job. And then this is why you have this big competition for housing in this relatively small radius. Now, if we say, well, maybe the you know, even though I still go to the CBD occasionally then the central reference point loses its grip over your housing decisions. And you can all of a sudden, and you can be freer to move to the regions.

Simon Kuestenma...: And that's that's, I think a real opportunity for the regional towns to actually grow. It has been the the goal of all levels of government for decades in Australia to decentralize the population. And it hasn't happened simply because people move to where they work close to where they work and the regions simply weren't the places where the jobs were created. But now all of the towns that I, at least in the you know, in, in, in somewhat commutable distance, whatever that means to the job centers, they will see growth and they'll see growth, not just because they might be sent us off of you know, the existing strengths, the agriculture, the local manufacturing that we will see re-invigorated in, in Australia, they are also become way better connected to the capital cities. We will see this big search of infrastructure spending simply because once Australia is through COVID, you will end up with a very high unemployment rate.

Simon Kuestenma...: The easiest way for government to create jobs is building infrastructure creates jobs left, right? And center creates lots of very important middle skilled trades, construction type jobs. And the, and so you just bring the infrastructure pipeline forward. And most of those projects are targeted at around connectivity, rail road, connectivity of your satellite, regional cities, to the big, to the big smoke, as it will see that that was really strengthened the the regional cities, because all of a sudden the commute becomes more realistic. And of course, that's the general preference now towards low density living. If you've been locked into an apartment like this couple Veronica, you said in Canada, you will spend your lockdown in a small apartment, a house with a garden, sounds like paradise, looking for these higher you know, those big parcels of land. And of course, working from home, if you become serious about working from home, you do need a larger home.

Simon Kuestenma...: You need an additional bedroom at the very least, and all of this still doesn't even take into account. The biggest demographic driver in Australia of the 2020s. And that is millennials reaching the family formation stage of the millennials are currently overwhelmingly living in the inner and middle suburbs of the big cities. They live in one and two bedroom apartments, and they will over the because they pushed our first childbirth and marrying a marriage quite a bit, but in the 2020s that we'll finally have kids. And once you throw a kid into the mix, you need a larger house. Then you also realize that both of you actually worked from home. So all of a sudden, you think at least plus two plus three bedrooms, that means you easily end up with a large cohort of people looking for three and four bedroom houses, those houses aren't in the inner and middle suburbs, but only in very short supply.

Veronica Morgan: And we have absolutely without a shadow of a doubt, seeing increased competition for exactly that type of property ever since really auctions who were allowed to be held again in, in Sydney. Anyway, since beginning of may, it's been really marked market the demand for, for really four-bedroom homes in, in areas. So he's seeing that, but you, you Simon and Chris, you're both millennials and you're both had your first baby this year. So you guys are case in point on here, aren't you? I mean, Chris you've bought, you've pretty much done the C chain, so I'm gonna, you live in a two bedroom apartment with a baby and home office,

Simon Kuestenma...: And now we live in a three bedroom house, but also considering, you know, if there is, if we add one more up baby to the mix, it might be time to move again. And then realistically think, you know, we stay in, in the, I live in the inner suburbs of Melbourne and then you think, okay, well, do we go to the outer suburbs? I think, yeah. And I think you've picked up on a really good point, Veronica, and I think product COVID, if you were going to leave the city no matter and take the risk of even if you wanted to, even if you saw the lifestyle benefits of living on the morning [inaudible] or the great ocean road sort of Jalong area or outside of Sydney and, and work facilitated at work said, yeah, that's fine. You can work from home and come into the city. One, two days a week, you were always in the back of your mind saying, what happens if I lost my job? Like, what would another, would I be able to get another job down here?

Chris Bates: Oh, I won't be able to get something locally for my skillset. And it's going to be hard to get a job remote because employers just weren't offering that. But I guess it's just Duke employers have to offer and do they look, are they willing to find a higher staff all over the country? That's where I'm just not a hundred percent certain on yet because we haven't kind of seen that happen on scale yet, even though it makes sense. And do you agree, Simon, that that's still a bit of an unknown that this is going to stick and employers are going to change?

Simon Kuestenma...: Yeah. So this is why I wouldn't favor regional locations that are too far away from the inner city. They, you don't have access to the, to the job centers at all. I would think that many people want to stay at least in a nightmare scenario in commutable distance that they say, well, if I, even, if my current plans fell through, I could kind of make it back to the to the big improvement house. That's, that's a speculation that people will make, which is my, when I say I predict growth in regional Australia, I'm talking about the regional hops here, the larger, the regional town the better the prospect, the further away from a capital city, you are the more difficult things will be because then your local job center needs to be attractive enough. There will be quite a few really regional towns that will manage to do so well at town like Swan Hill in, in Victoria might actually be able to you know, this is an existing local manufacturing hub, if you will. And if we see a strengthening of local manufacturing, this is a town that can be strong enough. A and if we doubled down on agriculture again, and the bit of manufacturing that might be strong enough to actually hold you know, a home, be strong enough for, to attract people in its own, right. But it's much more difficult for Shepparton than it will be for Ballarat or Bendigo who are a little distance to Melbourne, deviant Belvin.

Chris Bates: Is going to be affected a lot more than Sydney. Obviously we're in different stages and of locked down. And even though the news is kind of national, right. But do you think that what's happening in Melbourne psychologically is going to have a bigger impact on people than say in city?

Simon Kuestenma...: Um yes. So that's, that's the psychological impact, but that's also assuming that things are staying the way they are now. We know where through COVID, so we don't know how the next month's plan out. You know, as we, as we are recording this Melbourne is a knockdown and Sydney is doing all right. This could switch literally week. So we don't, we don't know, and I'm not willing to speculate on how well a specific cities are getting through this, but it will, once you live through lockdown for long enough, you do change the way you view your neighborhood.

Simon Kuestenma...: People are now exclusively in Melbourne operating in their five kilometer radius. So all of a sudden the idea that has been around for a long time in urban planning of the 20 minute city will become significantly more important. That means that we have a city that is really focusing on local availability of all relevant services of shops. That means that local neighborhoods will need to become much more walkable, much more attractive to active transport. That largely means cycling. So we will see that people, all of a sudden spend more time in their local dog parks in their local you know, like little, little park areas. And so the local attractiveness of a suburb will become more important. It will become more of a factor when, when pricing housing, I would say,

Veronica Morgan: This is really fascinating. And I was just reflecting on this just this week, because I'm like you Simon, I'm presuming you've got relatives living in Germany. I've got relatives living. My sister lives in Italy, and I'm thinking to myself, how many years is it going to be before I get to see her and my nephews and my brother in law, again it could be five years who knows. And, and I reflect back on, on people of my parents' generation who might have migrated here, say from England or Ireland. And they would go decades sometimes without actually seeing their family. And it's almost like going back to the olden days. Really, isn't it. I mean, we didn't go out for dinner. Oh. And we said, we, I grew up not going out for dinner ever, ever, but you know, our societies, we didn't eat out all the time. We didn't have a cafe society. You know, 30, 40, 50 years ago, we didn't venture too far away from our local area. Um you know, we didn't all have cars. I mean, there's a, there's a whole shift in the, in many ways too, like the olden days. Would you say that that sort of what's happening?

Simon Kuestenma...: I it's, it's happening to a degree that is probably less dramatic because today everybody is Skyping. There are way distant relatives. So you do feel more connected in a way to the people that are, that are far away. And it doesn't mean that we desire to travel has, has, has been killed off. Right? I really think that the idea of the local neighborhood that will stay because you spent more time in your local neighborhood. So it just will hopefully shape the way that we build and restructure our suburbs and make it, make it simply more livable, more local. And there's no need to to drive.

Simon Kuestenma...: For example, if you have a shop in, in walking distance and people don't necessarily tend to do this, then people, people then just do smaller shops walk around more. It's quite interesting to see. And I haven't seen the exact studies here on the scene stuff from, from austere, from decades ago, that if there is less to do in a town, people do things more slowly. People spend more time just hanging out and talking to people. That's the kind of, that's the kind of changes that we've seen. We've been seeing here, my friends telling me the same stories I'm experiencing this. You're just spending more time with your family, of course. And with like quick chats with the neighbors that might not have happened like this beforehand. And that then makes the engagement with your local neighborhood more important. So we talked a lot about previously around the impersonal nature of city living, and now people are actually taking proactive steps of engaging with their neighbors, simply because the third spaces that these are usually the restaurants, you know, we, we outsourced entertaining, which was done in the home. Our parents generation would have entertained in the home. And because we now live in small inner city apartments as the generation more and more new, then did the entertaining in, in third spaces and restaurants in parks. And now we can't do this. It's, it does have a psychological impact of how you wish your home to be. And now people just have time to finally clean out the garage and things. And that then means you're more invested in your home in the first place.

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Chris Bates: What do you think some of the big demographic for Australia that we'll see it.

Simon Kuestenma...: At least do the first lockdown. Some people joke that we will see a Corona baby boom in nine months time. And the exact opposite will be the case in times of economic uncertainty, birth rates go down quite a bit. This is simply because it's too hard. Imagine I would also like to say that I expect that very few, second babies or third babies being added to families at the moment, just because you are, you are under so much stress managing kids without much you know, support of, of the grandparents who might not be allowed to visit or without childcare centers. So just puts the family under a bit more stress, so you don't necessarily add. So we will see a decline in birth rates. That means fewer babies for at least two, three years. We will also see well this year will we expect zero net migration last year, we had way over 200,000. So that means we have the age group of the migrants and migrants tend to be between 18 and 39. So we don't, we have fewer of those people for years to come. And that essentially really means we have a smaller genset that's the greater tomb perk generation.

Simon Kuestenma...: That's the generation born 2000 to 2017, approximately this generation will be smaller than we expected it to be. And that has quite a significant impact on the housing market because currently, and I mentioned it before millennials, a big generation lifts in the inner city and one and two bedroom apartments, because this is where the units are. This is where the jobs are. They will now move to the outer suburbs to suburbia, maybe even to the regional towns to look for larger housing there. Now empty flats will be taken over by genset as they move through the life cycle, but it's a much smaller generation. So that means that there is a higher vacancy rates of those one and two bedroom apartments that the millennials are leaving an occupied. That means that we will see in this kind of at this end of the market, we'll see a drop in prices quite clearly.

Veronica Morgan: Whereas we will see probably higher prices in the three and four bedroom category simply because there will be an awful lot of competition and there will be essentially no competition for a bed, one bedroom apartment. I see a market opportunity and buying one and two betters and joining them together to create three and fours. But how about apartment living in general? I mean, obviously if you're living in an apartment building with a lift and that lift is not bigger than four square meters, you've, you've one at a time getting in the lift, or you've got to wear masks, you're worrying about touching common, common property door handles, lift buttons, all that sort of stuff, but also you've got you know, so this is all, and then you've got the extreme example of what's happened with the public housing towers in Melbourne. And that really shows quite clearly what happens in there's a lot of people living in small apartments, of course, but you know, is this changing the way that we think about apartment living? Do you think this whole show, you know, coronavirus life,

Simon Kuestenma...: It does massively because lots of the apartments, if you look at the apartments that are being, Oh, that were built in Melbourne and Sydney in particular over the last let's call it decade. They're very small, lots of, lots of the apartments and th the assumptions of how people are living there really means that people are supposed to be spending tons of time outside of their apartment. This is not the case, the apartment or any home really is. Now you spent much more time in the apartment than you bargained for when you first when you, when you first purchased or rented it, that means that the whole stock of apartments are really unattractive at the moment would just add a big luxurious balcony. And combining apartments is really costly. But if the market drops deep enough, which I'm not quite sure you know, how deep it both drop, this really depends on the speed of recovery.

Simon Kuestenma...: Once we recover the first people that were let into the country, international students, because they are perfect cash cows. They are underwriting our university system. So we let them in at big numbers once that's possible, we'll let in all the Hong Kong Chinese people. So there might be there's enough appetite, I guess, for, for migration to, to reenter Australia once it's possible. But if it's not possible, the apartment market in the inner city has a couple of really difficult years ahead. I would say,

Chris Bates: I wonder about that migration as well. Like does Australia do people around the world? I was always living overseas, want to come back to Australia more potentially if they're living in the United States or the UK or Hong Kong, et cetera. And anecdotally, we've seen that with saying you know, particularly in Southeast Asia, we've had quite a few clients, you know, decide to come back and want to buy properties that they might not be ready to come back now, but they know that, you know, it's becoming more important for them to come back.

Chris Bates: But, but also will migration, you know, it's one of the only tickets for the game for the government. Will they potentially make the rules a lot more relaxed, you know, but do they do that when unemployment is still quite high, because you know, it wouldn't go down very well, I guess, you know, to win votes. So, you know, how do you think that migration story will play out? Do you think it will be back to similar levels or much higher or still much lower for a long time?

Simon Kuestenma...: So migration really, there are three, essentially three types of migrants. And the, the, so we have international students, big, big share of migrants, international students, and there's no problem with the job market letting them in because they pay for that. You know, they need to show that they have enough money anyways, so they are they're great.

Simon Kuestenma...: So we'll let them back in as soon as possible, have a couple of those family reunion migrants can be very small numbers, actually a very small, a refugee numbers. So asylum seeker number. So that's easy to manage. Our migration program was largely a skilled migration program. That means in order for a skilled migrant to enter Australia, we needed to prove that we need their qualifications in order to boost our economy. And in a world that we were used to have with five, with 6% unemployment, that was quite sustainable in a world of, and we have probably ended up with a real unemployment rate of 15% or something, thereabouts, it doesn't really matter how much, but it will be very high. You then have a very more need for highly specialized work as whatever those jobs will end up being, but it will be very small numbers. So we don't, we won't see the 200,000 net migration numbers for, for a long time, simply because it's not the type of it's not the type of migrants that we, that we need at the moment.

Chris Bates: Yeah. So if we're not saying that, then we're still drinking the Ozzies, we'll move back, you know, because if they go, you know, 15% back home, that's not even going to potentially bridge that gap. It's funny.

Veronica Morgan: I was just talking to Megan. Well, she's my business partner at home buyer Academy and she's based in Brisbane, her she's a buyer's agent up there. She, and she's also got a property management business. She was saying that there's a real shortage of houses to rent in Brisbane, sort of family houses now, because ex-pats have been moving back into their house and it's quite pronounced enough for her to really, really notice it. So that's obviously happening there. I haven't really checked in with property managers in, in Sydney asking the same question, and I'm not sure if it's happening in Melbourne, but that's, there's probably not the incentive to move back to Melbourne right this minute, but it certainly seems that that might change. It's certainly the attitude is changing amongst ex-pats.

Simon Kuestenma...: And it points to a couple of numbers that we need to read very carefully numbers like occupancy rates. They'll be rather pointless rather quickly because we will see high, you know, very large unoccupied numbers of one and two bedroom dwellings, but the three and four bedroom dwellings, they will be under a lot of competition, you know, because the baby boomers, the empty-nesters or widows that live in three and four bedroom famine in the old family home. And we do know that they end up downsizing, for example.

Simon Kuestenma...: So they, these houses were not entered the market before the, the persons living in there either just can't live in the house anymore because it becomes unacceptable or because the person dies. And that is really still a decade plus away because baby boomers aren't that old just yet. So the the housing stock occupied by baby boomers won't enter the market. Some of the big game in building really is three and four bedroom dwellings. Where are we adding them? Can we add them if we want to add them in the inner cities? Like, are we building large three and four bedroom apartments? We don't know in parents, in a city Paris, they are wonderful, gorgeous three and four bedroom apartments, actually all the Europeans, we're not building any simply because it's, it's probably a hard bargain of hard to finance those areas.

Simon Kuestenma...: If you manage to build a whole tower in an, in a city and sell one or two bedrooms, you're making a killing, it's a really attractive bet. You know, building a five or six story building with a couple of three and four bedroom dwellings, that's much harder to sell even though the market will be there.

Veronica Morgan: Well, it's interesting, isn't it? Because I think it's been made very easy for developers to pitch really shitty buildings full of shitty one, a bit, two bedroom apartments to investors for starters, because there's been a lot of government incentive, directed towards investors buying brand new. And likewise now in particular, now we first home buyers, you know, that the governments across the border at ramping up the incentives of first home buyers and nearly every single one of those incentives is directed at buying brand new. And unfortunately, you know, if they, and they've got caps on them, price caps, so that once again encourages a developers to keep these apartments small so that they actually stay under the price cap. So it, it, there's very little, you know, structural incentive for developers to actually build the stock we actually need.

Simon Kuestenma...: Yeah. Oh yeah. You make an absolutely brilliant point that Veronica is the, we built substandard housing stock in Australia for over a decade now, which is really problematic. It was very much understandable in same boom times Melbourne edit the population of Adelaide in just a decade. So when you add well over a hundred thousand people, every single year, you need to build housing at a breakneck pace. And if land is just really, really expensive, the only way to cut costs is to build with cheaper materials and to build really cramped housing. So if you think about all of the, you know, the quarter acre blocks that are being bulldozed in, in Melbourne and Sydney as well, and then you put three townhouses on there, nobody wants to live in those townhouse townhouses, nobody, you know, grows up dreaming of one of those townhouses.

Simon Kuestenma...: It's an unattractive housing stock that we're building at scale. They are, they're cramped, they're small. It's, it's an unattractive solution to urban urban planning, but it makes financial sense for the individual developer.

Veronica Morgan: I think the freestanding, the freestanding blocks, freestanding houses on little tiny, you know, 300 square meter blocks. They don't townhouses, but I think they're equally unattractive. You know, I was just looking online and, and once again, these, you know, somebody buys a block, the Colorbond fences go up and then they go on by that pick the house design they want and gets plunked on the block without any real aspect of, or any real consideration of the individual block. And then you see things like picture windows in living rooms that are 70 or 70 centimeters away from a Colorbond fence. You know, it's one, these big windows looking at a sheet of steel. He just really horrible. It's very unattractive.

Simon Kuestenma...: And, and I think when you think when the millennial big millennial heap of population is now looking for housing, you'll, you can look at this, you know, three bedroom cramped house in the Inez or in a middle suburb and you go, okay, well, so that's, I can buy this for $900,000 if I find that you bought probably more, probably way more, or I can buy in a regional city, all of a sudden, you know, what the regions look way more attractive,

Chris Bates: Especially in Sydney that people go, I've got a million, let's say one to low ones. And we're going through, I buy a, you know, and be a two bedroom apartment or I, you know, I've run down. So the two bedroom house in the inner ring, or do I look at the central coast? Do I look at North of Wollongong or, you know potentially the blue mountains or Southern Highlands, et cetera. And the same thing will be happening in Melbourne. I imagine where, you know, people will say, I've got a million to spend, can either live in, you know, in a ring or do I go to, you know, Jalong or Mornington, peninsula, et cetera. You made a really interesting point, which you kinda just set it around that downsizes and that they don't generally downsize because they want to stay in the home. They either stay there til death, or they stay there to aged care. Is that what the, the stats kind of say they put, don't generally even get, get out of the house unless they actually have to.

Simon Kuestenma...: Yep. So at scale, at scale, I'd say a decade ago, we collectively overestimated the, the downshifting movement. Yeah. It's, it's the baby boomers as a generation that values that independence, that values, they have freedom of of living. And they now sit in very attractive suburbs. You, the middle suburbs that are dominated by baby boomers when they first purchased 30, 40 years ago, not that attractive suburbs, but now they are very, very attractive. Of course, you're going to stay there. Your kids are probably not that far away. So you have very little incentive to actually move. And particularly right now, if, if you, you know, we're hoping to have another 10 years or more that your house accrues values and just, you know, value just goes up and up. And now you see a slum for the first time in forever. And of course, I'm waiting it out quite a bit. I see very little motivation for a baby boomer to sell that house at the moment unless they are financially forced to do so, or unless they really were looking to sell in the next three, four, five years, then I might actually need to time the market now and think, okay, if I thinking this call with thing is becoming rather serious and I need cash now, I might actually take the pump and sell now rather than see my house price for further.

Veronica Morgan: It very much depends on what they're planning to do with the money, but also whether that's their main asset. And so, you know, if, if they're planning on the next step for them is to go into aged care. I'd hazard that there probably is going to may not be a lot of that going on. Let's face it. You, you've got a massive incentive to stay at home as long as possible.

Simon Kuestenma...: Oh, absolutely easy. You actually mentioning a couple of the, when we talked about the baby boomer dream goals, you know, finally going on this big cruise that you saved out for Ella, that's what your safety option of, you know, when you're old and tired of going into some sort of fancy aged care home, even if you might be able to afford like a really nice one it never really sounded attractive and now it sounds outright dangerous. So there will be very little movement of those people that will want to do any, you know, we want to change a house in, in, later in life. I expect we drive a, see a big boom in you know, neighborhood nurses and all those neighborhood services that actually come to your house and just you to live independently for, for much longer. So these kinds of services will, will grow rather than the, the centralized aged care home I I'd expect. So at least it,

Chris Bates: There's probably a finance element. There's been you know, the whole reverse mortgage sorta element will start to grow. You know, I've already seen different companies pop up though, basically, you know, they buy a share of the property and they'll give you some cash today. So when you do pass away or go into aged care or whatever it is they just get some of the growth for the line that they give you. And I, you know, while they potentially haven't had a huge uptake in the past, I think that it will allow that downsize it just to stay in the home and, and get the cash that they need to live rather than selling. So Simon, have you got a property Dumbo for us?

Simon Kuestenma...: Well, I think the worst thing you could have done is purchase a one bedroom apartment in January. I think that's the worst thing I could think of.

Veronica Morgan: Oh, dear. Yes. that actually is quite interesting that the landscape for one and two bedroom apartments is quite challenging now isn't it. And the other thing too is, and I know myself, you know, our fundamental premise around buying investment property is that within the 10 K radius of the CBD is the safest area. And we'll been talking specifically in Sydney and Melbourne, and this coronavirus has absolutely tipped that completely and totally on its head. So I think, yeah, I think what you say about an unfortunate Dumbo would have been someone bought a one bedroom apartment in January.

Chris Bates: What are the, some of the biggest sort of longer term positive and negative things, you know, listeners can kinda think about in terms of post COVID that are good for our future, but also what do you think the challenges are going to be for us?

Simon Kuestenma...: Yeah, so I'm, I'm really hoping that one of the good things to come out of COVID will be a refocusing on local neighborhoods. We have very much ignored them because we built so many satellite suburbs, essentially where people, you know, those dormitory suburbs, so people just sleep and they don't spend time in them. That's not a way to do urban planning. What we really need are attractive destinations across the whole city. It's a 20 minute block, if you will, is meant to be attractive in its own, right, have its own characteristics, have its own attractions to visit.

Simon Kuestenma...: And this will dominate planning. We will actually make sure to add, you know, have more active transport them, have more walkable communities as a nation that is collectively overweight. That is a very helpful thing to refocus on, on the local. And it's something that people always complain about really that we are so impersonal. And if you spent essentially all of your time in a five kilometer radius of, from your home you are refocusing on the, on the local, you are all of a sudden really infested that your local food shop stays open, that your lovely local cafe stays open. All of these things just bind you closer to your local neighborhood. And that is something that we actually want and that we have been lacking generally speaking in, in at least in the big cities. So I do think that this will change to do the better.

Simon Kuestenma...: It's a matter of degree of how, how big will this change be? The negative thing out of covert is that we had, we'll take away growth for a couple of years economic growth that will have real impact on everybody's superannuation savings. This will have real impacts on just the, the career earnings that people can take. And so we need to make sure to actually account for this, and I'm very worried about people taking out you know, the, the money from their super people who manage it themselves and do smart things with it. That's fine. But I think the majority of people just really cut into their retirement savings for good.

Chris Bates: Yeah. I mean, that's, it's crazy how much money has come out. I mean, we're talking over $30 billion, I believe. And yeah. And then there's also died that, you know, people who track bank accounts can basically see how people spend that money and yeah. Pretty mind boggling where that money's going, food delivery, online gambling you know, some of the biggest areas where they'll have that 10 grants sort of going. So yeah, it's pretty, it's pretty scary. What about some of the longer term sort of positive news that Australia's got over the world that, you know, while this might be something that goes one, two, three, four, five years, potentially fundamentally you can, in your mind have this reference point, that things will still be okay in Australia. Australia's got a lot. I w I think the,

Simon Kuestenma...: We will still live in a global world that is shifting increasingly towards knowledge work towards jobs where you need to think towards jobs that I essentially Footloose, that could be positioned anywhere in the world and Australia, even though we are in lockdown now in, in, in Melbourne at the moment is managing this reasonably well. And if we managed to get out of this and we manage it better than other countries, we seem like a very safe city. And that's what, that's, what will really be the driver for lots of the international talent globally will be what is the most attractive global destination to go to? What is the most livable city in the world? That's the kind of thing that we are competing with. And we now see international students being scared away from the U S would you like to study in China at the moment, if I was living in Taiwan, if I was living in Hong Kong at the moment, I'd be very much scanning the globe at the moment for a safer place to spend my career. I mean, do you remember people invest their time, their energy and their money. So globally, we look very, very safe and the worst, the relationships between the U S and China become the more attractive Australia will look to many, I would argue.

Simon Kuestenma...: Yeah, that's right. That's the whole idea of, of talking about so many moving parts at the moment, but in a scenario where we say we actually move postcode rather quickly, then people will assess the quality or the morale, how people of all countries got through the crisis. They will, they will somehow put this into their, their computations that they make. When they, when they think, where do I want to move to? And lots of international talent will think this way, if I'm a young programmer from anywhere in the world. And I always thought Silicon Valley is the coolest thing and the place to be. I mean, it's the goal, but I might actually have been scared away by seeing all of these you know, horrible images from the us. And I haven't seen any of these images from Australia. Haven't seen them from Canada. So there might be locations that actually benefit from this. I mean, I'm sure everybody who can, is now looking at New Zealand with very, very admiring eyes as well.

Chris Bates: A lot of our talent that, you know, the might be the millennial generation. What you talk about that have got the skills now, and maybe want to go do a couple of years in London or the U S et cetera. And then potentially they go there and they stayed there because of the work prospects, you know, maybe do they not go at all. And, you know, does that keep you up by, you know, our talent, even if we don't get, you know, foreign migration. So it's just really interesting, a big shift like this. And I think in the property market, it is a massive shift in terms of the, the buyer preferences that potentially weren't there before. And then how does that play out in terms of where it is demand go to, you know, you know, a lot of first time buyers in Sydney and Melbourne for that, their only option was to, you know, they can't afford a house in an area that they want to live.

Chris Bates: So let's just go get a really nice apartment in an area that we want to live and, you know, do they keep, keep doing that or do they look at alternatives? And it's just something we've got to keep learning about and watching, because no one really knows yet it's not. So after COVID that we actually say whether we go back to our old habits or whether we build new ones,

Veronica Morgan: Thank you so much, Simon. That was just absolutely value packed for us. And so many wonderful insights and things too. I think I've got so many ideas for other episodes and other experts. We need to talk off bouncing off this, and we definitely want to get you back as well. So thank you for your time.

Simon Kuestenma...: Always happy to be back.

Chris Bates: Thank you, Simon, and really stay safe down there. I do feel for everyone in Victoria right now, and just stay safe.

Chris Bates: We want to make you a better elephant rider. And this week's elephant rider training is.

Veronica Morgan: Well Simon's. Dumbo is a bit chilling, I guess, for some people who might've bought a one bedroom apartment in January. But what I thought we should do in the bootcamp is to discuss what perhaps you should do. If you have managed to go and buy a one or two bedroom apartment in recent times, or even if you're hopping, holding one for some time, and certainly in inner Sydney and potentially in a Melbourne well let's know, and certainly in inner Sydney, and I'm talking very in a Sydney, such as a, you know, pots point, Elizabeth Bay, those sorts of areas, those small one and two bedroom apartments have done extraordinarily well in recent years. And, you know, I would like to think we'll continue to do so, but there's been a lot of, lot of development and a lot that have been sold that don't have those elements of scarcity or aren't potentially in those great locations.

Veronica Morgan: So, you know, let's talk about fit the fear factor that some investors in particular are going to be feeling. And if you're an owner, occupier would say, just stay put but certainly for an investor, you're going to be started getting a little bit nervous if you're unable to rent the property out, or if you be hearing that values are going to be plummeting. So I just thought we should touch on a couple of things. The first thing I think that's really important to consider if you are owning a property that you're worried, it's going to be in, like, you know, in this catch or one, two bedroom apartments are going to suffer for a few years is you've got to look at location if you are in a scarce, or if the property is in a location where it has great access to a beach, for instance, or a great access to the Harbor or great access to a really unique village, then that's something that can't be wrecked replicated, you know, that is scarcity.

Veronica Morgan: And there's also scarcity in the actual build quality, the style of apartment the design of it and the finishes. So if it's an older art deco, there's scarcity in that, there's just so few of them really around compared to the total apartment stock, or if it's a warehouse conversion, it's a particularly good one, the same deal you've got scarcity, haven't you. And then obviously even with the newest staff, if you go down to Erskineville, for instance, there's a lot of new buildings down there, but there's one or two that really stand out because they have had quite a beautiful design and standard of material that's been used as well. I think some of those buildings will stand the test of time as being really, really lovely buildings to be in. They look great on the outside. And some of the apartments on the, in some of these buildings are very well thought out, very well designed and very well finished and were built.

Veronica Morgan: And those sorts of properties I think will stand up and be counted over time. Whereas the cookie cutter staff there are really crappy apartments and where there's lots and lots and lots of all the same stuff. And we'd be banging on this forever. You know, if you're holding one of those, you might start to think seriously about what your options are, because if we are, as Simon suggested staring down a period of years where the demand for one or two bedroom apartments is going to really fall, then you might need to actually really think about whether you do need to make a decision now about whether you hold onto it or not. What are your thoughts on that and what Chris?

Chris Bates: I think you're a hundred percent, right. I think that, you know, not all apartments are doomed, for example the ones that are scarce and particularly the buildings that are, that are still attracting the owner occupies and that you know, not everyone can follow this work from home movement and what to move to the middle and outer rings and rural locations.

Chris Bates: Somebody will just love Sydney for the lifestyle benefits around the city, the Harbor, the beaches their friends, their community, et cetera. So even if they can work from home two or three days a week, doesn't mean they're not going to potentially want to commute to the city five days a week and still live the life that they've continued to live. So I don't think all the dementia's going to leave. And I do think that there's still can't afford houses. And so they are still going to want really nice, bigger apartments that are scarce. So if you've got one of those, don't be falling for the doom and gloom out there, but that apartments are dead and et cetera. But don't look to kind of potentially sell it right now because I just think the demand isn't really that strong and the sentiment around it is gonna really affect your price potentially.

Chris Bates: In saying that though, just in the last couple of months, previous second wave, we had two people sell apartments and got massive prices that were arguably bigger than that, of what it was pre. So and there were two scarce apartments. So, you know, that's probably for that, which is, I agree with, I think the other sort of if you've got things that are poor, I guess it's, we had a client literally last night sell a property and they know it's not a great property. It was, they know that when they bought it and they, you know, just in their head just wanted to get into the market. And, you know, they did a bit of work to the place, but, you know, the reality is they'll always going to outgrow it. And you know, they, by selling a, basically a poor asset right now, they didn't get a great price.

Chris Bates: Definitely not what they would have got pre COVID, but by selling it, they've still got enough cash left over to potentially go and now buy their future home. And so while there might be losing on the left hand, hopefully right now, it's going to come down to how lucky they are really. And they can facilitate buying a better asset potentially for a better price. That's a bit of an unknown insight. If even if you potentially can't get a great price right now and you have to lose money, or it's not what you wanted, if it enables you to do something else, then really think about it because I think you could win much greater on that hand and the loss on the left hand. Yeah. I think definitely.

Veronica Morgan: If you are staring down the barrel and, you know, fundamentally, cause you've been listening to this podcast long enough, now that whatever you're holding, isn't that great an asset, then you do have to make some pretty hard decisions. But if you, you know, Kate take care of that, if you actually are holding a good asset, there's going to be some, you know, there will be some headwinds for apartments for awhile, but just write it out because at the end of that, you still got a good asset. That's scarce, that's unique, that's going to have appeal and you just have to have faith that you've, you know, that you've bought well in the first place. And this is where holding the holding the course is really important because you know, it's about asset quality and they, you know, I think the reality is that we've probably forgotten in 30 years without a recession. You know, we forget that things can get tough. And so when things get tough, sometimes you've got to write stuff out, right. But there's also an opportunity to bail, but potentially now, if you really have got something that's pretty horrible and you're being honest with you about it.

Chris Bates: Yeah. And it's just about trying to limit the damage. Sometimes if you've been vegan, a lot of people are hoping to get better. And you know, if it's a poor asset you know, they're one of the investors to come back with the investors aren't coming back, you know, the home buyers aren't there building issues. And so just assuming that things are gonna return to like they were, when you purchased the property in 2012 or 13 you know, it might not ever get back like that in any reasonable timeframe. So, you know, there's always a cost. There's an opportunity cost of what you probably might be using is a lot of your borrowing capacity to do something else with whether that's upgrade your home, whether that's buying an investment, et cetera. And so really understand what your opportunity cost of holding something is because generally when you add that, then it makes sense to Sue,