Most houses approved in one month in Qld since time of high interstate migration in 90s

The Housing Industry Association was quick to proclaim Detached Building Approvals Reach Record High after the ABS published the December building approvals data today. “Detached building approvals” are approvals for houses, as opposed to approvals for apartments or townhouses. Obviously, the record high is related to ultra-loose monetary policy from the RBA, less rigorous lending policies from banks, and the federal government’s HomeBuilder grant. In Queensland, it wasn’t a record high for housing approvals, but rather the highest level since the peak period of interstate migration to Queensland in the early to mid-nineties (see chart below), when Queensland was gaining up to 1,000 people per week from interstate migration, in net terms (i.e. arrivals less departures). Note that total approvals aren’t yet near the peaks of five years ago, when there was an apartment building boom in Brisbane.

The surge in approvals is good news for the building industry, its supply chain, and the economy more broadly. We’ll need dwelling investment to add substantially to Gross State Product (and GDP nationally) to offset the contractionary impact coming from the winding down of JobSeeker and JobKeeper. We also need to see additional supply to moderate the growth in property prices. According to CoreLogic, Brisbane property prices rose 0.9% in January and 2.5% in the three months to 31 January (see Australian housing values reach a new record high as values continue to rise across every broad region of the country).  

Finally, also check out the Queensland Treasury building approvals briefing which nicely illustrates just how big the surge in approvals in December was.

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Qld artisan liquor and craft beer bill could be much more ambitious

Regular QEW reader Andrew Aschman has alerted me to a current Queensland Parliamentary Inquiry into a bill which, among other things, would make it easier for artisan distillers and craft brewers to sell their products on or off their premises (see Liquor (Artisan Liquor) Amendment Bill 2020). The bill could be much more ambitious, however, as noted by David Ridden, President of the Australian Distillers Association and owner of Granddad Jack’s Craft Distillery, in response to a question from Opposition MP Laura Gerber at the public hearing into the bill on 21 January. Ms Gerber asked “Is there anything that could be added, changed or amended to better support the industry at this time?” Ridden replied:

Potentially. We are a new industry. Distilling has been around a long time but this artisan segment has really grown phenomenally across the country and in Queensland in the last couple of years. It has not grown so rapidly in Queensland because of our current laws. In terms of having a fair playing field, small producers will never have the finances to be able to produce that sort of volume that allows us to go into those big, major retailers, the ones that Coles and Woolworths control.

It would be nice in the future if the something like 750 small independent grocers across the state had something that allowed just people with the artisan producers licence, this new licence, to sell to them. It would then make it a bit more of an even playing field for us and at least the consumer would see us. At the moment, the reality is that when most consumers want to buy something they go to Dan Murphy’s, First Choice or Liquorland. They do not see all those other brands that we produce across the state because we are not as visible.

Andrew Aschman expanded on this idea in a submission he made to the Inquiry, which was provided after the due date so it isn’t available on the Parliamentary website, unfortunately. Here’s what Andrew wrote:

I am supportive of proposed sales and marketing of Artisan Liquor via Independent Grocers and relevant convenience stores…In relation to supermarkets sales this should be extended and include supermarkets up to 1800sqm. This would cover most Independent supermarkets as well as some metro supermarkets owned by the larger brands that could also help market and sell Artisan Liquor effectively and safely.

This extra convenience would be great for consumers. I’d go even further and allow supermarkets of all sizes to sell all types of liquor as they do in some other states and countries. In my view, the Government should allow a trial of supermarket liquor sales for say 24 months and see if there are any noticeable impacts on alcoholism or alcohol-related violence. If there are not, supermarkets should then be allowed to continue selling alcohol. Current regulations inconvenience consumers, but really aren’t going to stop problem drinkers from accessing alcohol.

Finally, credit to Andrew for his ongoing advocacy for more liberal retail trading regulations in Queensland.

Out the back at Newstead Brewing Co., Milton, Brisbane.

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Federal quarantine facilities in remote areas should be considered after repeated failures of state-run inner city hotel quarantine

Now that COVID has escaped from inner-city hotels in four cities, Melbourne, Sydney, Brisbane, and Perth, our governments should finally realise we need to do things differently. Otherwise our economic recovery will be jeopardised by repeated “short, sharp” lockdowns that our Chief Health Officers will regrettably recommend if they see even one case of community transmission of a mutant strain.

Queensland Premier Annastacia Palaszczuk has tried to get her own remote quarantine program up and running near Gladstone, but her efforts have failed with the local Mayor refusing to cooperate, as reported by The Australian. Arguably, it’s time for the level of government which actually has responsibility for quarantine, the federal government, to take over, as state governments may be too financially constrained to think on the right scale of what is needed.

As regular QEW reader Paul has previously suggested, the federal government could set up dedicated quarantine facilities in remote areas, possibly near remote RAAF bases to allow for flights in and out. I quoted Paul in my post on the Grand Chancellor COVID incident and I think his comments are still relevant and worth reading. Perhaps the planning for remote federal quarantine facilities needed to start last year, and it would take the rest of 2021 to proceed from planning to procurement to construction, by which time COVID should be much less of a threat due to widespread vaccination (hopefully). We may have to make do with state-run hotel quarantine for the rest of this pandemic, but we should probably include federal quarantine facilities in remote locations in our plans for future pandemics.

Inner city hotels, such as the Grand Chancellor at Spring Hill, Brisbane, only 300 metres away from my office, probably aren’t the best places to run a quarantine program.

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Qld’s economy definitely fared better than Victoria’s which suffered badly from Stage 4 restrictions

Weirdly, CommSec’s latest State of the States report ranked Victoria in 3rd place and Queensland in 5th place, even though Queensland’s economy has definitely fared much better during the pandemic than Victoria’s. In my Thursday post I discussed how silly CommSec’s ranking methodology is and how it confuses the public debate, with one 612 ABC Brisbane guest inferring from CommSec’s report that Victoria’s harsh lockdown didn’t cost it in terms of economic growth. But of course the lockdown substantially reduced economic activity while it was in place and the Victorian economy still has not fully recovered from it. For another perspective on how badly Victoria’s economy was affected by the stage 4 restrictions resulting from the hotel quarantine fiasco, consider the ABS estimates of total hours worked per month for the major states and nationally. In December, total seasonally adjusted hours worked in Victoria were 4.5% below where they were in March, whereas they were nearly 1% higher in Queensland. And notice how hours worked in September in Victoria were 14% lower than in March.

I should note that conditions definitely aren’t back to normal yet in Queensland, of course, as the population has grown since March and jobs and hours worked need to be generated for new labour market entrants. So check out the chart below of hours worked per capita, a metric Pete Faulkner has noted has been essential in understanding the COVID recession (see Pete’s post on the day the December ABS Labour Force data were released earlier this month).

Even though per capita hours are marginally higher than they were in March, they had started falling earlier in 2020, largely due to the slowdown that was occurring irrespective of COVID, so a comparison with the March value may give us an overly optimistic impression. In his post, Pete Faulkner notes hours worked per capita in Queensland in December 2020 were 3.2% below what they were one year earlier. If we compare the December figure with the 2019 average, we see the December figure was 2.4% lower.

Queensland’s economy has coped with the COVID shock better than the rest of Australia’s, but we’re still below where we should be, and we know that the ending of JobKeeper at the end of March could have highly adverse impacts on regional economies such as Cairns. On this, check out my Saturday post and also Pete Faulkner’s latest post Regional QLD continues to lead the recovery in Domestic Tourism.

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Qld Premier deserves some criticism, but she’s right to highlight needs of struggling tourism-dependent businesses

The NSW Premier, Sky Australia hosts, and other commentators have been quick to criticise Queensland Premier Palaszczuk over her call for the federal government to extend JobKeeper beyond the end of March for struggling tourism-dependent businesses, particularly those in Cairns and the Whitsundays. Given she backed some questionable decisions by Chief Health Officer Jeannette Young regarding interstate borders, the Premier certainly deserves some criticism, but we need to recognise two things:

  • the continuing hardship faced by many tourism-dependent businesses is also related to the international border closure, and
  • the Premier is correct to highlight the financial stresses that tourism-dependent businesses still face and the desirability of extending assistance in some form.

On the first point, consider Cairns’s large dependence on international tourism (accounting for nearly half of visitor nights in a typical year) in the chart below.

On the second point, consider the data reported in the Brisbane Times on Thursday:

Treasury data showed Cairns was most at risk of business collapse if JobKeeper payments were axed in March.

More than 3660 Cairns business were signed up to the scheme, 400 more than in Brisbane’s CBD and almost 600 more than Surfers Paradise on the Gold Coast.

The JobKeeper by postcode data, which the Treasury really needs to update so they’re more recent, are presented in the chart below for the top 20 postcodes in Australia. The postcode 4870 covers Cairns.

The federal government is right to be concerned about the ongoing cost of JobKeeper and the fast-growing national debt, but I suspect it will have no choice but to provide some limited extension to JobKeeper for struggling tourism-dependent businesses, possibly in the form of a HECS-type income-contingent loan. On this, see my post from last Saturday:

JobKeeper has been stimulating in multiple ways – evidence from Lush Marcoola

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Foreign investment and productivity – my latest Economics Explored podcast episode

The latest episode of my Economics Explored podcast is on Foreign Direct Investment (FDI) and Productivity. In the episode, I speak with the authors of a recent study published in the Journal of International Business StudiesForeign Influence, control, and indirect ownership: Implications for productivity spillovers. The authors of the study are Sara McGaughey, soon to take up a position as Professor at Copenhagen Business School, and Professor Pascalis Raimondos, Head of the School of Economics and Finance at QUT Business School.

Sara and Pascalis have taken advantage of the huge Orbis business database which has allowed them to construct a longitudinal/panel dataset of nearly 576,000 manufacturing firms across 20 European countries. They find evidence that controlled foreign firms can boost the productivity of other firms in the same industry (horizontal spillovers), while previous studies had only convincingly found evidence of vertical spillovers, between foreign affiliates and their domestic suppliers.

Hence, we can be even more confident that countries such as Australia which are broadly open to FDI by multinationals can benefit from ‘spillover’ effects that boost the productivity of domestic firms. For instance, domestic suppliers to multinational subsidiaries can benefit from having to meet higher standards, and locals who work in such subsidiaries can later take the skills and knowledge they gain to other businesses in the economy.

All that said, we do need to scrutinise proposals for foreign investment from foreign state-owned or state-influenced companies, and it is legitimate that our Foreign Investment Review Board (FIRB) considers any national security implications, as it has increasingly been doing regarding investments from Chinese state-owned or state-influenced companies.

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CommSec’s weird assessment of Victoria’s economic growth as leading the nation in State of the States

This afternoon, Australian Institute for Progress Executive Director Graham Young alerted me to his conversation with 612 ABC Brisbane host Steve Austin and McKell Institute Executive Chair Rachel Nolan yesterday on Steve’s Drive program (from around 2:26:30) regarding the CommSec State of the States report, which continues to present weird results based on an odd methodology that I first questioned in a July 2010 post. Chatting with Steve and Graham, Rachel accurately quoted the CommSec report (on p. 3) as ranking Victoria at the top in terms of economic growth – yes, that’s silly, as I’ll go over in a moment. There is no way Victoria should be ranked as number one on economic growth given its Stage Four restrictions meant that it suffered the largest job losses in Australia (check out the Qld Treasury Labour Force briefing and the chart below) and it has had the most businesses on JobKeeper.

Furthermore, the ABS reported that State Final Demand fell 1.0% in Victoria in September quarter while it recovered by 6.8% in both Queensland and NSW in that quarter, the latest for which National Accounts data are available.

The latest CommSec State of the States report reaches its odd conclusion that “Victoria still leads on relative economic growth” (p. 3) by comparing the states’ levels of economic activity in the twelve months to 30 September 2020 with their average levels of yearly economic activity over the previous decade. Victoria is heavily advantaged in this calculation because of its relatively strong performance in the years leading up to the COVID recession. The calculation tells us nothing about Victoria’s economic performance during the pandemic.

I’ll post some more charts and analysis on this when I get the time, but it’s very clear CommSec needs to change the methodology of its State of the States report because it is leading to extremely odd conclusions.

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Qld takeover of Norfolk Island an intriguing prospect

The Courier-Mail has reported the Queensland Government could take responsibility for service delivery on Norfolk Island after NSW has declined to continue doing so, and the state government is currently discussing a potential deal with the Commonwealth. This is an intriguing prospect, and one that would be worth considering, so long as Queensland taxpayers are sufficiently compensated for the risks associated with service delivery in such a remote location. The Courier-Mail reports “It is unlikely Queensland would receive an economic return from its investment”, which is probably true, and suggests to me that the state government should push the Commonwealth to pay it a premium for providing health and education services to Norfolk to compensate for the risks involved. If NSW has pulled out, the Queensland Government probably has a lot of leverage in the negotiation with the Commonwealth and can demand much more than the $192 million (over six years) NSW was getting.

Possibly I’m more open to a Norfolk Island takeover by Queensland than a hard-headed economist should be, owing to an historical family connection with Norfolk. There was a Sergeant Dennis Tunny who was involved in a notorious incident on Norfolk in 1827, an incident which involved the killing of a mutinous convict, Patrick Clynch, who had attempted to kill Commandant Captain Thomas Wright. Here’s a description of the incident in Robert Macklin’s 2013 book Dark Paradise: Norfolk Island – Isolation, Savagery, Mystery and Murder (from p. 131):

Wright sent Sergeant Dennis Tunny and two privates after him [Clynch] with instructions, ‘You know your duty, so do it!’ Amid a wild hullabaloo from the prisoners, the soldiers intercepted Clynch and brought him to earth. Then, according to the convicts, they not only shot him dead but dragged his body to the gaol, placed it on the scourger’s stage and forced the prisoners to file past as a warning.

For more tales from Norfolk’s dark history, I can highly recommend Dark Paradise.

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Why Greg Chappell came to Qld in 1973

It was about time that cricketing legend Greg Chappell, arguably Australia’s most elegant batsman after Bradman, received an Australia Day Award. Chappell’s 2011 autobiography, Fierce Focus, is well worth reading, and Queensland readers would be particularly interested in chapter 14, “A more solid state”, which covers his switch to the Queensland cricket team and his move to Brisbane, from Adelaide, in 1973. It reminds us of just how much professional sport and, more broadly, our economy and society have changed since then.

Chappell wasn’t lured to Queensland by a lucrative contract as, before Kerry Packer shook up the game, contracts weren’t that lucrative. Rather, he came because the Queensland Cricket Association (QCA) could get him a job with an insurance company. Before the economic value of elite sport through television advertising and sponsorship was realised and tapped into, elite sportsmen generally couldn’t make a living playing sport. Here’s a snippet of what Greg Chappell wrote in Fierce Focus chapter 14:

The QCA had provided an apartment in Rosalie, an inner Brisbane suburb, but the main thing was a job. In Adelaide I’d been working with Coca-Cola Bottlers as a trainee manager. It was a franchise business and one of the most successful…

…In Queensland, however, Coca-Cola was a completely different business, run on a different footing, and there was no opportunity for me. Instead I went back into insurance with Friends Provident, an English company. They paid a guaranteed retainer plus commission, considerably more money than I’d earnt at Coca-Cola.

It’s funny to think there was a time when you could be an internationally renowned sportsman and still need to hold down a day job. Where were the juicy contracts, lucrative product endorsements, or Bollywood film opportunities back then? Of course, things changed a lot for cricketers when Kerry Packer saw the potential to cash in on the huge popularity of cricket a few years later, a tale Chappell tells later on in Fierce Focus. If you haven’t read Chappell’s autobiography yet, and you have any interest in cricket, or even in Australian history, I can highly recommend it.

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Greg Chappell’s revealing 2011 autobiography Fierce Focus
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Qld exports were $21bn lower in 2020 due largely to lower coal and LNG prices

At the launch of the Queensland Premier’s Export Awards in May 2019 at the Tower of Power, 1 William St, I spoke about how Queensland’s exports had soared to record levels over the previous few years, largely as a result of higher coal prices and new LNG exports (check out my QEW post on the launch). But coal prices have fallen since then, and plunged last year as the pandemic reduced demand (see chart below, noting the red line is the coking coal futures price for contracts settling in the next month and the blue line is the same type of futures price for thermal coal).

Lower average coal prices (and also LNG prices) over 2020 had a big impact on the dollar value of Queensland’s merchandise exports over the year. ABS preliminary data released today showed a $21 billion fall from $84 billion in 2019 to $63 billion in 2020. Below is a handy chart that Dr Marcus Smith included in his LinkedIn post earlier today.

Lower coal prices have meant billions of dollars less in royalties for the state Treasury and have led to questions about the viability of several mines. For instance, regarding the Adani Carmichael mine, Reuters reported last October that “Analysts have questioned the mine’s viability, given a steep fall in coal prices in the past two years, and increasing pressure on banks and insurers not to lend to thermal coal companies because of climate change.” Miners and the state government will be pleased that coal prices appear to be on the way back up in 2021.

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