What Drives Real Estate Prices - Changes In Employment

To assist our sellers and buyers to get a better understanding of what drives real estate prices in today’s market we today begin with the first of a series of articles prepared for Stocker Preston by economist Ryan Brierty.

We will start by introducing the 3 main drivers of real-estate prices.

  1. Unemployment
  2. Population changes
  3. Interest rates

This article will focus on the changes in employment in WA.

We can see from the State Treasury Department’s website the graph for annual growth in State Final Demand has been increasing since the beginning of 2017. State Final Demand is a good measure of how WA’s economy is performing for WA citizens, as it doesn’t include imports and exports.

To see how the type of employment has changed in WA over the last 2 years from the bottom of the cycle to the current upturn we downloaded the employment data from Australian Bureau of Statistics website, Cat. 6202.0. We took the data and broke it down to annual changes in the creation of full time and part time jobs seasonally adjusted for each quarter.

The graph below shows the positive changes to the employment structure that has occurred as our economy continues to rebound. The graph does not represent unemployment. The graph shows the increase and decrease in the creation of full-time and part-time jobs. Every time the graph is above the zero horizontal axis we are adding more jobs to the economy compared to the same time last year. This means our economy is growing.

During 2016 we can see a reduction in the number of people in full­time employment (blue) and an increase in the number of people in part-time employment (green). The reason for the increase in part-time work during an economic downturn is referred to as “labour hoarding”. Firms try to hold onto skilled labour by reducing hours rather than making staff redundant.

However, as our economy starts to rebound from 2017 the graph shows a reduction in part-time work and an increase in full-time work as workers transition back to full-time employment. Then we can see increases in part-time and full-Time work. This indicates a broader based demand for labour and indicates our economy is growing.

This is very important for the real estate market because a person’s ability to acquire and/or service a mortgage is greatly increased with full time employment. Increasing the number of people who can afford to buy a dwelling raises demand, which in turn increases the price.

Buyers and sellers need to factor this into their decision-making process.

Next article we will look at how changes to population growth have affected real estate prices with an emphasis on the South West of WA.

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What Drives Real Estate Prices - Changes In Employment