No interest rate cut this year + why meat prices are going up at the supermarket

Greetings from London,

We’ve loved spending the week with our new granddaughter. As a tourist highlight, visiting Bletchley Park was terrific. This was the top-secret British program that broke the German Enigma code machine and changed WW2. The Imitation Game movie tells some of the story and the role of Alan Turing in breaking the code. It’s a great movie and just as good to visit the site and learn even more.

But I’ve also been keeping an eye on what you need to know about your money. In this week’s newsletter:

• It’s almost certain there will be no interest rate cut this year after yesterday’s job figures

• Why we need migration to help population growth

• The reason meat prices are rising at the supermarket

• Construction costs are starting to settle

• How the Victorian government has stuffed its property market

• Why determining your risk profile makes investing so much simpler

• Aussie-born Canva is now one of the world’s biggest “unicorns”

No interest rate cuts this year - lock it in!

For months now I’ve been saying there will be no interest rate cuts this year unless... there was a spike in the unemployment rate.

After yesterday’s remarkable job figures, there looks to be no chance of an unexpected spike in unemployment. The jobs market is unbelievably strong.

Let’s look at the September numbers first. A massive 64,100 jobs added - the most since February and more than double what economists were expecting. It’s the sixth straight month of beating economist forecasts and the fifth consecutive month of jobs growth above 30,000.

Unbelievably, 290,500 permanent jobs have been added just this year. Since coming out of the pandemic in June 2022, the labour force has risen by 1,042,300 people and employment has lifted by 937,100 people through to September 2024.

The myth that migrants are taking the jobs of Australians is exactly that… a myth. Not only have migrants all found jobs, if we didn’t have the current migration program there would be a massive shortage of workers to keep the economy growing.

I suspect the huge growth in jobs is directly linked to the record level of government spending with their big infrastructure and energy transition projects which are so labour intensive.

As a result, the unemployment rate stayed at 4.1 per cent and more people than ever are working.

The workforce participation rate (the number of adults with a job) rose from 67.1 per cent in August to a fresh all-time high of 67.2 per cent in September, with the female participation rate also at a record high of 63.2 per cent and male worker participation at 71.3 per cent, which is the highest since January 2016. The percentage of the population employed also hit a record high 64.4 per cent last month.

The bottom line is that the markets have reduced the chance of an interest rate cut at the December Reserve Bank board meeting and increased the chances of a cut at the February RBA meeting.

So, the interest rate pain is going to continue. This graph shows just how hard it has been for Australians compared with the rest of the world.

And this is why we need migration

Apart from filling available jobs, migration also needs to plug the population gap caused by record low fertility rates.

It’s population that grows economies and underpins our standard of life. If populations don’t grow, economies and standards of living slow because there aren’t enough people to fill jobs, pay taxes and support an ageing population.

Australia isn’t alone as an advanced economy with record low fertility rates. But we use migration to boost population rather than just rely on the birth rate.

Economies like China and Japan are grappling with the devastating economic consequences of low birth rate, ageing population and limited migration.

Why meat prices at the supermarket are rising

This graph is the only explanation needed.

Construction costs are starting to settle

Residential construction costs grew 1 per cent over the September quarter, in line with the pre-Covid decade average, according to CoreLogic's latest Cordell Construction Cost Index.

The 12 months ending September saw costs rise 3.2 per cent, up from 2.6 per cent over the 12 months to June, although down from this time last year (4 per cent).

Over the year to June, approximately 176,000 dwellings were completed, 26.6 per cent below the 240,000 needed annually to fulfil the Federal Government’s new housing target.

In August, national monthly dwelling approvals came in 17.9 per cent below the decade average and 30 per cent under the 20,000-a-month target needed to achieve the government's goal.

Why it is no surprise Victorian property values are lagging the nation

One of the massive trends of the residential property market this year has been how the median price of dwellings in Victoria has dropped down the property ladder. It came as a surprise when Brisbane median values rose above Melbourne’s in February to become the second most valuable market behind Sydney.

Since then, the Adelaide and Perth markets have overtaken Melbourne which has now dropped to fifth on the property ladder.

Some of the reason can be attributed to a surge in the construction of apartments, which sell for less than a house and drag the overall median dwelling average values down.

But also weighing down the median average is Victoria's complex and heavy property tax structure. According to real estate giant, Ray White, Victoria now has the highest property taxes in Australia. 

This is what the Victorian tax structure looks like:

• Land tax: A progressive tax based on the total value of taxable land owned.

• Stamp duty: A significant one-time tax on property purchases.

• Council rates: Annual fees for local services.

• Capital gains tax: A Federal tax on property sale profits (primary residences excluded).

• Vacant residential land tax: Targeting unoccupied homes in inner and middle Melbourne.

• Absentee owner surcharge: An extra land tax for non-resident owners.

• Foreign purchaser additional duty: An increased stamp duty for foreign buyers.

Plus, on January 1 next year property owners will be hit with Airbnb levies. While not strictly a property tax, this additional burden is expected to hit hard, especially in regional Victoria where short-term rentals are a significant part of the local economy.

According to Ray White, the consequences of this high-tax environment are far-reaching:

• Investor exodus: The backbone of the rental market - individual investors - are shying away and limiting the number of rental properties.

• Construction slowdown: With investor confidence at an all-time low, new developments, particularly apartment developments, are grinding to a halt. 

• Foreign investment dries up: The Melbourne CBD's residential boom was largely fuelled by foreign buyers. These investors, crucial in creating affordable rental accommodation for students, have now all but disappeared, deterred by higher taxes.

• Commercial sector suffers: It's not just residential property feeling the pinch. Investors are shying away from Victoria, with taxes - particularly those targeting foreign buyers - being a major deterrent.

 How to assess your risk profile when investing

Investing can appear to be daunting and complicated. But it doesn’t have to be if you understand that investing isn’t a one-size-fits-all game, and knowing your risk profile makes your decision-making so much simpler.

Knowing how much risk you’re comfortable with when putting your money to work cuts down your choices, makes choosing the right investment options a whole lot easier, and helps you sleep at night without stressing about every market gyration.

What’s your risk profile?

Your risk profile boils down to how much volatility you can handle, and it’s shaped by factors like your investment timeline, financial goals and how you emotionally deal with risk. Some investors are comfortable with the ups and downs of high-growth assets like shares, while others prefer the steady, reliable returns of more conservative investments like bonds or term deposits.

Can I say right from the start there is nothing more important than your health and emotional wellbeing. I don’t care if it’s the best investment in the world... if you worry about it and lose sleep over it, then it’s simply not worth it.

Spending time working out your individual risk profile is important because it helps you match your investments to your comfort level. It also means you’re not taking on more risk than you can handle. Let’s face it – there’s nothing worse than lying awake at night worrying about your investments. But with a firm understanding of your risk profile, you can sleep soundly knowing your portfolio is working in your favour. 

Let’s break down a risk profile into three core elements:

1. Investment horizon: How long do you plan to invest? If you’re in your 30s and investing for retirement, you’ve got time to ride out major market fluctuations, so you might be more willing to take on plenty of risk. But if you’re nearing retirement, you’ll likely want to protect your capital, making you a more conservative investor.

2. Financial goals: What are you aiming for? Growth investors might seek capital gains over the long term, while others prefer more predictable income streams. Your goals play a huge role in determining how much risk you need to take.

3. Risk tolerance: Some people can handle watching their portfolio dip in value without batting an eye, while others get stressed over the slightest market wobble. Be honest with yourself about how you react to risk.

Asset allocation based on risk

Once you know your risk profile, it’s all about getting the right mix of assets. Whether you're conservative, balanced or growth-oriented, your portfolio will look different. Visiting a good financial adviser is important to get this right for you, but here’s a rough guide of what each of these portfolios might look like based on your risk appetite.

Conservative portfolio: For those who don’t like volatility and want to preserve capital. It’s a decent portfolio for shorter-term goals or if you’re approaching retirement, and the mix looks something like:

• 70–80% in fixed income (bonds, term deposits)

• 10–20% in stocks

• 10–15% in cash

Balanced portfolio: If you want a bit of growth potential with a safety net, you’ll get a mix of steady returns and some exposure to growth with a balanced portfolio:

• 40–50% in stocks

• 30–40% in bonds

• 10–15% in alternative assets (property, infrastructure)

• 5–10% in cash

Growth portfolio: For investors with a longer timeline who can stomach volatility, a growth portfolio is ideal to maximise long-term gains:

• 70–80% in stocks

• 10–15% in bonds

• 10–15% in alternatives

Getting it right

Now that you know how to identify your risk profile and build a portfolio around it, here are some tips to make sure you stay on the right track:

Revisit your risk profile from time to time: Life changes – and so will your risk profile. As you get older, your financial goals and ability to handle risk will likely shift. Review your portfolio and risk tolerance every couple of years to see if they still match.

Diversify: Don’t put all your eggs in one basket. Spread your investments across different asset classes – stocks, bonds, property, etc. – to reduce risk. If one asset class underperforms, others will hopefully be able to offset the impact.

Stay calm during market fluctuations: Markets will go up and down – that’s a given. If your portfolio matches your risk profile, trust the process and avoid knee-jerk reactions. Over the long term, markets tend to recover.

Once again, fine tune your risk profile with a good financial adviser but getting your risk profile right should be step one on your path to becoming a successful investor. It doesn’t matter whether you’re conservative, balanced or growth-focused – knowing your risk profile makes investing simpler and far less stressful.

So take the time to figure out where you stand. Adjust your portfolio when necessary. And let your investments work for you in the long haul.

How to solve the housing crisis... an editorial I wrote for The Daily Mail

Back in the ‘90s, the average loan size in Australia was $67,000. It’s now nearly ten times that amount at $637,000 or more if you want to live in the capitals.

But the housing crisis isn’t just about unaffordable prices - it’s about supply shortages, regulatory constraints, and the growing gap between wages and property values.

A key difference between the ‘90s and now is that average mortgage size has risen six times faster than wages. 

So, is there a solution to our housing crisis that will keep everyone happy? Here are five things governments can do now to take heat out of the market and supply homes for the next generation.

Negative gearing reform

Negative gearing was introduced in 1936, in the midst of the Great Depression, to encourage investors to buy property and then rent it out to those who couldn’t afford to buy their own home.

The intention was to ease the financial burden of the large upfront and ongoing costs of buying a rental property when compared to other more traditional investments.

Now, negative gearing is ingrained in the Australian psyche. The beneficiaries aren’t just faceless behemoths, but regular mum and dad investors looking to grow wealth for their families. Without it, we could see rental stock come off the market, causing costs to spiral out of control.

Getting rid of negative gearing would be controversial. But there is no doubt it needs reform because the system is being exploited.

Tax concessions should be scaled back or stopped completely. An upper limit could also be imposed to limit the number of properties which can be negatively geared by any one taxpayer.

Make room for medium-density

One of the most critical yet often overlooked solutions to our housing crisis is embracing medium-density housing.

When most Australians think of a home, the image that often comes to mind is a single-family house with a backyard—a Federation bungalow or a weatherboard Queenslander on a quarter-acre block. But as Australia grows, so too must our perception of what makes a home.

Medium-density housing, which includes townhouses, row homes, and low-rise apartment buildings, offers a practical solution to the supply-demand imbalance plaguing our cities. These types of developments allow for more homes to be built on less land, making it possible to house more people without sprawling further into green spaces or compromising the quality of our neighbourhoods.

Build where people want to live

Satellite cities on the fringes can be great but if the commute is longer than an hour, lifestyles take a major hit.

Reforming zoning regulations is crucial. Local governments often impose restrictions that limit the density and type of housing that can be built, particularly in high-demand urban areas.

By relaxing these regulations and encouraging higher-density developments in well-serviced areas, we can increase the number of available homes without encroaching on green spaces or existing infrastructure.

Rethink the way homes are built

Prefabricated homes were a quick fix to plug housing supply gaps after World War II. Why can’t they be part of the solution today?

Temperature controlled facilities, where buildings can be produced safely and swiftly, free of weather delays, and the fury of the scorching Australian sun, could be a game-changer.

Do away with rubbish policies

Now here’s the controversial part: giving people more money to buy a home is not going to fix this problem. Politicians love handouts and money incentives because they are simple policies and to voters, they look good on paper.

But the problem with incentives like the Homebuilder Scheme is that rather than helping bridge the gap for buyers, they simply push prices higher and further out of reach.

For example, let’s look at the Coalition’s proposal to allow buyers to raid their superannuation for a deposit. Analysis by the Super Members Council suggests such a policy would add 9 per cent to median prices in capital cities. The extra cash isn’t all that helpful when it’s just eaten away by higher costs.

Throwing more money at the issue just isn’t the answer. We need tangible relief in the form of bricks and mortar.

Canva among the world’s most valuable private companies

Many of you, or your children, are using online design platform, Canva, at work or school. It is a massive global business founded right here in Australia by Mel Perkins, Cliff Obrecht and Cameron Adams. 

So, it was with a fair bit of pride and admiration I saw this graphic ranking the world’s most valuable “unicorn” companies and Canva is ranked ninth. That is a pretty remarkable result.

I have to say Mel and Cliff are a wonderful couple and deserve every success. It’s a great story. They designed their high school yearbook in Perth and decided to develop an online template for other school students to follow... and that’s how this $US25 billion company was founded. 

One of my worst investment decisions ever was when Mel and Cliff asked whether I wanted to invest in one of the early Canva capital raises. I couldn’t at the time as I was investing in my own business.

But I’ve watched Mel and Cliff develop Canva with huge admiration.