Jobs and housing crisis looming

March 14, 2009

The economic outlook for working people is becoming even bleaker.

Figures released by the Australian Bureau of Statistics (ABS) on March 12 show that unemployment increased to 590,500 — or 5.2% of the work force — during February, up from 4.8% in January. At the same time, full-time jobs fell by 53,800 while part-time jobs increased by 55,600.

The dramatic fall in full-time jobs since the Australian economy peaked in August has been masked by the rise in part-time employment over the same period.

While unemployment has increased by over 130,000 in the last six months, under-employment (part-time jobs) increased by more than 132,000. Working people have lost doubly, with a part-time job only guaranteeing full-time poverty.

The decline in full-time jobs is expected to gather pace. The JP Morgan Group expects unemployment will hit 9% by the end of 2010.

Falling job prospects for working people will only place increased stress on living standards, particularly housing.

On March 11, the National Housing Supply Council released its first annual State of Supply report, which painted a bleak picture of declining housing affordability, underpinned by a massive fall in the availability of social (government and NGO provided or subsidised rental) housing.

The report states that the situation for low-income households will not automatically improve.

"At least at the lower end of the rental and owner-occupied portions of the market, it is unlikely that the market itself will be able to rectify the supply shortfall, and government policy and programs will be required to meet the gap", it said.

Meanwhile, the federal government's decision to increase the first home owners grant from $7000 to $14,000 for purchasers of an existing dwelling, or $21,000 for buyers of a new home, has increased the proportion of first home buyers taking out a mortgage.

First home buyers made up 26.5% of the applicants for owner-occupier mortgages in January, the highest proportion since records were first kept in 1991, according to the ABS.

However, the higher demand from first-home buyers has increased property prices in outer-city suburbs. Property prices have increased by between 10-20% in the south-western Sydney suburb of Ingleburn over the last four months, according to the March 9 7.30 Report.

This increase in prices means an increase in debt for first home buyers, which may lead to significant problems.

"If prices drop, we've got a problem. If interest rates go up we have a problem. If unemployment goes up we have a problem", Marcus North from Fujitsu Consulting told the 7.30 Report. "If all those three things come together that's a perfect storm and we have a crisis."

Should unemployment and interest rates both rise, as occurred in the 1974 economic crisis, North argued that Australia had "all the ingredients" for a subprime mortgage crisis similar to the US. "We are going to see defaults rising. We are going to see people having negative equity and they will struggle to pay the mortgage that they have", he said.

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