What impact will Melbourne's virus lockdown 2.0 have on property and economy?

Melbourne’s Covid transmission outbreak has been widely publicised by the media. Melbourne’s daily positive test rate is relatively benign by world standards (i.e. 0.5-0.6% versus 7.5% in the USA). However, the reinstated 6-week lockdown of Melbourne is likely to have a negative impact on Australia’s economy. Melbourne is responsible for producing over 19% of Australia’s GDP.Spending has bounced back strongly with Victoria laggingFirstly, let’s start with the good news. The good news is that according to ANZ Economics, spending has bounced back relatively strongly (see charts below - click to enlarge).Spending overall is up 5.5% year-on-year to 3 July 2020. Households are spending more on goods and groceries but substantially less on travel and entertainment.Spending in Victoria is lagging compared to other States, due to the stricter lockdown rules.Victoria’s lockdowns will give rise to higher unemployment and a prolonged recessionUp until a few weeks ago, I was firmly in the V-shape camp. That is, I expected the Australian economy would recover sharply after lockdown restrictions were lifted. I based this view on the assumption that there would be more targeted government stimulus post September. To date, economic data (similar to the spending data above) has been supportive of this view.However, given Melbourne accounts for over 19% of Australia’s total GDP, Melbourne’s reinstated lockdown is likely to weigh heavily on the nation’s economic recovery.It is my view that a second lockdown will substantially harm consumer and business confidence. A few weeks ago, restaurants and entertainment venues were contemplating reopening. Now they won’t be able to do that for at least another 6 weeks. There are not many (otherwise) viable businesses that could survive a 5-month closure. As a result, I fear that more businesses will not survive this period and as such, unemployment will rise and take much longer to recover.Based on data from March & April, the following categories of expenditure will likely suffer the most: dining and takeaway, accommodation, entertainment and travel.Impact of immigration, education and population growthBorder closures will have a negative impact on population growth due to reduced levels of overseas and interstate migration. And population growth drives economic activity and property values.As discussed in my recent presentation (here), it is important to understand the migration statistics. Around 60% of Australia’s population growth is from net overseas migration. Anyone that lives in Australia for 12 out of the past 16 months is included in this statistic. Approximately 75% of immigrants are on temporary visas. Given temporary visas holders must sell any property within 3 months from leaving Australia, it is fair to assume that most of these people rent accommodation, rather than own it.Net overseas migration (including both temporary and permanent) is typically represented by three main categories:§ 33% from the higher education sector – students aged between 18 and 22;§ 29% from skilled migration or working holiday makers. Typical age is between 22 and 37 and 85% go to the three Eastern States; and§ 21% from non-working visitors (these are all temporary visas holders of course).Therefore, whilst overseas migrants deMy new book is available for pre-order now: Pre-ordering the book will help me get it into bookstores. So please do me a favour - please consider pre-ordering now - links and pre-order bonus are available here: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at [email protected]. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.