Episode 118: Government Spending Is Forcing The RBA’s Hand On Interest Rates

The budget headlines are everywhere, but the bigger story is what sits underneath them: inflation pressure, government spending, and what the RBA might be forced to do next. We sit down with Peter O’Malley to break down economist Warren Hogan’s hard-edged view of the 2026 Federal Budget, including his argument that Australia becomes inflationary once GDP growth pushes above 2%, while spending keeps running hotter than the economy can comfortably absorb. If that’s the setup, interest rates don’t fall because we hope they will, they fall only when policy settings and inflation finally line up.  

We also talk politics without getting lost in it: the claim that the budget is designed to ring-fence votes, the “care economy” debate, and why Hogan says the intergenerational inequality framing won’t deliver the outcomes being promised. From there we move to the real economy: small business viability, cost pass-through, and why the bond market has been signalling the rate hiking cycle may not be finished.  

Then we get practical about Sydney real estate. SQM Research data shows a weak auction clearance rate and a surge in postponed auctions, but Peter explains why the auction process itself can be the wrong fit in a cautious market. We cover how to filter media noise, why “sell first” matters more than ever, and how buyers and sellers should think in terms of changeover price. We finish with rentals and investing: negative gearing is grandfathered for existing landlords, but future investor demand may fade unless prices, rents, and yields recalibrate.  
If this helped you cut through the spin, subscribe, share the episode with a mate, and leave a review. What signal are you watching most right now: inflation, rates, or auction results?

As always if there is a specific topic you would like for us to cover, please reach out and let us know!    

Transcript

SPEAKER_00 0:08

Welcome

Welcome And The Budget Backdrop

SPEAKER_00 0:09

to the Command.

SPEAKER_03 0:31

Hello and welcome to another edition of Current Market Insights. I'm your host, Kieran O'Brien, and with me is Mr. Peter O'Malley. Peter. Hello. Hi Kieran, good evening. Good to see you. Good evening and good to see you, my friend. It's uh we've moved a little bit on in uh Australia since the budget recently. And I know we uh we spent an episode talking about what the budget was, what the likely implications were in the property sector, uh, and what your thoughts were on some of the policy changes, which I know are quite contentious. Uh and one of the things that we discussed was uh that there's quite a few economists and you know political commentators and people out there that are giving their own thoughts on what's happening quite quite understandably. Uh, and one of those that you had quite a lot of stock in was uh a gentleman by the name of Warren Hogan. And you did mention on air that you were off to see him uh after we last recorded to give some thoughts on uh you know what he was seeing in the economy. And I thought tonight might be a really good opportunity. You've been you've been to that talk, uh, you've been able to digest some of the information he had to impart. So I figured it might be a good idea to take our listeners through some of the insights you've gained, uh, what Warren is seeing and thinking with regards to the budget, and then how we can connect that to what we're seeing and and are expecting to see in the property market across Australia and Sydney more particularly.

SPEAKER_01 1:46

Yeah, thanks, Kieran. Look, um, there's obviously lots of commentary, probably excess commentary about the budget out there, and people are probably getting budget fatigue uh right now, which is fair enough too, because uh there's an excess of uh agendas uh out there in the in the marketplace saying different things, and um hey, the legislation hasn't uh even been passed yet, so it's not even fact as it stands. The reason we're so interested in what uh uh Warren Hogan has to say is he was one of the lone wolves in 2025 saying the RBA he was completely wrong to be cutting interest rates at that time.

SPEAKER_02 2:28

Yeah.

SPEAKER_01 2:28

And he felt remarkably that I think with the third interest rate um that they should have been hiking when they were cutting.

SPEAKER_02 2:35

Yeah.

SPEAKER_01 2:36

So at the time, um, a lot of people understandably criticized Warren Hogan, but ultimately he was proven right. Time is very kind to the truth, and uh um he's not the sort of fellow that says I told you so, but uh he stuck to his guns on that one. He's ultimately been proven right. So I was invited to a breakfast talk where he was the um you know the guest speaker, the primary speaker to give his view on the budget, and I thought, well, um given his inform um with how he's uh viewing the the Australian economy, he would be a good person to go and get a budget rundown from and see what he's seeing and how this budget will interact and impact um not just the property market but the economy more broadly. If I can

Why Warren Hogan’s View Matters

SPEAKER_01 3:20

say um Warren Hogan actually went very light on on the impact with the property market because it's not his specialty, yeah. He was more interested in uh uh the impact of the budget at this time on the Australian economy and and what it means.

SPEAKER_03 3:36

So uh I expect that. I mean he is an economist, so the the economy more broadly is his bread and butter. But part of, I guess part of the benefit is we have someone like yourself who's who is interested in both realms, has heard him speak, and can theoretically connect the uh the likely impact for us. But given that we dissected the budget uh a little bit and obviously went into more depth around the property-specific changes, at a broad level, what was Warren's take on the rationale for the budget from Labour's perspective? What you know, what was his thoughts on why he thinks they went the direction they went? Not necessarily the specifics around you know negative gearing or capital gains, but their whole energy level, the the whole kind of uh message they were trying to send. Does he have thoughts on why Labour has put out this particular budget?

The Care Economy And Tax Pressure

SPEAKER_01 4:23

Yeah, this is not in order of the information that he he put across to the audience, but to answer your question, um, this budget is designed to compensate for government spending.

SPEAKER_02 4:34

Yep.

SPEAKER_01 4:35

So he doesn't call it specifically the NDIS. He re he had a phrase which I haven't actually heard before, it maybe it's out there. Um, but the care economy.

SPEAKER_02 4:43

Yep.

SPEAKER_01 4:44

Uh Australia's gone uh too far with the care economy. You can obviously put the NDIS in there, where it's um uh and sometimes you sound uh heartless saying these things, but the thing about the care economy is it's not productive for the economy.

SPEAKER_02 5:00

Yeah.

SPEAKER_01 5:00

And uh the government is spending uh uh excess in that area, not just the NDIS, but more broadly socially. And um uh what what that is doing is uh it's it's creating a uh uh a class of um I I won't say uh uh victims, but it's it's creating a drain on on the budget that the government needs to plug that gap. And they've done that through higher taxation in this budget and then wrapped it up in intergenerational inequality.

SPEAKER_03 5:30

So is he suggesting that this is you know, the care economy are you using that in the the same line as you know the the welfare expenditure, the welfare cost of maintaining the you know, the the I think you know you mentioned a phrase earlier once that the supporters supporting the supported kind of thing, you know, there's uh using taxation to prop up those that are less productive in society for whatever.

SPEAKER_01 5:52

Absolutely, you know, yeah. So look, let's let's go back to the top if we can from from Warren's talk and some of the notes that uh that I took there, which I think will be of interest to to our audience. So you said at the first at the at the opening point, um, I really dislike this budget if for no other reason than this next point. I I'm not political. I'm an I'm a macro economist, he said. But my commentary today um on this budget is going to sound highly political. Um, and that is because it's a crazy budget, it's a risky budget, and it's at the wrong time to implement this, given where the uh the economist's status and performance is at the moment. Um the government are undoing um generations of good policy that have under underpinned generations of wealth. Um, so that's that

When Government Spending Drives Inflation

SPEAKER_01 6:43

was his problem. And I think the next um point that he made was was highly significant. The way the Australian economy is currently structured, Kieran, um uh any growth above two percent GDP is inflationary.

SPEAKER_02 6:57

Yeah.

SPEAKER_01 6:58

The government are spending at three to four percent.

SPEAKER_03 7:02

Yeah, creating their own inflation.

SPEAKER_01 7:04

Correct. And and it's the the man on the street that's wearing the man and woman on the street that's wearing the outcome of that. So the the private sector is now being hammered with higher interest rates, and according to Warren, we'll see further interest rate hikes, maybe not in June, maybe in June, who knows? But we'll see further interest rate hikes in the years to come if the government keeps spending like this, because the Reserve Bank will need to get the the inflationary pressures down through the private sector to compensate for the excesses of government spending, which one obvious area to not you know cut it out entirely, but certainly tighten up is what he called the care economy. Yeah.

SPEAKER_03 7:47

So there's a couple of points I'd like to talk a bit more about there. You you mentioned in your notes, and Warren talked about the idea that uh the government is undoing policies that have underpinned generations of wealth creation. Now, many many people, particularly younger uh voters and and you know commentators, are really excited about that premise, right? The idea that uh unlocking things like or undoing things like negative gearing will just free up all of this inequality that exists and provide access. My first question is: do you think the Labour Party with this policy, and does Warren have any thoughts as to whether or not uh he thinks they believe that position, that they're actually helping younger generations by you know making these changes, or is it spin? Uh and do you think uh you know, you know, you and I have talked about the likely impact, but does Warren think that these policies will actually have any net positive benefit for those generations that are supposedly locked out?

Electioneering And A Fractured Vote

SPEAKER_01 8:42

He answered it like this, Kieran. He said the ALP is looking to ring fence votes, yep. And this budget will shore up 25 to 30 percent of the primary vote for Labour, keeping in mind they hold the thumping majority they do in the parliament on a primary, I think 32 at the last election. Yeah, yeah. So um the the Labour Party here are about winning the next election, you know, as far as Warren sees the world, and and and and you their their primary vote could be as low as 30% and still hold government because the Conservative vote is is fracturing so badly at the moment between the Liberals, one One Nation and any other sort of fringe party out there on the right, the teals, um, that are continuing to draw you know votes in in multitude of directions.

SPEAKER_03 9:34

It's uh to me, it seems like electioneering, which is why you know I asked that question. The other thing you talk about is you know the position he makes is quite clear that the government spended expenditure is beyond uh what our GDP can handle without it being inflationary. Has there do you know if there's been another period in recent memory where the government has spent so recule, you know, recklessly at a time where the RBA was being forced to to corral in their expenditure? Or are we, you know, are we entering a phase where realistically the federal government are just ignoring, I assume, the advice of the RBA and continuing to Yeah, look, um he showed a slide there that covers this very, very um point that you've asked.

SPEAKER_01 10:17

Um

Spending Spikes From War To COVID

SPEAKER_01 10:18

there's three spikes on on the on the graph that he showed around government spending. One is World War II, the second is the pandemic, and the graph showed after the pandemic that the the the government spending was coming down, and then suddenly it spiked again to be the third highest point of the government spending relative to GDP, which is right now. So basically, um I you know obviously um the Liberal Party were in in power in um in the pan during the pandemic for 80% of it. Um but it's World War II spending, COVID spending, and now this environment that we're in at the moment, they're the levels that government spending has got to as a percentage of GDP. To give you some, you know, thinking about it.

SPEAKER_03 11:08

To me, that seems crazy, right? Like World War II, it makes sense. You know, we've come out of a major global conflict trying to rebuild the economy, product, you know, production, and try and regrow the country and enhance it. Uh pandemic, I get there was a lot of rescue funds and there was a lot of expenditure to support people through uh a new time. I must admit, I am struggling to think of there's obviously global forces at work and there is things happening, but I struggle to think of the the kind of uh seriousness of the situation that the government needs to be spending at this rate when compared with these other events.

SPEAKER_01 11:40

That's right. The justification's not there. Yeah. When when you put it in that context, it is just unjustified the amount of government spending that's going on. And uh Warren did mention the point that we made uh made at the beginning of our last uh uh our last podcast. He said when when um they were spending too much over the summer, yeah, and uh they should have um the RBA should have hiked rates in Warren's view of the world in late 2025, or the government should have undertook to seriously cut back their spending over the summer. And he said, as soon as the war started in Iran, the relief that would have swept over the government, you beauty, we now have an excuse to sweep this all under the carpet and justify the spending that's taken place was just you know, was just given to them in in a box, essentially.

SPEAKER_03 12:31

Yeah, and nicely wrapped up by the RBA, yeah,

Small Business Gets Crunched

SPEAKER_03 12:34

as we know. Uh one of the things you mentioned that is that uh or Warren has mentioned is that the public sector will effectively be bailed out by the private sector here through higher taxes. Given that we've been in this period that you know you and I talked about before, where it was almost stagflation, we were it was a bit of a bit of a precarious position. Uh, do you think that there's likely to be longer-term impacts and downsides to the private sector in terms of you know business viability? I I'm already seeing campaigns from small businesses all across the country absolutely rallying against this budget for some of these reasons. You know, the increased taxation is quite crazy, especially for small business. Do you think there's likely to be some some negative flow-on impacts to particularly small or medium-sized businesses that can't weather uh you know, having to support the the uh you know the care economy that you talk about?

SPEAKER_01 13:24

Well, it it's all of the government spending that um small businesses uh uh copying the brunt because of it. And they they're they're struggling. I speak to small business people, whether they're personal friends, um, or or their their clients, or people that I uh, you know, I frequent their business as well, or they frequent mine, and uh and and and we talk to them. Small business is getting crunched here.

SPEAKER_02 13:46

Yeah.

SPEAKER_01 13:47

Absolutely crunched. Uh, this environment benefits large corporates, um, and and obviously it benefits the public sector. Um, the the the the the sector of the economy that's getting crunched without a shadow of a doubt is small business, Kieran.

SPEAKER_03 14:02

Yeah, and it seems like that will get worse, to be honest.

SPEAKER_01 14:05

Well, there's no relief in sight, and I think that's why people are are feeling like um they're really lashing out at this budget and they're feeling like there's no light at the end of the tunnel because where is the light at the

Bond Market Signals More Rate Hikes

SPEAKER_01 14:16

end of the tunnel? Interest rates are going up. Um Warren highlighted that the um the core inflation is just far too hot in Australia, notwithstanding that we've had three rate hikes in 2026. And uh to give you an idea of that, um the the first quarterly um numbers, inflation numbers that are coming out after the commencement of the war will come out tomorrow, the day after we've recorded this podcast. Yes. And um we will see there how much business has been passing on cost and how those additional costs are flowing through the economy. And if that number is aggressive, that makes the concept that the RBA will sit on their hands in June uh a line ball call again because core inflation is running too hot. So we've got to hope that Warren is wrong on some of these things where he was right last year, um, but he he put a pretty compelling case forward. The bond market is implying a cash rate for Australia at the time of his speech of 5.12%.

SPEAKER_02 15:23

Yeah.

SPEAKER_01 15:23

Uh the cash rate at the moment is what, 4.6%. Yeah. So basically the bond market as of last week was implying um uh two and a half rate hikes still to come for the Australian economy, probably in 2026. Now, um since since uh this speech by by Warren, um unemployment uh in Australia jumped sharply, and there's a view that the RBA will sit back in June to see what impact the three rate hikes has had on the economy, and I think we're all hoping that the Iran-US war can come to a close. Who would know what the truth of the matter is there? Trump tells changes daily. Well well, sorry, the the rhetoric changes daily, it changes daily, but uh Trump does not seem to be able to put the genie back in the bottle there.

SPEAKER_03 16:13

Um I I read today he put some missiles into the landscape though. So I don't know, I don't know how that helps peace, of course.

SPEAKER_01 16:19

But yeah, so uh um that's that's the big uh the big risk for small business is that the rate hiking cycle is not

Mortgage Stress And No Easy Relief

SPEAKER_01 16:28

over. Uh coming back to the property market, we've we've been pretty straightforward in saying to our audience over a long time in late 2024, mortgage stress was obvious and people weren't hiding it. Yeah, they were basically just outing themselves as uh not not being able to sustain their mortgage um and and and needed to sell the property. And uh I think if you see another rate hike or two, um, that mortgage stress, which will then be you know 0.25 to half a percent higher than than where it was in late 2024, mortgage stress will become a real thing. And that's why uh coming back to the property market and moving away from Warren's notes for a few moments, uh seasoned economists like Louis Christopher are not seeing any relief for the property market in the short to medium term because where's it coming from? Yeah, yeah, not policy, that's for sure. It's not coming from policy, it's not coming from interest rates, it's not coming from a booming economy, it's not coming from stimulus like it did during COVID. Yeah, there's just uh uh there just seems to be hard yards ahead for both the consumer, mum, mum and dad households and uh and small businesses.

SPEAKER_03 17:42

It's before we move on, I I do want to talk about that point uh about the the property market where the relief will come from. But before we go too much further, I'm interested if Warren talked about he has theories on what's happening and what you know and why the budget is not necessarily a good budget. Um and he also in your notes, you know, you comment that uh inflation doesn't go back to target without the correct policy settings. Did he give an overall picture of where he thinks the RBA need to go, excluding uh excluding the government policy for a second? Obviously, he he talks about a June rate rise being very likely, but does he think that a cash rate of you know two and a half more rises is a is a good position to get this under control? Or is he still a little bit kind of reserved on his his judgment?

SPEAKER_01 18:26

Oh no, he's not a reserved character. He he's fairly forthright. Um I'm saying the bond market is suggesting two to two and a half rate hikes as of last week when he spoke. Yeah, that has come down a bit, I believe, uh, on the back of the unemployment rate. I haven't checked it today. Um in Warren's view of the world, which you and I both hope is incorrect, he probably thinks interest rates need to go up another one to one and a half percent. That is grim. That is grim, but he he does have a view in fairness of dial it up quickly, and the quicker you dial it up and break it, the quicker you can start cutting in in fairness.

SPEAKER_03 19:05

Which, you know, we have talked about 12, 18 months ago when some foreign economies were doing just that, going very hard, very fast, and now they've come back to really measurable levels, you know, very stable with inflation that's under control.

SPEAKER_01 19:18

And that's what he said is the RBA has misread the economy and misread the inflation threat, where as we know, in 2022-23, uh other uh reserve banks around the world were dialing it up faster. They broke things in their own economy, but now they're in a rate-cutting cycle, whereas Australia's having to dial it up again. So, probably the you know the best and easiest example for our audience is New Zealand. Yeah, they're in a rate-cutting cycle, but they didn't muck around when inflation was in their economy. They they they jacked up the rates, which uh which really hurt it, where the RBA's clearly had a view in consultation with the government. The government will do their bit to support the economy and the RBA won't go too hard, and hopefully we'll trade out of this over time. If you take Warren's view of the world, that's not happening.

SPEAKER_03 20:07

Yeah, and again, it's it's you know, we we have discussed how that's also not a great solution for families that aren't quite at, say, mortgage stress levels, but are struggling under the weight of higher inflation, higher interest rates. I mean, it's still, you know, I I I think we first talked about maybe 18 months ago the idea that a rate hold is is punishment for a lot of families who are living on the edge. Uh and being in this cycle for a prolonged period while the RBA messes around with the rate settings is still incredibly difficult. I know, you know, anecdotally, in my building alone, uh something just off the top of my head thinking about it, seven or eight percent of the apartments in the the complex have gone up for sale in the last few months, which it's normally relatively stable. Yeah, uh, but there's for sale signs up all the time at the moment. And it's you know, we're a sort of mid to lower end budget area, uh, so there's people that do feel mortgage stress, lower income earners, you know, families trying to get by. Uh so we are, I'm definitely seeing it in my neck of the woods, and I think it's clearly more prevalent.

SPEAKER_01 21:04

Yeah, look, and these are these are easier said to done to easier said than done talking you know from a podcast studio. But what the government didn't do in the last um rate hiking cycle in 2022 and 2023, they they weren't prepared to let the full brunt of rate hikes flow through to the economy. You know, they're pushing minimum wages up, they're throwing a lot of support around and a lot of cash around to certain groups and segments of society. And then we've spoken about the excesses in the care economy, and then that was roared. Um, and that was undoing the RBA's um, you know, hard yards. Yeah, and ultimately we didn't get away from the problem. That's that's what we're that's what we're talking about here, right?

SPEAKER_03 21:53

Yeah, well, if they're they're trying to soften the blow and it costs money to soften, so they're just reinforcing the problem. Yeah, they've reinforced the problem. Problem. Yeah. Which I mean, we can't go back in time. We can only hope that, you know, they they can make better policy decisions as we move forward. You mentioned something that uh, you know, Louis, who's obviously an excellent uh read on the eco uh on the the property market more broadly, you mentioned that one of the things that there there isn't any relief insight for the market.

Will Property Prices Fall Hard

SPEAKER_03 22:20

A lot of the commentary in the last few days in particular, but the last week or so, has been centered around this concept that given all the changes, given what's the outlook is from an inflationary perspective and the government's policy, that there is likely to be massive price drops in the market. I've seen so much commentary that says this. Now, the general consensus, obviously, from those that aren't in the market yet is this is an amazing opportunity and we need to get in and buy, etc. Now is the time. I wonder though, given you know people like Louis are saying there's no relief out there, to me, that's as not just for people looking to buy, but that that means more broadly in the market. I just wonder how accurate those predictions are, in your eye in your mind, that you know, we're looking at a catastrophic reduction in prices, which you know will correct the market in many ways. And what, if that were to happen, what the impact of that likely is.

SPEAKER_01 23:14

Look, um uh the budget, the budget speculation leading into it, the anxiety coming out of it, what's going to get passed through uh legislation. In one article, Kieran, you hear the that that Elbow's gonna jam it through the Parliament. Yep. Then in the next article, you hear that he's lining up to do a humiliating backflip, as I read today, on certain parts of the capital gains tax. So um whatever it is that he's gonna pass through the parliament, you've got to accept that things are gonna pass through the parliament um because he's got the numbers. And uh he's gonna put some goodies in the bill, the package that he puts to the parliament in conjunction with his budget changes. Yeah. And um, if the Liberal Party don't vote for the package, they're gonna say we didn't vote for the package because we don't like the tax changes. Um, but then obviously the the Labour Party are gonna say we had these goodies in the budget for all of you people, and they both voted against them, so they didn't want you to have them. Yeah, so it's all rampant politics, wedge politics. John Howard was a master at it. Um they're now copying it in in reverse. Um, and uh it'll be interesting to see how the vote goes when they do put that bill forward and and and what the package uh looks like. What this means for the economy and uh Joe Average out there just trying to get by from week to week and month to month is there's there's there's going to be some turbulence, and there is turbulence. Yeah, turbulence creates opportunities, it creates great buying opportunities, uh, turbulence creates risks, there's risks there for sellers. You must not um buy before you've sold in this environment. We can't be any clearer than that because this thing can turn on a dime against you at the moment, as I've seen it happen to people.

SPEAKER_03 25:01

Yeah, and you yeah, we we all know the risk of doing that, and you don't want to get stuck uh at the moment. Before we move on then to the current kind of market settings, what you're seeing and and what the auction numbers are showing us.

Paying The Price For Loose Policy

SPEAKER_03 25:14

I one of the comments that stuck with me from Warren's notes is that he thinks that the government really hasn't had the right interest rate settings for 10 years or so. The RBA, that's the RBA, sorry.

SPEAKER_01 25:24

Sorry, sorry, sorry, I said government, but um I'm uh I'm He did go on to say we're now paying the price of not going into recession. So that's coming back to that point that in his view of the world, dial it up, break it, and the sooner you break it, the sooner you can start repairing it by cutting rates.

SPEAKER_03 25:40

He's suggested like I accept all that, and that certainly makes sense as we've seen, you know, Canada did it in particular, New Zealand did it. But I wonder just what his rationale was from your take as to why 10 years of wrong settings? Because I feel like we're, you know, we've talked about the pandemic, we've talked about the current situation, but I I don't know, I just feel like I listeners myself included, probably thinking back 10 years, you know, was the economy in such a bad way that we were fighting a lot of the.

SPEAKER_01 26:07

But the economy wasn't in a bad way. Uh it was just uh monetary policy was too loose, where it was good times. Yeah, but you've got to pay the piper at some stage. It's unfortunate.

SPEAKER_03 26:18

Yeah, I don't like paying the piper.

SPEAKER_01 26:19

And that's that's kind of what he's saying where we're at now is that uh um in in the last 10 years, particularly, as we've lived beyond our means. Um, given the capacity constraints and the productivity um issues in the economy, um GDP above 2% is inflationary, and you've got a government that is spending um while you know comfortably above that. Um so therefore the the private sector uh cop it in the neck trying to push that back down. He had some other good points to make, Kieran. Um, and notwithstanding that unemployment rate jumped uh after he gave this speech, Warren does not see a scenario where unemployment rises sharply.

SPEAKER_02 27:01

Yeah.

SPEAKER_01 27:02

And uh that is primarily due to the aging population and the immigration surge into the country.

Skills Mismatch And Trades In Demand

SPEAKER_01 27:09

What he highlighted is there's an absolute mismatch of what the labour market's trained for and what is required by the economy?

SPEAKER_03 27:18

Well, that was that was actually going to be one of my questions. We've often talked about the rise of AI, the impact it's had on things like work from home, the office culture, etc. Does Warren think that the current pipeline of workers in Australia are set to meet the demand of what the workforce is right now and what it will be in five to ten years?

SPEAKER_01 27:36

Oh, not at all. So he says there's 340,000 job vacancies in the Australian economy. Um there's a skills mismatch where the um you know the the workforce is uh fundamentally trained for an economy that has changed. So he gives he gives he gave the example on on the morning of um uh he called someone out to uh you know cut his hedges at his home on the North Shore. Yep. And it cost him 1500 bucks. And he sees a day where if you want, and anyone listening to this that um doesn't have uh good tradespeople on hand like a real estate office does because you've got so many rental properties, but anyone who just needs um basic electrical work done, a good plumber to come around on time at a fair price, uh, a gardener to come around and clip the uh you know clip the garden, it's very hard to get them. And they're expensive. And they're very expensive. And he saw a scenario where the $1,500 to cut the hedges might be five or six thousand dollars in the not too distant future. Because those uh uh those trades are getting harder and harder uh to get hold of, as they do exist, but they're in such high demand in the economy because everyone's you know running off to an IT-based job. You don't have to be in IT. I'm not in IT, I'm in real estate, but my job is based so you know so much around technology now and data and all the programs that we use that people that go out and do simple things like uh you know cut hedges and uh you know fix broken things in in and around the house, uh their their income is only going to go up from here. Blue collar workers um is what he's referring to. Uh around their demand and pricing is only gonna go north.

SPEAKER_03 29:23

I wonder if the AI exodus is as big as people are predicting, you know, and some some commentators in the US are predicting, and there's this uh fear that people will be out of work because they've been replaced by autonomous workers. I wonder if there is potentially a scenario where there is a re-influx of uh workers into the blue-collar sector to try and fill some of these gaps because they are the ones that are you know theoretically not replaceable by AI. Um but I mean it's it's a little bit early to tell, right? I think you certainly see more push at the education level to go into higher education, push for IT, go get the tech jobs that pay exponentially. Uh, but I tell you, you know, I often have conversations with my colleagues where we talk about the fact that, you know, in in my profession, which is 10 or more years of study plus more and more and more, an incredible cost, etc., uh I earn less than my electrician by a long shot. Uh and I, you know, have a very demanding job with a lot of responsibility, but I make infinitely less money. Uh, and I probably work double the hours. And, you know, I tell my son when he's talking about what he wants to do, I'm like, mate, don't be afraid to do a trade if it's something you're interested in. Yeah, that's true. The future is pretty secure, right?

SPEAKER_01 30:31

Uh, it is, yeah. Yeah, I think I think there's a good time coming for blue-collar workers.

SPEAKER_03 30:36

I think there is, and I don't think the government's really prioritized them on the skilled occupation list, that's for sure.

SPEAKER_01 30:41

I don't know what they've done with the skill occupation list. Obviously, with young Australians, they're giving them good incentives to take up uh apprenticeships to build all these uh houses that they need to build. Um, so so they're aware of it. But uh, you know, I guess you've you've led in there to population, which is one of the points covered on the morning. Interesting point, um, which is not an immediate issue, but um it it's worth highlighting is uh um uh Warren sees the Australian population at 90 million in a hundred years' time. That's a lot of people. From from where we are at now.

SPEAKER_03 31:16

We're less than 30 million now. I don't know. I I don't what that current value is, but we must be around 27-ish million.

SPEAKER_01 31:21

Yeah, and uh he he also highlighted a point that everybody knows is that net overseas migration is comfortably outpacing the natural birth rate in Australia.

SPEAKER_03 31:32

Yeah, yeah, yeah. I I I don't think that's a uniquely Australian problem at the moment. It it's a first world problem. First world problem, yeah, absolutely.

Inequality Claims Put Under Scrutiny

SPEAKER_03 31:41

Yeah. One of the points he makes, and uh, you know, I feel it's a relatively good point to wrap up the the Warren section of this, is he talks about this budget not helping inequality. And I I'd love to get your thoughts and just kind of summarize his take on it, because again, we know it's politicking for a lot of it, but Jim Chalmers sorry, uh we know it's politicking a lot of the commentary around this, right? But Jim Chalmers and Anthony Albanese have made uh huge strides to try and paint this budget as one that addresses generational inequality and allows everyone a fair go, while also you know hitting those that have been on the earth a bit longer. Warren completely disagrees and says it's gonna do the opposite. Um do you think that he's going to prove you know be proven right on this that ultimately this isn't gonna make a difference?

SPEAKER_01 32:30

Oh, this this is not gonna make a difference to inner intergenerational inequality. Yeah. No. Because I mean that's how they painted it, right? I know how they're painting it. That's yeah. That's that's just how they wrapped it up.

SPEAKER_02 32:42

Yeah.

SPEAKER_01 32:42

No. No, the the the average Australian's not buying this story at all. This is a complete and utter tax grab. It's a broken promise and it's an absolute tax grab.

SPEAKER_03 32:52

And it's likely, as we've talked about last week, likely going to actually make it harder for those at the entry point, which is you know one of the key target areas, it's going to make it harder for them to get into the market.

SPEAKER_01 33:02

Yeah. And that's why people are up in arms. Everybody can see, we have been mentioning for the last three years the wealth gap that has suddenly opened up in Australia post-COVID. Yeah, no one denies it's there. How do you fix it? I don't pretend to know. Is this the answer? Absolutely not. Yeah. This this is a recycled failed election uh uh strategy from 2019 that they've uh rolled out again in 2026, and because they're in government and they've got the numbers, they can get it through. Does that hold in in years to come when the the Liberal Party actively campaign against it and promise to repeal? Well, that's what we're all going to sit back and watch. Um as discussed in our previous chat, there were some elements of it that may um uh you know help to rebalance generational inequality. But no, I don't believe everyone's entitled to their own opinion, and uh my opinion doesn't have to be anyone else's, but I don't believe that this budget is going to um help generational inequality, I think it's actually going to set um young adults back further.

SPEAKER_03 34:08

Final question then before we move through to the current market part.

Will Labor Run This Again

SPEAKER_03 34:13

Do you think if this was to fail to get through the House and the Senate, let's let's play devil's advocate here, and let's say you know the government brings forward the budgetary measures and it fails to get through the houses. Do you think that the Labour government believe enough in these changes to take it to the next election? Or would they give it all up and admit that it was a you know a tax grab and move on with an alternative policy?

SPEAKER_01 34:36

Oh, I think they'll be governed by polling there. You know, the point that um Warren made, the Conservatives are split between the Teals, the Liberal Party base, uh, One Nation, and then you might throw Liberal Democrats there on the side as well if they run, and who knows what Clive Palmer's going to do at the next election to to draw in a few votes. Um I I think you go you go back to the point that if they can keep their 30-33% primary ring-fenced, Labour will feel very good going into the next election.

SPEAKER_02 35:09

Yeah.

SPEAKER_01 35:10

Um, a couple of um uh backbenches, uh Labour backbenches have come out. Andrew Charlton and Jerome at uh uh Benelong have come out, their Labour backbenches and come out critical of the capital gains tax component. Um so uh the government may concede around start-ups on the capital gains and you know give a bit back uh in certain areas to sort of uh you know help pacify and and smooth the way and um you know take some pressure off themselves. But fundamentally, I think if you've gone down the path they've gone down, you can't do a U-turn.

SPEAKER_03 35:49

No, well, I I asked the question because it was a failed election baseline in 2019, and I just wonder whether they to me they don't believe in this policy at all. They're using it as an opportunity to grab uh money like they are. Oh, they don't believe in the narrative, correct. And they clearly believe in the policy because they keep trying to get it through. No, well that's right, but they're they didn't take it to the last election, they waited until you know they're firmly in government with a good majority to do it. Yeah, uh, so that's why I wonder whether they would actually try and run this through the next election if it wasn't successful in the House now, or whether they would pivot their rhetoric entirely and try and find a new way.

SPEAKER_01 36:27

Look, at some stage in the next few years, um someone's gonna write a book on this, and going into this, did the government expect this sort of blowback and they were prepared to, you know, just put the ball under the arm and and hit it up regardless, knowing that they were going to cop this sort of flak.

SPEAKER_02 36:43

Yeah.

SPEAKER_01 36:44

Um, or were they naive and they're completely blindsided by the reaction um and the venom that's coming their way as a result of these changes? I don't pretend to know the answer to that, um, but it'll come out in time. There's no doubt about that.

SPEAKER_03 36:58

I think it'll you we'll see it in Jim Charmers' memoirs, inevitably.

Sydney Auctions And Postponed Listings

SPEAKER_03 37:02

Let's uh let's move toward the end of the episode tonight, then, Peter, and talk uh finally about what's been happening across the auction market. We uh we use, as our listeners know, uh SQM researchers' numbers week to week as they're typically more accurate uh to tell us what's happening across the market. And I know that Louis's been quite active uh in his commentary online. So if you can tell us firstly what the numbers show us, and then secondly, uh what you are seeing with your your properties on the ground at the moment, how your vendors are faring and how you're finding the buyer interactions.

SPEAKER_01 37:33

Yeah, look, so the auction clearance rate uh last Saturday was 36.5% in Sydney. Um sold prior 217, sold under the hammer 193. So clearly um uh of those successful auctions, um, a vast majority of them uh took the money and run early. Yeah. Um what was really interesting, Louis did offer uh you know more significant commentary this week on the auction numbers than he normally did. And uh I'll read I'll read his commentary. He says a huge amount of un a huge amount of rescheduled uh auction activity taking place at the moment. 177 properties uh sent to auction in Sydney last week were rescheduled for a later date, postponed. Uh that compares to just 14 properties postponed from auction in the same week in 2025. A lot of sellers are kicking the can down the road for a couple of weeks in the hope the news gets better and some liquidity comes back. So a couple of things about the current market, Kieran. Um, the first thing I would say is yes, it's not a great market, but it is it is a better market than the auction clearance rate suggests. Yeah. So how you make sense of that comment that I've just made is the auction process is essentially the wrong process for this market and these times. Yeah.

SPEAKER_02 39:01

Yeah.

SPEAKER_01 39:02

Um to think that you're gonna have three or four, if not four or five, you know, emotional and excited bidders at your house on four Saturdays time, all trying to supersede each other on price, is fairly fanciful in this environment. Yeah. As a real estate agent, this is about bringing a genuine vendor who wants to sell and a fair-minded buyer together on price, agreeing on terms and consummating the sale.

SPEAKER_03 39:28

Which is reflected in the sales pride auction. Yeah. Right. That's you know, when you've got that that agreement that's made, whether they had a more ambitious target to begin with or not, is less relevant. You've been able to match those two and you get a sale. Yeah. But those, I mean, for those kicking it down the road, realistically, what we're discussing tonight, I feel like the news is unlikely to get better for them in the coming weeks.

SPEAKER_01 39:49

Oh, well, look, let's go to the news, shall we?

Media Narratives Versus Real Data

SPEAKER_01 39:52

I haven't seen you for a week, and um um you've obviously read the news and you're going, hey, it's pretty bad out there. I do want to take the news on. Sure. I love taking on the news. Yeah. Um uh as I said to you, on the ground, there's sales to be made. Yep. 2018, there weren't buyers on the ground, and it was very tough to make sales because of the credit squeeze and the banking royal commission. Yeah? Yep. That was a tough market. This one here, yeah, prices have come back, but there's still buyers that'll buy if uh if if a vendor is prepared to meet the market of the day. Um, you've probably noticed certain publications are running really, really hard connecting the current state of the property market with the budget. Yeah. Now the property market has been falling, and the property market in Sydney has been an auction clearance rate sub 40% for the last nine weeks. Yeah, the budget was two weeks ago tonight. Yeah. So the budget is not the cause of the current downturn in Sydney property. But if you're reading the press at the moment, and I'm I must say there are left-wing and right-wing journalists who are taking this position because everyone's now acutely aware, and increasingly people who want to know what's really going on in the in the property market are tuning into Louis's numbers rather than the Saturday night.

SPEAKER_03 41:16

I was about to make that point, right? So usually when we first started talking about SQM research on the podcast, normally it was you and me talking about it. And there was a trusted group of followers and those interested in the market that the commentary would be around what Louis is releasing. I have seen a definitive increase over time in obviously his exposure, and and rightfully so. But in the last few weeks in particular, I am seeing SQM quoted in places I would never have seen it before, in publications I would never expect to see it before, on social media where I've never seen it before.

SPEAKER_01 41:47

By companies that have their own data houses, Kieran. Yeah, but they're going to Louis and SQM real estate research for the facts. Yeah, exactly. Because they know Louis's facts paint a more dire picture of the Sydney market than what their researchers uh you know, fluff and bluff is promoting every Saturday night for the weekend media.

SPEAKER_03 42:09

Well, exactly. And you know, you and I have been talking about sub-50% auction clearance rates for quite some time, and you've always maintained uh, along with Louis's position, that that typically, you know, if it's sustained, it indicates a market that may be entering a downturn, etc. etc. We're now talking, you know, substantial shift downwards from that point. Um and I look, I fully accept that the media and I have this conversation with my wife, uh, they are highly tuned right now to keep people nervous for whatever reason. Like every bit of media is negative. I don't see much in the positive space at all. Um, but I I I'm struggling to really understand what the end game is here. Oh, this is political.

SPEAKER_01 42:48

So um the reason I I I raised it um is that because I look at property all around Sydney in my social media feed, I started getting the Blacktown Advocate, you know, Blacktown house prices crashed 10%. Um, the St. George advertiser, St. George Market, uh, you know, um, no buyers. And I just started seeing from you know the the equivalent of the inner west courier for our audience, yeah, but around the city, the news limited. All the same owner, uh carrying this really dramatic anti-property position. And it's like, geez, I didn't, I knew the market was falling in Western Sydney, I didn't know it was that bad. And then when I look into it and I look at the data, it's not as bad as the headline, but then something consistent started popping up, and to their credit, I don't subscribe to Crikey, but for some reason I get the Crikey email, and Crikey uh wrote an article last week saying News Limited are going extremely hard on property prices and linking it to the budget because it is a way of weaponizing the public at large, the wealth effect at the labor. Party. Yeah. So there's a game going on in the messaging that if you are out there trading, you must follow the real data. We've said for years now, the real data, as far as we're concerned, that you should be following is SQM research. But there are companies like Prop Track that are aligned with uh realestate.com and uh Home Price Guide, yeah, Home Price Guide that are aligned with domain and Cotality, which are publicly listed but independent, for example. Um, so there's plenty of data out there, and you must follow the data and be really careful about journalism with an agenda that is sensationalizing things on the downside because it could cause you to make a decision you don't want to make.

SPEAKER_03 44:45

And note that you know, SQM research auction numbers, for example, are free. They're you know publicly available. You can go to the website, you can get them. It's not, you know, we're not recommending anything to any of our listeners that they have to pay for. Some of those services can be paid for by all means, if you want more detail, but you can get this stuff for free. Given then, you know, pivoting to my previous question, but my final question for you tonight, then given that you're on the ground each week seeing buyers and you're seeing sellers, what is the commentary like on the ground, excluding the the analysts, etc.,

Buying And Selling In One Market

SPEAKER_03 45:16

giving their thoughts? What is the commentary that you are having with buyers and sellers? And then do you think, as a final point, do you think that there is opportunities to come for first-home buyers over the next six months in the market here?

SPEAKER_01 45:30

I haven't seen anything for first home buyers in the next six months, uh, or would lead me to believe that is the case, um, other than prices falling more generally. Um, the people that shouldn't really be worried about the downturn Kieran are those that are buying and selling.

SPEAKER_02 45:48

Yep.

SPEAKER_01 45:48

As long as you sell first and you know when the market's falling, um, that it's likely to fall after you sell, it's it shouldn't really worry you. As long as you transact in the same market, the number that really matters to you is not what you sell at, not where you buy at. It's what the changeover price is. Yeah. And uh, you know, I've made lots of sales uh in in the last uh in the last month where I tell people to stop focusing on the shortfall in their sale price and start taking a look at you know the value buying that's in the market that wasn't there at the start of the year.

SPEAKER_02 46:21

Yeah.

SPEAKER_01 46:22

So the real estate market, if you're buying and selling in the one market, it's a classic seesaw. If it's good selling, it's tough buying, and if it's tough buying, it's good selling. Yeah.

SPEAKER_03 46:32

Yeah. One side always has the slight advantage, right? That's right. Yeah.

SPEAKER_01 46:36

Yeah. And when you when you approach it that way and put a plan in place, um, it'll all work out. There's no doubt that there's people out there in isolation taking a bath, as we touched on uh three or four episodes ago. There's an increasing amount of people that are selling properties for you know a significant shortfall compared to what they paid for the respective property. And that's really painful and that's really sad. I don't take any satisfaction in that, even though there's some nut jobs on the internet that seem to find it as uh a great discussion piece when when someone you know gets towed up on a property. I I just think that's tragic because I have too often been at the table and dealt with the human the human side of that happening to someone. Um but if you're buying and selling and you've got good equity in your property, just focus on the you know on the opportunity that's out there at the moment because there's plenty.

SPEAKER_03 47:26

Final question then before I let you go. The

Rents Yields And Investor Return

SPEAKER_03 47:29

one of the things we talked about uh that's been happening is obviously rental market changes. Uh, we haven't touched on the rental market tonight, but I'd just love to see from your own experience and your own stock, landlords, etc., is there any commentary at the moment or indication that there is likely to be uh more imminent rent increases off the back of some of the government changes to negative gearing?

SPEAKER_01 47:50

No, again, that comes back to this journalistic beat up. Yeah. Uh negative gearing is grandfathered for existing landlords. Of course. And that's not even that's not even my gripe with the budget. Yeah. Um, my gripe with the budget is not of anything to do with existing landlords. It's that incoming landlords who will create future rental pools for the marketplace are not going to be interested in buying brand new product because the legislation, if it goes through, will create a price bubble in brand new developments. Yeah. And they're not going to purchase existing stock because the rent won't cover the mortgage. Yeah. So there needs to be a recalibration in the market. And to recalibrate to entice investors into the market in the existing property market under the new changes. Prices need to drop sharply. Rents need to rise sharply to recalibrate, or you need to get a bit of both to have yields return to a level relative to interest rates of the day that would entice investors forward. None of those things are going to happen easily or smoothly. Um and what you will see, as I say, is prices probably pushing down, as we're already seeing. We've highlighted that tonight, and you're going to see rents continuing to rise. Um, and when yields in Sydney are positively geared, then investors might come back and take a look at it. But the fact that they can't negatively gear against their uh income um wages at the moment means that a lot of a lot of would-be landlords, whether it be in Sydney, in the regions or other capital cities, are going to find other asset classes to invest in.

SPEAKER_03 49:32

Which all just you know hurts the housing crisis even further.

Final Takeaways And Sign Off

SPEAKER_03 49:35

Really great chat tonight, Peter. There's uh been a lot to unpack, and I think an interesting episode talking more about the you know, Warren Hogan, a key economist's viewpoint on the budget and the economy more broadly. Uh, I've certainly enjoyed it, and I I know our listeners would have as well. So I thank you for coming in and talking with us. Yeah, thanks, Kieran, all the best. All the best, and thanks to everyone for listening to Current Market Insights. We look forward to speaking here with you next time.

SPEAKER_00 49:58

Thanks for joining us on the current market insights popcumps. The popcorn, realistically, insummit any wheel.