Approximately half of Australia’s population is currently in a lockdown, and this may continue for another few months until vaccine target levels are reached. I wanted to discuss what impact this may have on the property market and the broader economy.
Of course, there are wide ranging impacts
The impact of Covid lockdowns can be wide-ranging. Dealing with the challenges of home schooling, not seeing family, not enjoying your normal pastimes, business failures, job losses, mental health challenges and so on. Of course, we all have a tremendous amount of empathy for the various ways that lockdowns are negatively impacting people’s lives. That said, the aim of this blog is to focus purely on economic impacts only.
What we learnt from previous lockdowns
The lockdowns in Australia during 2020 and around the world taught us some valuable lessons, as there were some common themes, namely:
§ Low-income earners tend to be impacted to a much greater extent. In fact, it is not uncommon for higher income earners to avoid any negative financial impacts from being in lockdown, because as they can work from home, they retain their employment and income.
§ Because people cannot undertake their normal (non-lockdown) activities, we observe two economic trends. Firstly, people save more money (i.e. the savings rate spikes), which improves their financial position. Secondly, people tend to spend more on
durable goods – although this trend will probably diminish at some point – how many new appliances do we really need!
§ Whilst an increase in business failures hasn’t yet been reflected in
insolvency statistics, it stands to reason that each successive lockdown (Melbourne’s onto its 6th) puts an increasing amount of pressure on some businesses, as their financial resources deplete. Anecdotally, unfortunately I have observed a greater number of business closures in the Melbourne CBD over the past couple of months.
§ Overall economic demand does tend to bounce back strongly and quickly. At a macro level, demand for spending by higher income earners tends to more than compensate for lower levels of demand by income earners.
But we don’t have JobKeeper any
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