The Demographic Forces Reshaping Trades and Construction in Australia | Simon Küstenmacher

Trades and construction businesses are getting hit from every angle: rising costs, hiring pressure, housing shortages and constant negative headlines. The danger is making short-term decisions based on panic instead of seeing the bigger forces shaping where demand, people and projects are actually heading.

In this episode, I sit down with Simon Küstenmacher to unpack the demographic and economic trends shaping the future of trades and construction in Australia. We get into why Australia’s core business model is still stronger than many people think, why population growth keeps demand alive, why the skills shortage is not going away anytime soon, and why regional areas face a very different hiring and housing challenge to the major cities.

You’ll take away:

• Why Simon believes Australia’s underlying economic model is still resilient despite negative headlines 
• How population growth acts like a rising tide for construction demand 
• Why the skills shortage is demographic, structural and unlikely to disappear quickly 
• What is broken in the current migration system and how it could be better aligned to real workforce needs 
• Why regional areas struggle more to attract skilled workers than capital cities 
• How migrant settlement patterns can influence where housing demand and construction pressure show up 

Guest bio:
 Simon Küstenmacher is Co-Founder & Director at The Demographics Group in Melbourne, Australia. He presents on demographic trends, consumer insights and social change, and works with business, government and industry groups across Australia.
 Website: https://www.tdgp.com.au/simon-kuestenmacher
LinkedIn: https://au.linkedin.com/in/simonkuestenmacher 

Host bio:
 I’m Wes Towers, founder of Uplift 360 and host of Built. Trusted. Chosen. I help trades and construction companies be built, trusted, and chosen online through high-performing websites and Search Everywhere Optimisation.
https://uplift360.com.au/

Want to be a guest on Built. Trusted. Chosen.? Book here: https://uplift360.com.au/built-trusted-chosen-podcast-guest-booking/

Transcript

SPEAKER_00 0:00

Welcome to Build, Trusted, Chosen, the podcast for leaders and marketers in trades and construction. Hosted by Wiz Towers from Uplift 360.

SPEAKER_01 0:12

Okay, hi there, Simon. Simon and hi audience. I'm really uh excited to uh have you on the show, Simon. I've been following your material a little while now, and it's a crazy turbulent time to be uh alive and in business and our audience being trades and construction. Uh, but firstly, just so to set the scene, if you could introduce yourself, just so people know who you are. We'll obviously unpack it as we go along as well.

SPEAKER_03 0:35

Yeah, fantastic. Yeah, I'm Simon Küstenmacher. I'm the co-founder of the Demographics Group, and we provide um demographic perspectives uh on the world to people. And this is we we talk to businesses um from all types of industries. Um, anything that smells like property and construction is of course always um front and center because the relationship between demographics, the number of people that are at what stage of the life cycle, wanting what type of infrastructure, what type of housing, um that is obviously very prominent uh in the construction sector. So we do a lot of work with the industry. And there are a couple of what I would consider optimistic stories um out there that we can unpack, and there are a couple of um shock and awe uh narratives out there as well.

SPEAKER_01 1:24

Yeah, but and so there's so many things, so many moving parts, I suppose, and and levers that might be pulled outside of our control as a nation in Australia um that that could impact things and you know that could happen from day to day, things might change. But what do you see as kind of the your taken forecast of the property industry and the construction industry? Obviously, our audience, some of them I've spoken to are a little bit concerned with what's going on, you know, um, fuel prices and so on can be a massive problem for the whole battery.

SPEAKER_03 1:58

Absolutely. So there is no beating around the bush. Anyone who made the mistake of filling up their car with petrol, anyone who made the mistake of opening a news website would be all too familiar with lots and lots of negative global stories about trade wars, tariffs, actual wars, supply chain crunches. Um all of those things aren't making your job in the construction building industry any easier. That is absolutely a given. Um, but we maybe from an Australian perspective, we must centre uh where we are. Uh, and we must remember that the business model in Australia isn't at risk, um, that we are operating from a very strategically confident and comfortable position. Australia is an outrageously simplistic economy. Uh, there's a thing called the Global Economic Complexity Index that measures how complex economies are. They have 130 countries that they measure, and we rank 105th. We are a sandwich between Botswana and the Ivory Coast. We are not a diverse economy. That's because we do four things and four things only that provide wealth to Australia as a nation. We obviously are mining superpower. Um, we often forget how important our agricultural exports are. We make uh good money with exporting um that stuff. And we also make money by um entertaining people, that is tourism. Um, we make good dollars with that, and we um charge an arm and a leg for handing out shoddy degrees to international students. These are the four pillars. That is, for all intents and purposes, all that we export. Nothing else comes even remotely close. This is the four pillars. With all of this big tumultuous stuff that's happening in geopolitics and so forth, um, our four pillars are not at risk. Um, the global population continues to grow for another 50 years. We have about 100 plus years worth of urbanization left in the tank around the world. These that that means massive demands for steel, which is our iron ore and coal thrown into a blender. That's what makes steel. Um, that'll be in high demand. We might even face a second super cycle in mining with the rare earth deals that are being uh pushed out because the world is concerned about supply chain sovereignty and just the supply chain security. And the rare earths, for example, 90% of them at the moment come out of China. They're not nearly as rare as the name suggests, they're just uh annoying to get out of the ground, it's a dirty operation, and we can do this here. Um, and many of our trade partners want us to do this because they rather buy their mining products from a stable democracy rather than a potentially fickle um superpower, so to speak. So that puts our mining, I would say we um we are safe. Agriculture, food prices around the world are set to escalate. Um, that's terrible news if you find yourself on the bottom two billion people of this planet. But for us as a um net exporter of foodstuffs, this is great news. The um global Asian middle class, so these are people that are rich enough to consume on a global level, um, that continues to grow. And these are the tourists that are coming to Australia. These are also the families that sent their kids to an English-speaking university, which is our four pillars. So I'm not strategically nervous about any of our four pillars: price rises, price fluctuations in food and commodity prices and so forth. That of course has impacts on us, but ultimately we are fine. Yeah, so in a sense, this was a long, unnecessarily uh complicated bit of rambling to say she'll be right. The business model of Australia continues to deliver prosperity. That is what I want all the listeners to have in the back of their mind as we unpack more difficult stories. And you do, of course, have um, you know, if you have listeners from the UK, um that's a that's a that's an economy that needs to revamp itself um quite a bit. There's structural work that needs to be done. So that is difficult. The US is economically speaking um quite catastrophic outside of the um Magnificent 7, the big uh tech companies that make all the wealth. Other than this, this is very much a stagnating um and slowly declining economy. Um, if the world completely shifts into AI, computer-driven technology, this will lift up the US massively, and it's a great place to be. Um, if we overestimate this type of um economic development, uh then the US is less well off. Um but so that really is an argument to say Australia remains the lucky country. Not because we did anything, we just lucked out uh yeah. Um we need to make sure to actually keep mining. We need to make sure that we uh keep collecting enough royalties and wealth from this mining stuff, and that we need to distribute it somewhat equitably around the uh the country. Because now that we have this in mind, we we eventually need to go to construction. I guess in construction and building, you also build out the infrastructure that services the mines, you build the actual mines. So that is also um just a positive story. But since the economy continues to operate, continues to function, that to me tells me that the population growth continues to be there. And population growth alone um um kind of like acts like a rising tide that lifts all boats. Um, so if you just are in the business of building stuff, doing stuff, the demand will be there. Um, will we be able to actually supply all the stuff that we want in terms of infrastructure and housing? No, because at the moment we face a skills shortage, a prolonged demographically um created skills shortage where it's so hard to find staff. Like anyone listening who runs a business or who's responsible for hiring staff, uh they will know this too well. Um, yeah.

SPEAKER_01 7:51

And the bad yeah, it's so interesting. And I suppose, and I might give away a little bit of my political persuasion here, but I think in times of perceived abundance, we can be um we can have a certain view, but when there's a little bit more desperation, we start to look at at more the economy and how those four pillars that um you speak of, you know, mining and things, um, you know, having people study here, for example, that some of these things, whilst things are uh going just fine, we might have a different world view than than we than we than we than we do if uh things are a little tighter. Yeah, are you saying that sort of shift?

SPEAKER_03 8:35

Well, so there they're there a couple of things when you just see how we are um perceiving the world, so um we see lots and lots of negative talks about Australia at the moment. So it's a very pessimistic narrative about Australia that I try to counter because I'm saying we still have very healthy basics, and this whole kind of negative narrative isn't helping to begin with, uh, but it also loses um perspective. What I think what people are complaining is that they don't see the growth trajectory, and we always say that once people have a feeling that they are broadly optimistic about the future, um, they act very differently than if they are slightly pessimistic. So you can say that living standards in Australia can actually decline significantly before we get even anywhere close the global average. Um, things are good here, so we must remember that. They can also at the same time be significantly better because we're not doing the best we can in order to create wealth in this country. We also have lots and lots of um political phenomena, if you will. I'm not sure how to how to classify uh migration, for example. Um that is just that is not a factual narrative that we have about this. This is very much a fear-mongering narrative, it's a political narrative, and that's not helping. So um we've seen that um, you know, Clive Palmer constantly buys whole pages in the newspaper um with headlines for zero immigration. So he suggests zero immigration, um, significant cuts in uh immigration is what the Liberal Party and one nation want as well. And you go, yeah, sure. Um, why not? If you can run a successful economy on law migration, be my guest and pull this off. But this is where the demographics play in. We must remember that we are aging quite significantly. And you know this in construction really well that we are pushing more and more workers out of the workforce because they're old and you can't lay bricks into your 70s. So obviously, um you retire. Um, and we lose heaps of tradies now to retirement. Um, they're allowed to retire, they work hard, it's cool. Uh, but we take in fewer new tradies on the other side. How without migration are we softening this? The current migration system is terrible. I would argue that the rough numbers that we're taking in 230,000 people plus minus 20,000, what do I care? Um, that is roughly correct if you want to keep a sizable workforce there to drive growth in this country. But you need workers in some way. We're not we're not snatching those workers up um efficiently enough. We don't link the qualification of workers in a tight enough measure to um the relevant industries and to the relevant geographies. We just have a skilled migration list where we say, hey, we want, let's say, 500 um truck drivers, and then the first 500 people who match the regular um qualifications or or tick all the boxes, they get in as long as they have a trucking license. We don't check that they actually work as truck drivers. So with more employer-sponsored visas, with more regional hooks, if you will, like we do in the medical visa scheme, um, that would allow us to actually utilize migration better. We also allow universities to take in whatever students they want, and we're not linking um the known skills shortages with the university degrees. So we know if we miss structural engineers, we should very much favor international students um that do this type of training at universities.

SPEAKER_01 12:19

Yes.

SPEAKER_03 12:20

Um because not only do we then by definition get a get a young engineer that is um educated to our standards, but we also gave them four years head start to get somewhat integrated into Australian society. So that that is maybe not doing this.

SPEAKER_01 12:36

And are you um are you seeing a bit of a difference? Uh certainly I don't have any data on this, but we work with trades and construction all the time with their marketing material. And it feels to me there's more of a shortage of skilled workers in regional Australia than there is in the bigger cities. Is that is that a fair gut feel set?

SPEAKER_03 12:55

That's that's generally fair, and of course, the regions have quite a few challenges in order to attract staff. So that's that's also if you operate in a regional uh area, um that's it can be very tough to find uh staff. First and foremost, if you think about migrants, they don't know that your region even exists. You must be utterly clear that the standard migrant coming to Australia knows three cities, maybe five, and that's it. So if you're outside of the big five cities, which uh which probably you are, um nobody knows about you. So, first and foremost, getting to know uh or getting into word out is very, very hard. And then you of course you have the challenge in because a regional city is by definition a small labor market, and um most households these days rely on dual incomes. So that means let's say you have a electrician that you want to attract to a regional town. Not only do you need to provide this job, which you have, not only do you need to make sure that there is housing available for this uh electrician and their family, but also you must provide a job for the spouse. Yes. So you need to have a deeper labor pool to make sure that all the spouses can also find employment because God knows the job alone that you offer that isn't paying all the bills. Um, so there's an additional challenge there in regional labor markets. Um, the labor markets in the big cities are deep enough so that the spouse will most certainly find a job, but not the main income, the main income owner that you're looking for. So that's a regional challenge. And the regional skills shortage, of course, um that that leads to an escalation of prices and a de-escalation of fun in regional areas. What do I mean by this? Well, it's quite simple that um if there was if there is only a tiny bit of additional population growth into a small housing market, as we've seen during the pandemic years, essentially in every regional city that is roughly within a two-hour drivetime radius of a major CBD. All those cities saw massive population growth for their for their small scale. So, in a sense, it was usually just a couple of hundred people that moved into a small market, but that was enough to eat up all of the uh vacant stock, and that then leads to price escalation quite quickly. And the small a small market doesn't need much for prices to go absolutely bonkers. Um, and so you're stuck with this. The positive story, of course, is that it takes relatively little new stock to drive prices down and to then make your area more um liverable, more affordable, which was always a big drawing card for regional Australia because the deal that we had with the rest of the country and regional also was sure you get fewer services here. Guaranteed. Like you will never have nearly enough services uh available in regional Australia than in the big cities. We don't offer you uh as deep of a uh dating pool, for example, if you're young trading uh in a regional town than in a big town. So these are all disadvantages, but we offer you a more quiet life, shorter commutes, um, a bigger property, a more affordable property. And that's the that's the sales pitch. And if part of the sales pitch isn't working anymore, you're you're disadvantaged as as an area, and it can be very comfortable.

SPEAKER_01 16:32

Yeah, certainly with the the other thing too, when you if you're a new migrant from a from a nation, and I experienced this with my daughter, her one of her good friends. Um, we're in Geelong, so just outside of Melbourne. Um, and they were from Indian heritage, and and so the family chose to move up to Tani just outside of Melbourne, um, because they had an Indian community there. So that's the other challenge, too. So um I I would imagine that would be a common thing that you would want um some people from you know a community that feels almost a little bit like home um when you when you're transitioning into a new nation. Is is that true?

SPEAKER_03 17:14

Uh yeah, so if we look at migration patterns, um we tend to move into what we consider launchpad suburbs. So if you are a so quite often a new migrant, it's the stack, it's the norm, is single and moves either for university or for a job to Australia. That's the most common type of migrant. And both jobs and unis tend to be clustered smack bang in the center of town of our big cities. That's the way it played out. And so they then move as close as they can because they know one address, their uni or their place of work. And they move as close as they can to that one address. And then after a while, after getting to know Australia for a bit, after talking to their co-workers, after hanging out on domain.com.au, uh they um they start usually behaving like everyone else on the housing market and they segregate based on their income. Rich people move there, poorer people move there. Um, that's usually how that happens. On top of this, you have a couple of enclaves, which is sometimes linked to chain migration. So the idea is that you say, well, um, in in Melbourne, we say Indians move to the outer western suburbs. Um and that is a bit confusing because, for example, the Chinese migrants don't have follow that pattern. Chinese migrants, much more clearly than the Indians, segregate based on their income. Um, and and that had me confused until I heard an anecdote. And I'll just take this as an anecdote rather than just a pure fact, um, because I was confused about this. Why Indians don't follow the location, location, location uh property truism. And my uh Indian colleague uh told me back then that it was, oh, that's easy. That's a very easy explanation because we Indian experts we compare our um our lives with our other expert Indian friends and our friends back home based on a single photograph. And the single photograph is a photo of the family, a family portrait in their driveway in front of their car with a house in the background. The bigger the car, the bigger the house, the better your life. That of course means that for the Indian family, if this is true, it is much more important to have a big house rather than where this house is. And that, of course, then within Melbourne, means the cheapest areas where you could afford the biggest house was out west, because this is where a lot of open land is, and it's just cheap to bulldoze a bit of land and put a box on top. Uh, because Melbourne isn't hemmed in by any physical boundaries. We can sprawl until we hit Adelaide. That's very possible. Um, whereas Sydney is already building up against the Blue Mountains, so they have a big geographical barrier, so they need to build up, uh, and that's not as attractive of a um property to to show off. Yeah, uh, you know, that's just cute consumer behavior um that just emerges out of out of nowhere that we as stock standard Australian property folks wouldn't have had on the on the radar, and then people just come and bring their own worldviews uh and throw this at a market, and influence things.

SPEAKER_01 20:16

It's really interesting, and I suppose it really does impact the trades and construction people to know and perceive what shifts might be and and where things where the work might be as well. So um, and it sounds as though you feel as though um uh immigration won't slow down anytime soon because it's it's kind of a necessity for a lot of people.

SPEAKER_03 20:39

I would argue I would argue if you really want it, you could cut migration, but I think nobody is reform hungry enough to cut migration down. So, what I mean by this is first and foremost, um, it's easy to start with some sort of scapegoating narrative that goes something like migrants are humans, they need to be housed, fewer humans means fewer houses that need to be built. That means um the Australian existing people they have um more stock to pick from. We need to add less additional stock. Obviously, the population numbers are in some sort of way linked to house prices. Um let's move on to the next topic. Okay, so fair enough. That is all true, true enough. Um, but it doesn't do comp justice to the complexity of the issue uh at all. Um, you want to remember that why do we take in migrants to begin with? And they're roughly there's several types of visa categories. Uh of course, we have to take in um family-related visas, so these are partner re partner visas. If you marry a uh a Malaysian uh man, a German woman, whatever it is, they have the right to come. That you can't undo this. We signed international um agreements that we take in a small number of asylum seekers, whatever we got them as well. So that's easy enough. These are small fry numbers. Um The biggest quotes are international students and um skilled workers of sorts. Then you go, international students, do we want to cut them? I was like, sure, let's let's cut international students, but you want to remember that each international student easily create creates 70,000, 75,000 up to, depending who you listen to, 80, 90,000 uh per year in revenue for the country. Yeah, um, that's the net gain. And so you go, well, sure, if you want to cut uh if you want to cut 12 international students, that's a million dollars. Yeah, you can do it.

SPEAKER_01 22:33

Yeah, and then no one uh in the in their right mind would want to uh affect the balance shape in that way.

SPEAKER_03 22:38

Uh to be quite honest, um, the treasurer simply wouldn't allow the PM to do it. Yeah, there's a simple logic there. On top of this, you have the element of the skilled migrants, and you want to remember that the federal budget each year relies to about 52%, sometimes it's a bit more, on income tax. That is the by far biggest tax bucket that we rely on. Um of the Australian-born population, 49% pay income tax in a given year. Of the foreign-born population, 69%, 20% more pay income tax in a given year. That's because we only take in migrants once they are 18. And so we don't have them, and many migrants don't stay the whole life cycle, so we don't have as unproductive retirees because we hand out temporary visas and so forth. So um, if you were to cut migration, you cut yourself, uh you cut your income uh uh tax base. So that is all possible. You can do it um theoretically, I'm still talking about a prolonged skills shortage in the system, so you then have fewer workers, but maybe in some sort of hypothetical scenarios, robots, AI become so efficient that we need fewer of them. Fair enough. Um but so then if you wanted to cut migrants, you need to introduce a massive tax reform. Anyone, any politician talking about cutting migration without at the same time telling you their massive, massive structural tax reform are charlatans. They must not be listened to one bit. You cut you could cut it. Income tax, by the way, is so high because remember those income tax brackets that we that we have, they are set in stone, they're not adjusted to inflation, which is ludicrous, which is why um they're the same as they were 20 years ago, uh even though there was heaps of inflation in the that's stupid, but it is it is deliberate.

SPEAKER_01 24:32

I suppose you can say you can suggest wild uh immigration cuts if you never if you realize you're never going to have to fulfill that, but it's a popular view, so it's going to get you a few votes.

SPEAKER_03 24:45

The last time the liberals were in power with Scott Morrison, they promised massive migration cuts of about I think 50,000 people was the number. And then every year they were in power, so record high migration intake. Talk is cheap. Um, one nation is, in a sense, politically speaking, doing the right thing by playing all this tough on migration because they know while their lot is improving massively at the moment in the votes, and they will have really good and strong election results and state elections and federal elections to come, um, but they will not they're not at risk of being in power. So they don't need to make any kind of realistic policy um projections at all.

SPEAKER_01 25:24

They can just influence policy, yeah.

SPEAKER_03 25:26

Yeah, so they can they can do this, and it's just a populist um narrative, and all the while because we the the migration talk in Australia is largely linked to affordability, uh, that's the biggest topic. Then we talk about um cultural fit, that's sometimes an issue uh as well. And I think that's it's tough to to make this argument that you get away with fewer, significantly fewer migrants. This is the system at the moment hooked on it, and any kind of radical change to the system would be quite problematic. So you could say maybe we want to have lower migration uh and we need to have a different mix. We maybe want to um increase the average quality of um our educational institutions, so we we just minimize international student numbers by shear by by simply just making it harder to get into uni. So we we we we raise the intellectual bar and language bar to enter university. That's one way, but all the while you lose money. Um and universities lose money, and that means you need to pay these $50,000, $60,000 uh annual fees that each student pays, they subsidize Australian students, and we must pay for them as you know the remaining taxpayers. We could do this if we were to choose so. But again, I've not seen politicians who talk about cutting migration who then are brave enough to tell me how they make money else.

SPEAKER_01 26:50

Yeah, of course. That's uh that's not too popular. The um and it so it sounds to me what you're saying is the the those that are working in the trades and construction field, there's going to be an an abundance of work ongoingly, in your view, simply because there's the necessity, isn't there? You need a house, but you also need the um the resources and and the hospital and the better roads and and everything else that trickles on from the necessity with with more people who've got that necessity.

SPEAKER_03 27:19

In my forecast for the next decade, I would say that the high population growth is essentially guaranteed. So that's the we're part of this to decide. Then we go, as if we take in more people, we need to build more stuff, infrastructure, housing, blah, blah, blah. Um, fair enough. Who is building this? Well, these are humans, tradies mostly, builders. And um, we created a ridiculous undersupply of tradies over the last decades. We did this because at some point we had trade schools, we killed them off. And so that was a national, that was a that was a typical pipeline for people into this sector. Um, at the same time, um, you know, baby boomers and a big chunk of baby boomers went to university, and they've done really well. The pay premium for a uni degree, if you were a boomer, was really juicy. So obviously, all those boomers who went to uni told their kids, whatever you do, go to university. This is where the money is at. The boomers who didn't go to uni told their kids, okay, I didn't go to uni, but my friends who did that did really well. So, whatever you do, you go to university. Um, at the same time, so we have this narrative where everyone tells their kids go to university. At the same time, as if this wasn't mad enough, we put a pay hurdle in front of a TAFE degree. Yes, you get a pay premium if you have a TAFE degree, but it's not all that juicy. And so you go, um, some some young folks looked at this pay hurdle in front of a TAFE degree and said this was too hard, and they stayed within lower-paying jobs. Not a good career movement. But many people that could have would have potentially gone into a TAFE degree, they looked at this and went straight to uni. So, like, might as well go there because we paid the pay premiums much better there. And so that created an environment where all the people that for some bizarre reason still ended up becoming tradies, they now earned really good money. Yeah, and in a sense, and this sounds really, really mean if you're trading listening to uh all the tradies are overpaid. What I mean by this is compared to the amount of training that they have, they get more money, they get more money than exactly supply and demand, isn't it?

SPEAKER_01 29:28

There's just not enough of them, so the shortage it means the demand is higher, and therefore you you can charge uh accordingly.

SPEAKER_03 29:35

So supply and demand will always be as a as a as a country, as a system, we did this. This is on us. So we complain that our plumber is expensive, that it's so expensive to build a house. Part of this is on us, part of this is on global supply chain stuff. Uh, problems where building materials get more expensive. Part of this is that thank God we're building better houses now than we did 60 years ago. Um, so they're just of higher, you know, environmental standards, building standards, whatever, that's good, but it drives up costs. That's bad. And so we have those things competing against each other, and we must think as a country, how do we increase the number of um tradies in the system because ultimately we want to drive down the prices, um, which is really meaningful for the people that are in this job.

SPEAKER_01 30:25

Well, the affordability um as well, you touched on affordability, so there's always people talking about there there's no affordability for homes and so on. Well, someone can afford it because that's how prices go up. So there's always there's always a buyer, it it just um it just might not be there.

SPEAKER_03 30:43

Affordability, of course, is a very vague term because what does it mean? We say, yeah, we want young people to be able to afford a house. That's something that that politicians would say. It's a nice sounding uh line. Yes, um, but affordability is nothing but the relationship between essentially three forces. It is the amount of money that you have, that is both your income and the money that your parents might uh you know sponsor you with. Then it is the price of the asset, the price of the house or the apartment, and then it is the cost of the money because um a $800,000 mortgage at 1% is much more fun than at six percent or seven percent or whatever we soon will have. Um, and so that's the interplay that you have here. And so we go, well, the wage, the wage component, I wouldn't change much because wages have been growing, and you don't want wages to grow too much because that's inflationary. And then the RBA, the Reserve Bank, needs to pump in, uh pump up higher interest rates. So the wage growth that we have, I would argue, is roughly all right. Um, so that leaves us to think, well, what can we do with monetary policy to make sure that interest rates are low? It is not all on the Reserve Bank, it is um on the government to rein in spending significantly, which is which is very, very exciting because we are very soon to have a budget, the May budget. Um, and this May budget, of course, will show how um austere the budget will be. It would be, fiscally speaking, the right time to actually cut spending significantly. Politically, that is, of course, very unpopular with everyone who would have been given money otherwise, but that's the right time to do this to drive the inflationary numbers down, which would definitely contribute to housing affordability as well. But well, are we willing to do this? Well, let's see. Um, and then of course, you have the idea of making the house cheaper. And if you want to make the house cheaper, um, that's the house price, you again have several levers as a government. One of them is just to build the box cheaper. We've done this through several ways. Uh, we shrank the lot size. So we now live on smaller parcel of land. That of course drives down the price, and then um you can maybe change the quality of the build a bit. Maybe you build a bit cheaper, you don't buy the deluxe package, you buy the regular package, whatever, that drives costs down. You could introduce heaps more tradies into the system that should drive labor costs down. Um, maybe you could invent into invest into prefab uh manufactured homes that could theoretically drive the price down. Uh, so you have a couple of levers there. You could um you could stop taxing housing um as much as you do. Like states, the the each each Australian state relies for somewhere between 50 and 60 percent, it differs with each state, uh, on property-related taxes to to finance their show. Yeah, and so you could say, well, maybe we tax you elsewhere, maybe we lowered property taxes and you get more uh GST. GST is more expensive, or you get land tax introduced, whatever. So we could do it, but could you just imagine how unpopular this would be?

SPEAKER_01 33:48

Yeah, ultimately that's right. I'm a property owner, I don't want my property to be lower value, I want it to be higher value. So I'm on that side of the fence, as a lot of people are, and it's only when you haven't got yeah, you're the vast majority.

SPEAKER_03 34:03

So that's the point of voters, and we quite often we quote uh Australia, how many Australian residents or something live in a rented dwelling or something? That's not interesting. We only from a politic political perspective, we're interested in voters. Three quarters of voters live in a property that they own or have a mortgage on. So these people, of course, they want the thing of to go up. Uh, if you're old, you live in a house, you're about to sell it because you go into a retirement living, or you want this, your kids to inherit a lot of money, you want this to go up. If you have a mortgage, you don't want to be in negative equity by uh making sure that you're, you know, you don't want falling house prices. And all the while, the the 25% of people that live in a rented accommodation who is providing the rental stock in Australia, it is two and a half million mom and dad landlords. They are literally in it's an investment for them that tells you that they want this to go up and down. Then you have the banks in Australia. They do nothing but hand out big mortgages, so they want bigger and longer mortgages. We talked about the states who want property prices to go up. Um, and then we now have a federal government guaranteeing the 5% home loans, which again means they want uh the market not to collapse. Who the hell wants property prices to go down? Well, it's some people like poor people, young people. We know that high house prices are linked to all kinds of social ills. We know that domestic violence goes up, we know that the number of foster children in the system goes up, blah, blah, blah. Um, we would actually be better off to make it more affordable, but the exact mechanism how to do it is very difficult. And sometimes people might suggest rather radical solutions where you go, let's do this and that reform that slashes prices by 40%, whatever, and they come up with some glorious-sounding thing. And even that isn't a good solution for the um for the low-income renters, uh, because what would happen if you slashed prices, it would potentially lead to a banking collapse. It would potentially lead to an economic recession. Uh, and who's suffering most in this recession? It is once again the poorest, most disadvantaged people. So the best you can hope for in the long run is to slowly, not quickly, but slowly narrow the gap between asset prices, house prices, and wages. That means in technical terms, that wage growth must be faster than price growth. And that's the that's the kind of reform that you would want to target over the long term. Yeah, it's not very, it's not very catchy. Uh it's not very cool on a you know, on a newspaper ad that you buy as far or one nation. Um, but it's I think the right move forward.

SPEAKER_01 36:35

Yeah, well, that I I guess the to think that through, that's that's a long-term play. And so politically, you're only thinking about the short-term play because yeah, you're only worried about if you're in politics, you'd only be worried about your term. You know, you're just trying to get into the next term. So to think through the the betterment of the nation in 10, 20 years' time, that's too far away for you know, uh any politics.

SPEAKER_03 37:01

So there's so many yes, and uh fully right. So these the short political cycle and so forth that always suggests that it's best to just um you know think one election ahead. Um, but I wouldn't I'm still waiting for my invite to speak at the Liberal Party uh National Congress or the Labour Party uh Congress because I'm very much predicting that neither the Labour nor the Liberal Party will be in existence in six to seven elections. These are parties already on life support, they are about to die a slow death. The Liberal Party is doing their utmost at the moment to um speed up the timeline. Uh, but what I mean by this is um we stopped voting for Labour and Liberal parties long ago. So, what do I mean by this? A couple of things. In 1987, 2% of us at the federal election voted for third parties. Um this went up year after year until at the last election it reached over one-third of the population that voted for third parties. I understand how the system works, that is preferential voting, a vote for the Greens, for Pauline Hansen, for whoever, eventually um ended up with either Labour or Liberal. That's fair. Um but we also have um compulsory voting. So in Australia, more than 90% of the people vote because we tell them you have to vote, otherwise, you pay a fine. That leads to a big chunk of people voting. If we were like if we didn't have this, I think we would be much more closely uh linked like the UK or the US, where 60% of people vote. So that means you lose 30% of voters, the voters that you would lose would be overwhelmingly voters of the center. Um, because the urban, the the urban fringe, the political fringe, is always motivated. They rock up at the on election night, um, so they they come, whereas you would lose the middle. We've seen this kind of development all over Europe where existing major parties are already dying, and then um you write in on a new political party, like Macron in France wrote in on a new centrist uh party. And we know that the vote for third parties will further escalate because after every election, they run a thing called the Australian Election Study, where they interview three or four thousand voters, whatever it is, in great uh detail about their voting behavior. And the quick takeaway, um uh executive summary, is that everyone under the age of 45 hates, hates, hates Labour and Liberal. They have zero party loyalty, no party alignment, no repeat voting behavior. Um and these people of these of these, you know, under 45-year-olds, many of them ultimately ticked liberal or labor, but they did not vote for labor or liberal, they voted against the other color that they liked even less. And that tells me that with every year, with every election, we kill three years worth of loyal labor and liberal voters, and we substitute them with three years worth of I hate you guys. And that in about six elections should completely uh kill labor and liberal parties forever.

SPEAKER_01 40:06

Um you see it as a rising of more and more teals as opposed to a rising of the new superpower uh uh um party. Or do you you mention that?

SPEAKER_03 40:19

That remains to be seen. So I think uh I don't think that this development will lead to a green prime minister or a one nation prime minister. I think that by then we will have seen the emergence of a new centrist type of whatever new blurb of a party. This is this weird morph. And what this is, it could be it could emerge out of the teal movement, which if you want to be facetious, you should could call a liberal party that likes the environment or whatever, so you can make all kinds of like weird jokes about them. But this is a this is a movement that is still forming, so this is still unclear what this could be. So I'd be surprised if labor or liberals make it 18 years into the future.

SPEAKER_01 41:04

That's really, really interesting. It'll be a massive seismic shift, but it's already happening, as you say.

SPEAKER_03 41:08

So uh all over Europe, all over Europe. If you look at the German uh SPD, which is German Labour essentially, they always scored high 30s, low 40s. They now, at a couple of the latest state elections across Germany, uh scored about five to six percent. You can quite quickly die as a party. Um you could counteract this. If I were to advise the parties, I would say you need to be very, very long-term strategic and hyper, hyper value driven. Uh, not so much focused on how to win this or that election. Um, you know, give the goodies to the marginal seats. You live in uh Geelong, a wonderful marginal seat that gets all the goodies. Uh, that's the smartest thing that it town become a marginal seat.

SPEAKER_01 41:53

Yeah, yeah, absolutely. And it and so to get back to the trades and construction, it feels as though they'll they'll be doing just fine no matter who. Uh, for the foreseeable future, they'll be doing just fine. There'll be there'll be growth, there'll be there'll be projects to work on, there'll be abundance, even though there's inflation, there's somebody being able to afford what they what they do, um, because that's just how how it works. So it feels like we're in uh in safe hands.

SPEAKER_03 42:22

Um well there is there's plenty of challenges coming at you, absolutely, especially since construction is a what we would consider a low margin industry. Yes, um, so uh what are the margins on your typical build at the moment? Yeah, that's not big. If you're I know that the big builders they're happy with two or three percent on a build. Yeah, and I know many unnamed big building giants in Australia who built at a loss during the COVID years. Just imagine this you build a two million dollar tower, knowing that you make a five million dollar loss, and you hope that you don't make a six million dollar loss. That is not a that's not a great business model to be operating under. So something something in the business model is difficult because you carry the risk of sudden price fluctuations, which we got used to this wonderful global supply chain where everything is delivered just in time, uh, and it's all it's also smooth, and all of a sudden you have this increase of geopolitical um um adventures, uh problems, and that just means that suddenly prices can escalate, and then it takes a year and a half to to revamp the supply chains completely, and but but that's tough. How can you operate a business like this? And so you want to deal with this in the construction industry. That'll be one of your challenges. Also, what is your opinion about energy costs? That's an input cost in your business. I think it should be much cheaper. I think government would be much more willing to reform energy than to reform housing. Um, because at worst, who do you bring up against if you make energy cheaper? Yeah, it's not that. Controversial. Um, whereas in a housing chip, but you you have uh an angry mop, if you will, uh upsetting uh three-quarters of the population.

SPEAKER_01 44:08

Uh that's uh really, really interesting. This has been a fantastic conversation. Um, just to to wrap things up, how how should people connect with you if they're they're you know wanting to find out more about what you're up to?

SPEAKER_03 44:21

Yeah, so the easiest thing is to connect with me on LinkedIn. That's where I share demographic insights about um Australia. That's where I share my columns about uh the demographics of Australia, the future of Australian business, and what this means for you for your um operations. Um, I'm also on all of the other social media channels. I run big data-driven channels on on Facebook, Simon Showsy Maps, uh, on Twitter with my with my name, uh, on Instagram if you are more of the purely visual uh type. Um I'm I'm on all of them. Shoot me a message on um on LinkedIn if you ever need the demographic perspective on anything, and I'm always happy to chat.

SPEAKER_01 45:00

Fantastic. Thanks, thanks, Sal. It's been a great episode.

SPEAKER_03 45:03

Uh absolute pleasure.

SPEAKER_00 45:06

Thanks for listening to Built, Trusted, Chosen. Brought to you by Uplift360. Visit Uplift360.com.au.