The short-term economic environment may be uncertain, but long-term structural shifts look positive for retirement living, says ANZ’s head of Australian economics David Plank.
Plank will be sharing his insights at the National Retirement Living Summit, as the retirement living sector gathers on the Gold Coast from 20-22 November.
Predicting short-term trends is always challenging, Plank says. Economists are always influenced by the most recent historical data: employment, consumer spending and GDP among them.
“The problem with historical data is that we are always looking back at what happened and then trying to gain a picture of whether a recent trend is continuing or changing”.
Interest and currency rates, business surveys and job advertisements provide a picture, but “can change quickly”.
Plank says the ANZ/Property Council Survey is a “particularly useful survey and a good indicator of leading activity” for the industry and the specific retirement living sector. The latest survey, published in early October, recorded a strong improvement in industry sentiment, as construction activity, credit availability and prices all pick up.
“The last few surveys have seen a decided improvement in credit conditions. After last year’s fallout from the Royal Commission, there has been no further tightening and, in fact, some relaxation of credit – and that’s important.”
Cyclical dynamics, such as property prices and credit availability, influence the retirement living sector’s ability to secure sites and financing in the short term. But the long-term structural dynamics – especially an ageing population and improved health outcomes – are “very positive”.
The market for retirement living product is growing. Fifteen per cent of the population, or 3.8 million Australians, are currently over 65, but by 2057, this figure will rise to 8.8 million (22%), according to the Australian Institute of Health and Welfare.
Life expectancy for older Australians is increasing, and people can expect to live with more years free of disability too, AIHW says. While that’s good news, it does mean people risk outliving their savings.
Australia is currently in the lowest interest rate environment in its history, with the official cash rate now at one per cent per annum. Plank doesn’t expect this to change any time soon.
“This move to lower interest rates is likely to be very long term – every country in an ultra-low interest environment has been there for a very long time. Japan has been there for 20 years.
“The dramatic fall in interest rates is most likely to be sustained over the long term and has implications for retirement incomes. It is much harder to live off capital when fixed returns are lower.”
Will this drive more people to downsize? Plank won’t be drawn. But if the Reserve Bank’s latest cut boosts property prices, a new wave of Australians may turn towards retirement living.
Join David Plank at the National Retirement Living Summit on the Gold Coast from 20-22 November as the retirement sector raises the bar.