Cassandra Winzar's address to the CPA Resources and Energy Finance Forum WA 2023

Cassandra Winzar's address to the CPA Resources and Energy Finance Forum WA 2023

Today I'm going to run through a fairly brief economic outlook, touching on some of the big topics that are affecting us globally, nationally and here in Western Australia as well. We will have a bit of time for questions at the end, so I'll try and make sure we keep some time for that.

Just a little bit of a summary to start with about some of the things we're going to touch on today. The Australian economy really is facing a lot of challenges at the moment. We had the COVID period and essentially the COVID-induced recession and we've now bounced back, but we actually bounced back probably a little bit too strongly and that's really affecting the outlook at the moment.

We're having fairly soft economic growth, particularly as the RBA is trying to balance the trade-offs, and there are trade-offs between inflation, unemployment and economic growth and trying to get us through this particularly difficult period of economic activity,

Many of you in this room and many people in our community are struggling a bit at the moment. We've got high interest rates, rising rents, rising cost-of-living pressures and that is really feeding some negative sentiment about the economy.

But on the plus side, we've got unemployment really at historic lows, unemployment rates that we haven't seen in many decades and that is being remarkably resilient and providing a lot of support to the household sector as well.

Housing is a really interesting topic and I'll go through that in a little bit more detail, but we do have quite severe housing shortages. Then I'm also going to touch a bit on what are the longer-term trends that are impacting the Australian economy, and WA will not be immune from any of these, around an ageing population, energy transition and things around increasing digitisation.

Global outlook

Starting just fairly briefly with the global outlook and that story that I started to tell about the Australian economy is very much a global story. We saw during the COVID period that really sharp and deep recession as the world shut down, essentially, for some time and then we saw unprecedented levels of stimulus.

Monetary policy interest rates were down as low as they could go, but we saw particularly huge amounts of fiscal stimulus. We saw all that spending from governments, whether that was direct to households, to businesses or through infrastructure projects, huge amounts of spending really at a level that we hadn't seen before and much more coordinated even than we saw, say, through the GFC.

Figure 1: GDP Growth - world

We went from very low to very high levels of growth (Figure 1). Now we're moderating somewhat as everyone is grappling with this issue of: have we over stimulated? Yes. What is the impact of that inflation? How do we bring inflation down and have a more sustainable period of economic growth?

The inflation story has really been the biggest economic story over the last year, and it's not finished yet, that's still a really important piece of what's going on globally. Everyone globally had this issue with inflation – that was a lot around the stimulus that we did have to bring us out of that COVID recession, that was the right thing to do, but I think in hindsight Australia and many global economies over stimulated, but it was the right thing to do at the time.

The forecasts that were coming out about what was likely to happen to the economy, with unemployment rates of 20 per cent, we never got there, but that was the concern and that's what they were trying to avoid.

But that has led to really high levels of inflation and high levels of inflation that we haven't seen in decades, which is really challenging because it means households and businesses actually don't necessarily know how to deal with these high levels of inflation.

Figure 2: Inflation – Advanced economies

What does that mean for consumers? What does that mean for the business sector? What does that mean for interest rates? We've seen inflation go up. It has started to come down. You'll see on that graph (Figure 2), the US, Japan and euro inflation rates. It's come down pretty significantly as we've had that real tightening of monetary policy, so interest rates are going up. But if you look at it compared to the historical data, particularly throughout the 2010s, it's still at relatively high levels. So that inflation story isn't finished.

We are seeing some of the governments winding back things like infrastructure investment, which is the right thing to be doing, and then we are also seeing some of those supply chain challenges start to resolve themselves. That will happen and we'll still have the high interest rates and monetary policy working their way through.

It does seem like the US has finished with their interest rate hikes, but it is important to think in an Australian context as well that actually most central banks have increased their interest rates more than we have. The UK's got interest rates at about 5.25 per cent, the US at 5.5 and the euro about 4.5, so that suggests there might be some more room to go for Australia.

Figure 3: GDP Growth – China and India

China is obviously our most important trading partner, here in WA, but also for Australia. It's by far our biggest and they've had a particularly bumpy road post-COVID (Figure 3). We saw this opening, closing, opening, closing that has certainly been a bit more challenging than it has been for some other countries. We did see again that huge dip in GDP growth in in 2020, a big bounce back in 2021 as that stimulus started to come through and that global stimulus as well, which is fuelling demand for goods from China. But since then, it's certainly been a bit bumpier and the expectation is that we will be seeing softer economic growth from China.

Now softer economic growth from China, when China is such an enormous economy, is still reasonable growth and there are still expectations that we will have good demand for Australian and West Australian resources, but not the kind of levels of growth that we've seen in the past couple of decades.

Some of that is around this bumpy COVID transition, but some of it is also just the longer-term transformation of the Chinese economy moving away or attempting to move away and it hadn't been as smooth process, from a really government investment–driven economy towards a more consumer-driven economy of the like that most Western economies are these days and more of that services base rather than just the manufacturing of goods.

Figure 4: China – Gross output of selected products

We have seen a softening output of many Chinese products (Figure 4), with things like steel and cement. That does again show just some more evidence that things are starting to soften in China, so that does probably impact on West Australian growth going forward. It's certainly not a disaster story but it adds to this idea that we really do need to focus on diversifying our economy and diversifying our export markets as well.

Figure 5: Bulk commodity prices

The biggest global commodity, particularly for WA, is iron ore. We got really very lucky with the iron ore price going up just at the time that we were getting hit by COVID over here.

WA has had a pretty remarkable run of economic luck. If you think about it, we were really barely affected by the GFC and we've had a similar experience with COVID. There can't be many places in the world that have had better economic growth than WA over the past few decades.

We have seen a bit of a softening in iron ore prices recently, but they’re still remaining at relatively high levels and really good profitability in the sector as well, so they're not as much of an issue where we've seen some of the price drops in the past.

WA remains the biggest global exporter of iron ore – we're reliable, we're cheap, we've got a lot of benefits there. But we do need to be aware that over the longer term, China is actively looking at where they can develop other deposits and other sources of iron ore. If they could get it from somewhere else, they would probably be looking at it, although Albanese seems to be doing a good job of making friends with China again this week, which is a good sign for WA.

Probably over the long term we’ll see a bit of a softening in iron ore, but it will remain relatively strong. We've seen some quite significant falls in coal prices and part of that is around the energy transition as well, so the outlook for coal is much, much softer.

National outlook

I'm going to move on now and talk a bit about the national outlook. We've had a look at the global one so far and it’s a similar story and cadence there. I think it’s really important to remember how long a period Australia had without any recessions. I think we were 26-27 years without a recession prior to COVID or any real drops in year-end economic growth.

Figure 6: GDP growth - Australia

That is not normal, it's the longest run that any economy has had in terms of economic growth. That is a great story, but it does also mean that the Australian community, the business sector and the government weren't necessarily quite sure how to deal with the recession and how to deal with some of these issues that we're now seeing, so that's certainly a challenge from a management point of view. We saw that really sharp drop in economic growth as we see globally, a really big pickup and now we're having a little bit of that that bounce around a difficult period as we stabilise.

Again, as we talked about globally, in Australia we put in huge amounts of fiscal stimulus in order to keep the economy moving. We had increases in the rate of Jobseeker. We had the introduction of the Jobkeeper scheme and huge infrastructure investment programmes which we saw at both the federal level and state level, as well as really quite substantial incentives to build new houses.

All of that ended up in a bit of a perfect storm of competition for people, competition for resources and supply chain challenges, which has now really driven a lot of that inflation. It's really slowed a lot of things down on the infrastructure projects and housing in particular. Now we're trying to really deal with it and wind back some of that.

You may have seen that the Federal Government is doing a review of infrastructure projects at the moment. That’s certainly a good idea, particularly if we look at what we need to prioritise and what can be delayed. When we think about particularly the competition from these big infrastructure projects with the mining and resources sector and with the housing construction sector as well, there’s certainly a need for some prioritisation there.

I remain pretty hopeful that we will avoid a recession and I’m getting more confident of that over the last couple of months as well, but it is pretty thin, slow economic growth. Most of the projections from the RBA for Treasury are for economic growth of just over one per cent over the next year. It doesn’t take a lot for us to fall into negative growth if that’s the base-case scenario.

If everything tracks along as it’s supposed to, I think that’s a pretty good outcome and I’m pretty confident we can achieve that. But if we got some sort of external shock that we weren’t expecting it wouldn’t be that difficult to jump back into recession.

Figure 7: Annual CPI inflation

As I said, inflation is a global story and has been a real challenge in Australia. The RBA's inflation target is between two and three per cent and in the pre-COVID period, they actually wanted inflation a little bit higher than it was, so it was actually a little bit soft. They certainly didn't expect, and on behalf of the economics profession, I think not many economists expected that inflation was going to jump as much as it would or stay as high as it has for this period of time.

There are many factors around this, it's the issues around the huge levels of stimulus and the supply chain issues, particularly in that early run-up with inflation, a lot of that was around supply chain issues. Some of that was around the difficulties in China when they were opening up and keeping production up, which was a little bit challenging.

We've seen some wages growth because the unemployment rate has been very low, although probably not as much wage growth as we'd expect and issues around energy markets as well, particularly impacted by the war in Ukraine. It's been a bit of a perfect storm of everything adding to inflation.

Inflation is not forecast, even under the current conditions, to be back in the target range until 2025. There's still a long way to go, we're sitting just a bit over five per cent at the moment, to getting us down below that three per cent. We’ve still got a while to go.

That doesn't necessarily mean that we'll have many more interest rate rises. We might still have a couple to go, but what is really important is it actually takes around 18 months for the full impact of those interest rate rises to come through and impact on inflation in the economy.

It's quite a slow process, if we think about the channels that that goes through, whether that's people having to pay more on their mortgages, that takes some time to go through. It takes time for consumer behaviour to change and it takes time for the expectations of businesses to change about what the what the likely impacts are going to be. The inflation story is not over and for the next year I think it's going to be the biggest challenge that we have in the economy.

Figure 8: RBA cash rate target

That has been leading to much higher interest rates (Figure 7). Interest rates have been increased to 4.35 per cent. Interest rates have been a really interesting story because we had this decline in interest rates post-GFC and trying to get the economy a bit more dynamic for that long period of time. We had an unusually long period of time of very low interest rates and that really starts to impact on peoples’ expectations, probably not helped by some of the communication from the RBA, but people's expectations about what is the normal level of interest rates.

The level of interest rates that we're at now, while it's been a big increase and absolutely is causing not insignificant pain to a number of households, it's actually a much more normal level. It’s probably at a level that the RBA is more comfortable with over the longer term as well because it does give them a bit of room to move if something happens. We saw that during COVID when we already had really low interest rates, we had this enormous economic shock the likes of which we've never really seen before, there wasn't a lot more the RBA could do.

They did what they could, they did reduce interest rates. They looked at some of the alternative measures that they have, which is not a lot, but a lot of the heavy lifting during that period in terms of the stimulus was from the Federal Government and state governments in fiscal spending.

While we've had this big increase, the actual level of interest rates is not necessarily that high. That being said, if you think about the last home interest rates were this high and what house prices are the size of mortgages that people have the pain on households is a lot more and it is really significant.

The RBA does do some pretty substantial stress testing on how is the household sector dealing with interest rates. They put this out in in a publication called the Financial Stability Review, which probably about 10 people read, it's actually really quite interesting though so I do recommend going and having a bit of a read through it. Some of the interesting findings in the last one they put out on that a few weeks ago is that most households are actually coping OK with the interest rate rises because they had quite big savings buffers coming into it, or they were already overpaying their mortgages.

That's not saying it's not painful for the households. It absolutely is. But from a financial stability risk point, so is there a concern that people are going to default on their loans or having to sell their houses, they're not actually seeing a lot of that. And actually that they still have a little bit of this buffer to go, which is probably one of the reasons why we saw that interest rate rise yesterday, that they didn't think it was going to cause significant financial stress on an economy-wide level. That's really important when we think about any of the decisions that the RBA is making, it's about that overall impact on the economy, not necessarily the pain seen at individual households.

A couple of other really interesting things from that report is, there's a lot of talk about the mortgage cliffs, so when people were going to come off these very low really fixed rate mortgages and go on to variable rates, there was a concern that that would lead to a lot of financial stress and people having to sell their homes. That hasn't happened, so most people made the transition fairly orderly, particularly because there was a reasonable amount of time to prepare for that, so most people were pretty aware they were going to have to pay more and were saving a bit more in anticipation.

One thing the Financial Stability review did really highlight though is some concerns about renters and the level of financial stress that renters are under and it was actually a bit more concerned about that than the financial stress of mortgage holders, which is quite interesting.

My expectation is we may see one more interest rate rise either late this year or early next year. Hopefully we're pretty close to done with this with this rate hike cycle. So inflation is coming down, but not as quickly. It's really about the speed, I think at the moment that has driven the RBA to act and there's a bit more of that to come. But the fact that inflation hasn't quite come down to that doesn't mean that we're going to keep getting more and more because they do know that these rate hikes are still working their way through.

The unemployment story is probably one of the most positive that we've seen in the economy over the last couple of years. If you had said to many economists a couple of years ago that, you know, we'd have unemployment rate with three in front of it across the country and it was staying that way for long, they probably would have thought, that's a bit ridiculously optimistic, that’s never going to happen. But that's the story we've seen for the for the last year or so and the unemployment rate is just remaining remarkably resilient. The national rate is 3.6 per cent and in most states and territories, with the exception of Tasmania, it is around that that four per cent or lower mark.

We've also seen underemployment drop, so people working not as much as they'd like, which again is a really positive story, and improvements in women's labour force participation, youth, all those really good things.

One thing that is quite interesting about that is the unemployment rate is low pretty much across the country. Again, this is a good thing, but it makes it challenging for places like WA that are really trying to get more labour because there's not a lot of incentive for someone to move when we've got this pretty flat labour market outlook across the country.

In some of the previous resources booms, we've had a really low unemployment rate while it's been relatively high in some parts of the country and that has been incentive to get people over here, but that's not something that we're seeing at the moment.

The outlook for unemployment and the labour market remains really good, so we've got job vacancies that are high across multiple industries. The one that's really high is healthcare and social assistance. This is part of this longer-term trend with the changing demographics, so we're seeing more and more of the Australian economy being concentrated in that care sector, so increasing demand for aged care services as our population ages.

We've seen a lot of investment in disability services in the last decade or so with the introduction of the NDIS and a lot of investment in health. That's where we've got the biggest number of vacancies is in that healthcare and social assistance. There's not really any signs of that abating anytime soon and that's where we see a lot of the growth in the labour market at the moment.

Overall, we've got 390,000 vacant jobs in Australia and that's actually dropped a little bit recently, but not significantly but it's actually still really high. If we compare that to just before the COVID period, there were around 200,000 vacant jobs, so we've got a huge change there. Around 11,000 vacant jobs in the mining sector at the moment, and nearly 30,000 in construction.

You'll be happy to know professional services is also pretty high, which is where most accountants and consultants come in as well, so it’s pretty high across the board. Again, good story, but it makes it challenging for different industries to attract people when everyone is trying to get people and this is a bit of a global story as well, so we do have really tight labour markets globally and so there's that competition for global talent and with all the kind of things that that brings. It means our migration settings are incredibly important.

We were hearing particularly in the period immediately after borders reopening from COVID that we weren't necessarily the most attractive to come to, people were a bit concerned about our desire to close borders when anything happens, long visa processing times, there were huge wait times for visa processing at that time and that say Canada, the UK and the US were looking a lot more attractive.

Some of those issues seem to have resolved, and I think we're a little bit up back up there on the closer to the top of list for migrants, but it is something that we really need to be aware of. There's only so much great beaches can do to attract people to Australia and we also need to make sure that we've got really good visa conditions, people can bring their families. It's going to be a much more competitive global market for talent in coming decades.

When we look at the longer-term trends around population, so this is from Treasury’s intergenerational report, and looking at what's the likely trajectory of Australian population, I will say Treasury’s been putting out these intergenerational reports for years and they always substantially undershoot on population, so this is likely to be even bigger then.

By 2040, which is not that far away, it’s expected that Australia's going to have a population of just over 33 million and by 2057, over 40 million. That needs to be managed, we need to be making sure we are attracting really top migrants, but we also need to make sure we can provide the services for our growing and ageing population. I think we're going to see a lot more demand for care services and making sure that we've got the people to look after them is going to be a bit of a challenge.

I’m going to talk a little bit about housing now. You may have heard that there's a relatively new housing accord which was announced by the federal government late last year, and they've just upped the target on that. The target is to build 1.2 million new, well-located, affordable homes over the next five years.

They have not defined what well-located or affordable is, which is a great way to set a target and very easy to manipulate the outcome when you don't really define it very well to start with. This is due to concerns around the shortages of housing. It's very clear that our housing construction is not keeping pace with our population growth.

As you've seen in the in the graph before, the expectation is that our population will continue to grow. It's a really good target, it's good that there's a focus on increasing supply, but it's actually going to be really challenging to meet because we're not really close to developing anywhere near that many homes at the moment and we've got challenges around resources, around labour and particularly around planning and zoning in order to get there.

One thing I think that hasn't been getting enough notice in the in the debate around housing supply and housing shortages is that one of the reasons we've got particularly acute housing shortages at the moment is that the average household size has decreased fairly significantly over the last few decades.

While the numbers don’t seem that much on this chart, when you extrapolate that out over the entire Australian population, it's actually a lot more houses that we need. When we look at the longer-term projections, you know, we see this long-term trend in this increase in one-person households, but we're not seeing much of a change in the houses that we're building.

We're having much smaller households, so fewer, smaller families or people living alone. Whereas we're continuing to build three- and four-bedroom houses, and that means we've really got this mismatch between our household needs and our housing supply.

There are 12 million spare bedrooms in Australia. Most people probably like having a spare bedroom. I certainly like having a spare bedroom. I use it as my office at home it doesn't really feel that spare. But I think what we're seeing and what we're seeing more and more is particularly as the population ages we're seeing older people, one or two people in the dwelling with three, even four spare bedrooms.

We really do need to look at is there anything we can do around changing the incentives there. The policy incentives are actually for people to stay in their big houses for as long as possible, if we look at around the pension settings or the issues around stamp duty. There must be some things that we can do to actually take advantage of all the spare bedrooms and the enormous houses that we have in Australia.

We have the biggest houses in the world, but increasingly very small households in them. Some of the trends here are not going necessarily in the way that we would like. Again, if we're looking at the projections are for more and more one-person households, you would think that might start to change what we're building and we'd get more apartments, more smaller dwellings, it’s actually not.

If we look at the higher density residential commencements which we see here, it's actually falling as a percentage of overall household building. The idea is that we're still building big houses despite this changing population.

Western Australian outlook

I'll talk now a bit in more detail around the Western Australian outlook and the story there. I think it's pretty easy to forget that it wasn't that long ago that we were in a pretty long downturn. We had the real run up post-GFC, the resources boom around that 2012-2013 period. Then state fund on demand, which is state economic growth without export and imports, was really very, very soft from thar 2014 to 2020 period and we've seen that real boost post-COVID driven by some of the COVID stimulus, but in WA also very much the resources story as well.

All economic growth is cyclical, but WA is even more so than most places and absolutely more so than the national picture. That is due to this boom-and-bust nature of the resources that I'm sure everyone in this this room is well aware of. It has actually only been the last couple of years we've been in this big ramp up back to economic growth over here, which has been doing a very good job of keeping many businesses busy, unemployment low, and also huge, absolutely enormous surpluses for our state government as well.

I was over in Tasmania last week talking to some people in the Tasmanian government there and they couldn't resist giving me a bit of a dig that the size of the surplus in WA, the last surplus for the financial year is bigger than the entire Tasmanian state government budget. There's really been a lot of money coming into the WA government over the last few years.

Trade has been very strong and the contribution of WA to national trade even if you look at the numbers it's still pretty impressive. We're got nearly 50 per cent of national exports, $150 billion of those exports to China and a reasonable share of imports as well, which a lot of it as well as goods for Western Australian consumers is imports into the resources industry, so we're very important to the national economy in trade terms.

And we're very important globally in commodities. We remain the number one exporter of iron ore and it’s not looking like that's going to change anytime soon, although we are seeing things start to pick up in Brazil a little bit and there is this plan to try and develop some further resources which China is pretty keen on.

We are really strong in lithium, which is growing in importance as we go through the energy transition. Again, LNG and gas are remaining pretty important in the short-term, gold, so we really are well placed globally and in the resources space.

This means the energy transition provides a lot of challenges, but also a lot of opportunities for WA. We are really well placed in things like critical minerals, we've got really good resources there, but what we're seeing is really high levels of competition globally in this race to get things set up for the energy transition.

We've seen in the US a lot of investment with the Inflation Reduction Act. We haven't seen that same level of coordination and investment here in WA or Australia yet. We're really well positioned, but we do need to actually actively plan our role in this energy transition and in developing these new industries or there's a reasonable chance we'll get left behind.

That is going to take effort from local industry, particularly from a strategic point of view from state and federal governments here. There are good opportunities for us and I think if we look at that not just from an energy transition and a net zero perspective, but also from an economic diversification perspective. We're already seeing demand for coal dropping off; the outlook for iron ore in the longer term is, relatively, not the same levels of growth that we've seen; LNG's pretty strong in the short to medium term, but again over the very long term there is a desire to move away from gas. So we do really need to actively develop these new industries and these new markets.

I touched on unemployment already, but just a little bit on the West Australian story. Again we've got lower unemployment rates in the rest of the country and one thing I always find really interesting that that many people are not aware of is that WA actually has the highest participation rates of all the states. There's a higher proportion of people in WA that are that are in the labour market and actively working or looking for a job than really anywhere else in Australia.

This is great, but it also means there's not a lot of slack in our labour market, so there's less ability to ramp that up and encourage people back into the workforce or new participants in the workforce than maybe some of the other states do. The expectation is that unemployment nationally and in WA will soften a bit as these impacts of interest rate rises come through. But it has been a bit more resilient than I think anyone would have expected and we do still have this strong job vacancies.

This is job vacancies in WA and so when we talk about the high levels of job vacancies, it's very high and it's actually higher than the previous resources boom in that 2012-2013 period. Some of this is being driven by resources, but a lot of this is also again from this healthcare and social assistance. I think this is a long-term trend that's playing out, the amount of workers that we need to provide the services that Western Australians are desiring is still very high and is going to be for some time.

That suggests that there's not going to be big drops in the unemployment rate coming through and probably still some pressure on wages. Wages have increased a bit over the past year, probably not as much as you'd expect from the low levels of unemployment and what we're hearing from many businesses is that they're kind of doing it everything they can apart from increasing wages.

A lot of people feel like they got a bit caught out last time, particularly in WA in the last resources boom in this competition for wages and they locked in high wages and then when things softened up, it's really hard to get people to take a pay cut, not many people like that,

We're seeing more bonuses, people focusing a bit more on working conditions and flexibility than necessarily all that coming through on the on the base wage front, which is an interesting theme.

Our population growth in WA has bounced back post-COVID. We had that soft period coinciding with soft economic growth and during that 2014 to 2018 period what's really interesting is that net interstate migration was negative, so there were more people leaving WA for other states and territories than there were coming in. That changed very quickly during COVID, when everyone wanted to come back here, and interstate migration has remained relatively strong.

But what's really driving the pick-up more recently is international migration. This is permanent migration arrivals and that has picked up fairly strongly recently. We've also seen a big boost in international students and that's driving a lot of migration pressures.

The permanent migration, I think again a little bit interesting story that it probably hasn't picked up as much as we would have expected considering what the levels were in the past resources boom. We might be seeing a lot more on the temporary side, again maybe people not wanting to bake in longer-term contracts and things like that. With the labour shortages that we're still seeing and the reasonable economic outlook, I think we're going to keep seeing migration as an important part of our economic story.

Now, if anyone's been trying to build a house or get a tradie recently, it's probably felt like we've been in a housing boom. We haven't. We did see a bit of a pick-up in housing in 2021-22, which was driven by that stimulus, but it was really only back to our long-term average level.

Our long-term average level of dwelling builds in WA is about 22,000-23,000. What we did see for a number of years before that, we saw very low levels of dwelling builds in line again with that soft economic growth that we were experiencing.

But even with these soft levels that wasn't keeping up with population growth, so we were getting into a period of housing shortage, threw a bit of money at it, got a bit of a boost, but we saw a lot of builders and trades leave the sector during that downturn, which meant there weren't people ready to go in and build.

The outlook for housing construction is concerningly soft in WA, so those red bars at the end are forecast from the Housing Industry Forecasting Group, which is a state government and industry body. And again, the forecasts are not even back up to that long-term average level. We've got forecasts of high population growth, we've got housing shortages at the moment, we need to be looking at how we can get housing construction up.

This is being reflected in high house prices. Prices for established dwellings have jumped quite a bit recently. Again, it was after a period of decline, so we're actually not hugely up on where we were in the 2015 peak. If you talk to any colleagues in Sydney or Melbourne, they probably laugh at our house prices and the house prices remain very affordable, but it's still really challenging for people with not much availability here as well.

Given those low levels of construction, very much expecting further house price growth and it’s a similar story with rentals. The previous rental peak was in 2013, again, very soft conditions for a number of years and a huge jump up with the COVID period and no end in sight here.

The rental vacancy rate is less than one per cent, not many new dwellings are coming online, and it’s a really, really difficult picture for anyone that is renting at the moment. It’s hard to get a dwelling and that’s flowing through to impacts on the social housing wait list because including in that lack of construction over the last few years we haven’t been building any social housing or not anywhere near enough. We’ve got huge social housing waitlists, issues around homelessness, and a lot of that is being driven by the rental market.

Just a few more future-looking things. The population is continuing to grow both in Western Australia and Australia but building activity and some of the infrastructure more generally is not currently keeping pace. We need to make sure that we’ve got some of those settings right.

I’ve mentioned this a few times, but it is one of the big long-term stories. We’ve been talking about it for a while, but I think we’re starting to see the impacts now around the population ageing and this demand for care services, aged care, disability and healthcare.

Transition to net zero is a huge story globally, nationally, but particularly for WA. It’s going to have very broad economic impacts and also impacts that are household level and WA really needs to get a bit more on the front foot and get prepared for that.

We need to look at productivity growth, innovation, the role of digitisation. If we're in a period where we're seeing more labour shortages and more changes there, how can we work better with what we've got? And that's particularly important in the construction and resources industry as well.