Greater-Melbourne has a strong blue-collar manufacturing sector which employs 197,705 people; this is 21.9 percent of Australia’s entire manufacturing sector. A further 84,600 Melbourne jobs are in transport and warehousing, and one would argue that these are heavily reliant on manufacturing. Manufacturing is to Melbourne what coal is to Brisbane and iron ore is to Perth.

After decades of government-funded life support, in May 2013 Ford was the first to announce its factory closure from October 2016. Within less than twelve months, Holden and Toyota had also announced closures of their factories in 2017.

In April 2014, the University of Adelaide released a report titled ‘Closing The Motor Vehicle Industry: The Impact on Australia’.  The brief given to these academics was to analyse the direct and indirect impact of closing Australia’s car manufacturing plants. The report states that "Australia is expected to suffer a fall in national employment of around 200,000 as a result of the planned closure to motor vehicle manufacturing between now (mid-2014) and 2017. The greatest impact in terms of projected jobs loss will be in Victoria, with an estimated decline of close to 100,000 jobs. Victoria’s Gross Regional Product is also forecast to decline by $13 billion per year."

To be specific, UOA anticipates up to 98,000 Greater-Melbourne job losses directly and indirectly from car plant closures. This equates to 6.2 percent of all Melbourne households! UOA has categorised these job numbers in to individual local government authorities based on ‘place of employment’ and ‘place of residency’.

Propertyology has further extrapolated these numbers to the percentage of households affected: 98,000 jobs equates to more than five per cent of the city’s total workforce. It’s only a few years ago when 1.5 percent of Brisbane’s workforce lost their job when the state government made 14,000 public servants redundant and the impact on consumer sentiment hampered Brisbane’s property market. Big events like this affect the mood of an entire city as extended family and friends express their concern for those that they know who have been directly affected. 

On the positive side, the much publicised Australian defence force fleet upgrade will contain tens of thousands of manufacturing jobs in locations all over Australia and Melbourne will undoubtedly get its fair share of them. The ten year federal government White Paper was released in February 2016, but a lot of water will flow under bridges before contracts are awarded.

Separate to this, the Victorian state government has declared intentions to invest in local train manufacturing. Ford, Holden and Toyota’s factory closure decisions are final and we see no reason not to take UOA’s job loss findings on face value. There is every chance that Melbourne’s unemployment rate could be the highest of all Australian capital cities by the end of 2017. The recent interstate migration trend may then flip the other way. If so, that would further accentuate the already growing imbalance between housing supply and demand.

During 2017-18, Propertyology expects Melbourne’s auction clearance rates to be well below the 70%-80% which it has become accustomed to. We anticipate the number of properties for sale in Melbourne to be significantly more than 36,606 in February 2016 [SQM Research]; sales volumes will fall; days on market will increase; vacancy rates will increase; confidence will diminish as will buyer competition. Property prices across Melbourne (not just inner-city apartments) are likely to reduce as will rents.

There is a stark resemblance between Melbourne’s current fundamentals and those of Perth’s in 2014. Between 2013 and 2014, tens of thousands of Western Australian employment contracts came to an end as the mining construction boom wound down. Insufficient replacement employment became a footpath for interstate migrants to follow. Propertyology correctly forecast the resultant easing of demand in Perth and rising housing supply that left the legacy of a five per cent (5%) decline in Perth property values during 2015 – we feel more of the same is likely in 2016. Forecasting any commodity is by no means an exact science – just look up the track record of the 36 economists who try to predict the decision of the Reserve Bank each month.

Those of us in the property forecasting game are trying to read literally dozens of factors and then predict the behaviour of twenty-four million people several months ahead of time. Please, let us be wrong with our forecasting for a very bleak market from 2017 onwards; Propertyology love nothing more than a property market performing strongly.

This article was written by Simon Pressley of Propertyology, an REIA Hall Of Fame Inductee, property market analyst, accredited property investment adviser and Buyer’s Agent.