Housing's Perfect Storm

[Music]

Hello, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and Finance Presenter, Columnist and Podcaster for the ABC.

And I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder activist and we are The Money Café, Alan - I beat you again.

[Laughs] We are The Money Café and good morning, Stephen.

Where do we start? Bond rout, oil surging, another poor night on Wall Street... What did you say on the news last night? "Everybody's miserable..." and it's pretty rocky times on markets, that's for sure.

It's very interesting because we've had a couple of statements from Reserve Bank people. Sarah Hunter who's their Chief Economist, the Assistant Governor Economic, she was at the Financial Review's Housing Summit and she said, "Well, we might have to put up interest rates." Then, Andrew Hauser, the Deputy Governor, did an interview on 7:30 last night which is unusual and he said the same thing, "Inflation's too high, it's sticky, we need to do something about it. We've had three rate hikes, we might need to do another one." The market odds of a rate hike this month, which is at the end of this month, are now at about 70 per cent.

The markets are kind of inclined to think that it's more likely than not that there'll be a hike in September. I think when you get to November, which is the next meeting after that, then it's more or less kind of certain or becoming close to certain.

It's a similar story in the US as well, isn't it? Inflation is too high, Warsh, despite being Trump's man - and they've got a similar percentage chance of a rate hike there.

That's right and the point about last night's graphs - there was the business confidence, which is well down; business conditions have gone negative for the first time since the pandemic; consumer confidence fell 5 per cent and is deeply negative; and the other graph I had that you referred to, "Everyone's miserable...", was that basically consumer confidence is negative no matter what your mortgage status is, whether you've got a mortgage, you haven't got a mortgage or you're renting, everyone's miserable. I reckon what that means is that if there is a rate hike this month and possibly even another one in November, then we're heading for a recession because confidence and sentiment are well down, even though inflation is high.

I interviewed Shane Oliver yesterday for Intelligent Investor and he's kind of saying that we may be getting to the point where the Reserve Bank thinks we're going to have to have a recession, perhaps a brief, mild recession in order to control inflation and that seems to be where we're heading.

The fear of rate hikes, plus the perception of housing crash headlines and the real effects of inflation, that everyone is still feeling the pinch, cost of living and they're fearing what failure to tame the inflation beast will be, which is jawboning from the central bankers about, "We'll go again..." You haven't fixed inflation. So it's almost a perfect storm, isn't it?

It kind of is and the number one thing, basically Sarah Hunter's big point was that inflation is now our number one priority. That's pretty clear, they've got a dual mandate at the Reserve Bank, which is inflation and full employment, that they should pursue full employment. She's saying clearly that they're basically focusing on inflation now and possibly at the expense of employment. On house prices, we'll talk more on that in questions, we've got a few questions about that, but the thing to note is that yesterday Paul Bloxham, who's the Chief Economist of HSBC, he adjusted his forecast for house prices down to a minus 13 per cent, a fall of 13 per cent.

Most of the market, most economists, are talking about 10 per cent decline in house prices. Even 10 per cent would be bigger than we've seen, I think, basically for the last 80 years, really. There hasn't been one since I've been in business of more than about 8 or 9 per cent, so 10 per cent would be bigger and 13 per cent, definitely.

But as Clare O'Neil said at the Fin Review's Housing Summit, people don't put the context in and we've had a 400 per cent increase since the year 2000 and a 50 per cent increase since the year 2020. So, 13 per cent of that, housing stock went from $3 trillion to $12 trillion since 2000 and if it comes back from $12t to $11t, well it's a lot higher than $3t. But household debt is $3.3 trillion as well and the wealth effect is clearly affecting consumer sentiment and then you've got data like New South Wales stamp duty revenue down 20 per cent because people are not selling because the sellers are expecting to get a higher price and they're not adjusting down because they're not forced to sell, because we haven't got the recession or the loss of employment, which is the only thing that really triggers forced sales.

Correct, that's right.

It's a very interesting time to watch it, isn't it? Then in the mix of that, is the Bathla collapse. I loved your column on the Bathla collapse, but it sort of brings everything in, doesn't it, about private credit, consumer sentiment, 'did the budget affect Bathla?', regulations of housing, all that stuff and then you've got a $3 billion collapse which is the biggest property/housing collapse I can remember. So many sites, 14,000 in the pipeline, so many consumers... Anyway, where do you see Bathla now having done your deep dive ABC column?

They got all their money from private credit because they can't get money from the banks. Banks don't lend to businesses anymore, they only lend on real estate and a property developer is a business and hasn't got completed housing in order to provide that sort of collateral, so they go to private credit, that's expensive, right? The private credit operators which are basically they're just asset managers, they take people's money, they promise a certain yield of 7, 8, 9, sometimes more, per cent and they lend it off at a margin of that. It's often well in excess of 10 per cent, the money that people have to borrow.

That's one thing, is that the credit that Bathla's got was expensive and the other thing was the budget would have definitely had an impact because investor demand for property has declined. That's what they were blaming, they said, "It's all about the budget..." but I don't think that's right, it certainly wouldn't have helped but I think the main thing was that 11 days before Bathla went under, the New South Wales Government law came into effect requiring property developers to get 10-year insurance. If they can't get that then they have to pay a 2 per cent bond.

And they didn't have the liquidity to do that.

No, that's right. The lenders started saying, "We're not going to roll over our debt because we can see you're not going to be able to afford this 10-year insurance and probably not even going to be able to get it." Some of those projects would have just collapsed because they couldn't get the 10-year insurance or they had to pay a bond and they couldn't pay the bond.

There is an argument about regulatory - it does look like regulatory tightening was a factor, but they obviously were running way too close to - and they overpaid for sites. You always hear that story in the market about, they just came in and paid far too much for their land bank - and then they're living in mansions. It's got that whole sort of tabloid - "Didn't build very good houses, dodgy practices and look at their mansions!" That gets everyone fired up as well.

I started my column saying that maybe property developers should be required to live in what they build.

Yes, that is interesting. This reminds me actually, there was a company called Australian Capital Reserve, which went broke before the GFC in 2007 and they were financing $600 million and a whole bunch of properties; and Becton, this developer who built my apartment back in the day in the Jolimont Railyards, Becton came in and bought the lot, they bought the entire property portfolio that Australian Capital Reserve had for $533 million, then Becton went broke and one of the biggest losers of that was the Bank of Scotland, which was one of the nationalised UK banks. That just points to how the system has changed, because that can't happen this time because there aren't major banking lenders that you can deal with. You've got 50 private credit firms and special purpose vehicles on every site.

So you can't do a global deal with Bathla because it's herding cats with all these private credit firms and I think it's a real shame that the banking sector has gone on strike, partly because the regulators and APRA are just not providing finance to property developers. These guys were basically property developers and builders. Normally, they're one or the other, but they were combined, and they were 'house and land' and high-rise - and 'house and land' is non-union construction, whereas high-rise is union construction. So it's a very unusual integrated builder/developer and with so many financiers so you can't just talk to NAB, talk to CommBank and let's do a global settlement. Instead, it's going to take months to work through site by site.

Yeah, it's an absolute nightmare. Some of the lenders to individual projects are running those projects themselves now, they've taken them over and they're employing the subcontractors because they need to get these projects up and running and I think it's not just partly because of the regulators, it's entirely because of the regulators that this is happening because of the way that they changed the capital rules after the GFC and they favoured completed, finished, existing real estate as being what the banks want to lend on under the new regulations. Basically, that resulted in them getting out of property development.

It seems bizarre, we're a great property nation and we're a nation where our stock market is ridiculously dominated by banks, but those same banks don't fund property development. They only come in there and lend $3.3 trillion on the completed $12 trillion of housing stock. Australia - everything is based around your personal asset of your house and the bank will lend against your house to support your small business or something like that, but it is weird that they won't actually get into the housing construction game. They've gone on strike and the regulators have sort of made them because post-GFC... I think there should be a case of banking and building housing - they should be together and the banks should be forced to get back into property development. It hasn't gone that well with private credit, has it, with Bathla? There was no big banking CEO calling in the boss saying, "You're living beyond your lifestyle, fix your game!" Instead, they're just playing off dozens of different private credit operators who don't know what each other is doing, so no one's got an overall view of the situation and then you pull back the curtain, bang, $3.5 billion of debt, who knew?

That's right. Stephen, before we get to questions, what's going on with AGMs, how are you going?

It's not the season, but last time I was on I think I mentioned what happened with PointsBet, where their 22 per cent shareholder, Betr, came in and did a floor ambush, they did a floor vote to cause a remuneration strike and we've had two more examples of that. I went along to the Webjet AGM and it all looked like it was going okay and then bang, Helloworld, which owns about 22 per cent, they did a strike on the floor as well, they voted on the floor. Then I went to this other AGM called Recce Pharmaceuticals and the proxy votes looked okay - it was an EGM actually with six resolutions - and I said to the Chair, "There were a few protests last year, are relations okay with your two major shareholders, these two blokes? They've both got 13 per cent."

And he said, "One's deceased and the other one's relations are fine." I said, "Okay..." then I looked at the poll results, bang, all resolutions defeated. So everyone's now waiting to not do it by proxy but they're doing it on the floor and there have been three examples now of major shareholders doing these ambush votes on the floor and I love it.

Why?

Because they don't want to give away their hand, they want to have maximum impact. I love this because as a Local Government Councillor, you're taught that you're not allowed to make up your mind before you go into the meeting. You have to listen to the public submissions, you have to listen to the officers, you have to listen to your colleagues and you have to vote with an open mind. So it's against the law to go into a council meeting and say, "I'll be voting in favour of this development, I've already decided." At AGMs, it's the complete opposite, 99 per cent of voted stock is done beforehand and so no one listens to the debate, listens to the questions, sees if there's been a share price crash on the day because of the update, they all vote in advance.

So I like this idea of people voting at the meeting and I say bring it on, let's have more of it! Yeah, it's interesting to see that finally we're getting some big shareholders who are actually not voting by proxy, they're waiting until the meeting and ambushing boards and maximising their impact, so bring it on, more of that please!

Very interesting.

We've got 20 questions to get through.

Okay, let's go. Before we do that, here's a quick word from our sponsor.

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Just remember everyone, this is general advice only, if you need personal advice, please go and see an adviser. Okay, question number one, do you want to read it out, Stephen?

Jack - "My wife and I are mid-30s professionals, a couple of kids, one on the way and a mortgage and we haven't accessed the bank of mum and dad since leaving high school. We've been taking some money out of the offset to invest in shares for years, but this year I'm questioning whether it's worth it..."

Then Jack goes on and has crunched all the numbers and his basic proposition is that taxes are so brutal and when you add in the capital gains tax changes, the Medicare levy, what they're paying back in HECS, how much they've lost in accessing the childcare subsidy, he's saying that, "There's no incentive to go out there and take a risk and people like me, we should just sit back and maximise our debt on our house to minimise our tax. Who'd take a risk when the Government..." - and he's worked it out, he's saying that we're losing close to 70 per cent of every extra dollar earned because of HECS and childcare subsidies and things kicking in.

So it's an argument against, saying the tax system is anti-incentive to work and take a risk and what can the Government do to bring back more incentives to people like us to have kids? The other point is the birth rate has crashed from 3.5 in the 60s to 1.5 and he's saying, "People like us who are having kids, we're just getting whacked and it's a massive disincentive to have kids, so what should we do to encourage ambitious young professional couples to have kids as well?" Says Jack.

Looking at Jack's question and hearing you talk about it, it confirms my view that a big part of the problem is the way the childcare subsidy means test works because it cuts out quite early. Low-income earners can get their childcare basically fully subsidised, but it doesn't take much of an increase in your wage to basically make childcare really expensive. I think that's part of the problem here and I continue to think we ought to be making childcare and under-five education free to everyone.

Universal childcare regardless of income, there's no means testing on primary schools, so you're right. Just on the childcare piece, it's another argument for universality, I agree with that. I also say that the marginal income tax rates in Australia are brutal and there are far fewer subsidies for the young versus the old and we need to tilt back the generational differences there and it's just too tough bringing up kids and being a professional income earner today because the tax system is brutally against you, including the childcare for the loss of the subsidy. We're sympathetic, Jack.

BM says, "Hi guys, I'm becoming a Money Café addict..." That's nice, or not... "Did I read it right that in the late 1980s and today, house repayments are about 38 per cent of household income? Is it simply low prices and high interest rates then, and high prices and low interest rates now? If affordability is simply repayments and that appears to be unchanged, why do we have a problem? What's not considered in this logic?" There was a problem in the 1980s and there's a problem now I would have thought.

There's a bigger problem now, I'd say, because sure the serviceability might be the same from a cash flow point of view, bigger debt, lower rate, but in terms of paying back the principal, it's going to take you twice as long because your debt is so much higher. It's no good just being able to service a loan, you need to be able to pay it back as well and if you've got to borrow double the amount you used to relative to your income, then you're going to have your loan for twice as long and this is partly why we've got $3.5 trillion of household debt - well, we've probably got $3.5 trillion in household debt because we've got $4.8 trillion in super, so people think they can borrow more because they're rich from super.

But, look, you're right, people can carry more debt, but the balance sheet impact means that if there's a house price reduction of 20 per cent, then that really exacerbates the impact as well because you're carrying so much debt on your house, $350,000 on average across all houses in Australia. $350,000, average household debt, second-highest in the world.

But also, think about this, the higher level of repayments back in the late 1980s led to or was affected by the recession which came about in '92 and that brought repayments well down, interest rates fell suddenly as a result of the recession. But this time around, even if we have a recession, interest rates aren't going to fall that much. The cash rate is 4.35 per cent, probably going to 4.6 this year. Even if there's a recession, it won't come back to 1 per cent or something, it'll go back to 3.5 or something. The problem now is because debt is so high as a result of higher house prices. The problem is more entrenched, it's going to be less affected by a decline in interest rates because interest rates won't come down that much and everyone's still got stuck with the debt.

[Rhys] says, "I've listened for years and have followed your commentary on AI closely. I think there's an AI conversation that sits far beyond the usual discussions about markets and economic growth. The pace at which frontier models are advancing combined with the number of incidents demonstrating misalignment, means we need to take the alignment problem and existential risk far more seriously than we currently are." And I think we should add to Rhys's question that the Chief Scientist from OpenAI over the weekend, Alan, wrote an essay called 'An Alien Mind' and he was saying that broader interventions are required and he's worried about the pace of development and the damage that can be caused, joining Dario Amodei, Elon Musk and others who've made those predictions.

But no one ever has a specific fix for this, Alan. Everyone says, "AI could destroy us all, it needs to be regulated..." but no one can ever come up with the actual global UN-driven coordinated regulation that would actually fix the issue. That's why I think it's going to be a self-regulatory thing around loss of social licence, because if you're an OpenAI operator and you produce something that causes massive damage, you're probably out of business because you'll get litigated to death. What's going to happen is cybersecurity is one of the biggest winners because these things will have the capability of being massively damaging.

It's one of the problems of universal sovereignty, I guess, every country gets to do what it wants, do its own thing and global coordination is very, very difficult. We haven't even been able to deal with the existential risk of climate change. We've been on about that for 30 years, longer, been meeting about it, having a once-a-year meeting about climate change and getting nowhere.

Do we need a Paris Agreement on AI, do we?

Well, the point is, I guess, the Paris Agreement hasn't worked. I think that's right, Rhys is right, we're not really dealing with it. Part of the problem, I suspect, is that even though Dario Amodei and Elon Musk and everyone says, "There's a 10 or 25 per cent chance of humanity becoming extinct as a result of AI," nobody really believes it, governments certainly don't. They're kind of thinking, oh well, this is a race, we have to be in the race for AI and if we don't do that we'll be left behind and they don't really think that it's genuinely an existential risk, just as I think people don't really think climate change is an existential risk. They think, well, it'll be all right, yeah it might be hotter, maybe there'll be a few more floods, but we'll get by... I just don't think people really...

Well, Nepal's changed that one, hasn't it?

The what?

That's the biggest climate change disaster we've ever seen.

Nepal, yeah, that's right.

But look, the market's not pricing in the risk with AI, is it? The market is just throwing capital at them. Although, it is interesting, I heard some pundit saying that the global bond rout that has happened, US 10-year rate now at 4.8 and every other country even higher, could cause the AI bubble to burst because the bond market is not going to keep funding AI. There's a supply issue, there's too much paper being requested. The big tech companies have been hitting the bond markets harder than ever before, harder than any other private sector ever and they're crowding out with the US borrowing $2 trillion a year, debt's at $40 trillion... And the bond markets have basically said, "Enough! We don't have enough appetite to keep lending you."

So AI won't be able to get finance if - although these companies are all still worth $2-3-4-5 trillion when you list them all. As long as they're worth $20 trillion collectively, the big AI players, they've got a lot of equity they can work through as well to keep funding AI and they don't have to necessarily go to the bond market, which is now pricing debt very expensive to borrow, more expensive than 10 or 15 years in most countries.

BR says, "What is going on in Australia with accounting and audit companies? PwC and now KPMG, embroiled in scandals. How are we supposed to have faith in listed company financial reports if two main auditors are in such a pickle?" Stephen?

Well, this is an easy one, BR, because neither of those two scandals is actually about audit quality or scandals about fictitious accounts. At their core, they're about misuse of confidential information for commercial gain. In KPMG's case, to try and win audit contracts; in PwC's case, in helping multinational clients dodge Australian taxes which they advised on, which was extraordinarily egregious. But look, no one's suggesting that the audit standards in Australia have been compromised and you can't trust the accounts anymore, but these two firms have had their biggest ever scandals, it's damaged them a lot, but I don't think it's systemic in terms of that the numbers don't add up and you can't trust their audits...

Stephen, I do think there's a long history of company bankruptcies surprising the auditors, isn't there? Going back to Enron and all this... Can we really have faith in their audits?

Well, overall I think you can. Some of these private credit firms have been blaming their delayed accounts for KPMG not signing off and that sounds like a case of these accounts don't look too flash, we're not going to sign them. That's the auditor's job. Corporate Travel Management - you do get a lot of cases of audit firms forcing stuff... I had an amusing one last week, I like to track the last day laggards, so companies that wait until the last day to announce their profits. There's a company called Grange Resources, which is based in Burnie, Tasmania and controlled by a Chinese Government-owned entity. I ran for their board last year saying, "You should have a hybrid AGM..." and if I'd been able to go to the meeting, I would have been saying, "Hang on, you reckon you're worth $1.3 billion, yet the accounts only say you're worth $300 million, what's going on?"

PwC is the auditor, they came in with a $542 million loss and they announced that at 5.42pm, so I thought there was some nice symmetry between that, a $542 million loss, announced on the last possible day at 5.42pm That was the accounts, PwC as the auditor, getting a bit closer to the market's assessment, but they're still a couple of hundred million above, where they're claiming they're worth $500-600 million and the market's assessment is still less than that. For me, that's the ultimate benchmark, is when a public company goes to the annual meeting and says, "Our audited accounts show we're worth 'x'..."

If the market is saying less, then the obvious question I always ask it is, "Who's right, the market or the auditor? And why haven't you written down to below the market?" So the market is assessing the auditor every day of the week when they value the company and auditors should be driving write-downs when the market's assessment is it's nowhere near what you claim it's worth. Your turn, boss, what do you reckon?

Liam says, "When the Productivity Commission and others look at housing productivity, why is it calculated per house as opposed to per square metre? Houses have more than doubled in size since the 90s with many 150-square-metre-plus, almost all are two-storey, whereas once they were all single-storey." He's saying that the Productivity Commission is getting it wrong by doing that and a lot of the decline in productivity is due to the larger house. Liam, that's a really interesting point. There are two measures of productivity, one is number of dwellings, productivity per hour worked and that is a per house basis and that's down 53 per cent since 1995; and that is to a large extent due to larger houses.

But there's also real gross value added, which is not to do with the number of houses, it's to do with actual work, gross value added, and that's down 12 per cent. I think you're making a good point, Liam, and the 12 per cent decline is probably more realistic than the 53 per cent decline.

Well done, Liam, the great man agrees with you, good point. Now, ACT Luke says, "Regarding the challenge of impacting the spending of older folk with interest rate hikes, is it possible that the compulsory super system is going to be an even bigger contributor to limiting the effectiveness of interest rate moves by the RBA? Much is said about the wealth effect of housing, but increasingly we're also now seeing the wealth effect of super balances and as we enter a period where retirees will have access to their compulsory super."

It's an interesting point, isn't it, Alan? When you turn 60 or 65, you can access a big pile of super and so the oldies are just going to get richer, aren't they? Every year, the average super balance for those hitting 60 and 65 is higher because of the compounding effect that super only really started in the early 90s. Therefore, old richies are not going to be affected as they access their super. But I guess the point is because it is locked up until you're 60 or 65, anyone who's under 60 or under 65 doesn't have access to the super, it will affect them. Do you agree with this argument from ACT Luke?

Of course. That's the point of super, so that people don't have to go on the pension when they're 65 and that means they've got more money, that's true.

But 80 per cent of people over 65 are still accessing some form of pension. The $4.8 trillion of super, if the goal was to get people off the pension, then why on earth are 80 per cent of people over 65 still accessing some form of pension? Is the pension system too generous, too accessible? Or are there so many super balances that are just multi-millionaires, rich people using it as a tax shelter, that the $4.8 trillion is not really representative and there's a large lump of people who don't have a lot of super and go straight on the pension.

I think it's probably fair to say that the average super balance is much higher than the median super balance because the average is dragged higher by rich people with millions and millions of dollars in super as a tax shelter, whereas the median basically takes the middle one and I think that's right. Most people don't end up with riches, but they end up with more than they would have had. I think that if Luke's on about a monetary policy effect, that is to say it's becoming less and less possible to affect the spending of people over 65, because they've got all this money from super and I think that's probably right.

I do think a lot of people are going to get access to the super and the first thing they're going to do is pay off their mortgage. It's not like people are going to be getting to 65, have no mortgage and then just super is just this cash deluge that comes on top. There's so much household debt that people are running household debt and they're hoping that their super will sort it out and there'll be some more left over when they get to 65. But 80 per cent of people are still having some form of pension as well to top them up.

Oscar says, "Hi, Stephen. Confronted and with a tear, I read through the AFR profile on you with the latest episode ringing through my ears of Money Café. In the AFR, you claim it was an overshare, yet it was quite impactful to hear your story as someone that navigates the pull to the lone wolf lifestyle. Would you be kind enough to overshare once again and describe how ADHD has affected your life, how you would speak to a younger you and untangle it, if you can, amongst the complexity of your 48-hour cycle? Mate, I hope you're doing better today."

Oscar, I'm having a great day, thanks for asking. I won't be so good tomorrow, I wasn't so good yesterday, but I always enjoy the good days. Look, Oscar, just on the ADHD, I only realised I had it when I got this good day/bad day cycle thing emerge about six years ago. But overall, I don't think it's been that bad because with ADHD you can hyper-focus on things. Yes, you take excessive risks, so whether it's on the golf course or batting in cricket or making rash decisions, a lot of people with ADHD take big risks, but I wouldn't have been a whistleblower or started Crikey and done stupid crazy risks, I don't think, if I didn't have ADHD. I like the fact that you can hyper-focus on things. A lot of entrepreneurs have ADHD because they can really hyper-focus.

Sometimes you don't have a filter and you lack empathy, hopeless at mundane things, you get easily bored, you need adrenalin rushes. But overall, I've enjoyed hyper-focusing on business and politics and I think it should be celebrated to a degree and you've just got to be realistic about it. You look back and say, "Oh god, I took so many stupid risks, what was I doing?" But I think lean in on these things, you can't change them and just try and be honest about the impact and set some guardrails up. At the moment, because I take financial risks, most of my money post-divorce is tied up in super, that's good because I can't access it and blow it. So I'm saying, thanks, I'll just get the guardrails to protect it. But look, thanks for asking, Oscar, and I hope you're okay too mate. It's quite fun being a lone wolf, AGMs, it's all good fun.

Emma says, "I'm planning some house renos, regularly I see in the media, stories of people who've just lost large sums of money to shonky builders and contractors who went bust, traded whilst insolvent, phoenixed their company, disappeared, have no insurance, etcetera... Can you provide me and your listeners some tips for doing our due diligence in these kinds of situations?" Now, Alan, your column on Bathla, it went into the iCIRT system, is that relevant here for Emma, the scoreboard on quality thing for builders?

I think it is. It's iCIRT, if you google that, you'll find that there's a website of builders who are assessed for quality and there are 219 of them on the website. I went on there looking for Bathla to see if it was there and of course, it's not. The relevance of that is, the insurance companies are really only likely to give 10-year insurance to building companies that are on that list, of which there are 219. I think that's worth looking at if you didn't know about that, that's a list of quality builders.

Then for small builders, I think you've just got to ask to see the back catalogue and try and speak to previous clients.

I think that's right. I've had good and bad experiences with renovating builders, the one before last we interviewed four builders, picked the one we thought was the best and he was a shocker. The more recent one, I got a recommendation from somebody and he was fantastic.

We went with the fellow member of the kindergarten committee whose dad was a builder and did a good job on the kitchen, so we knew them, felt we could trust them... It is often a case of knowing who you're dealing with and just looking at their scoreboard. But with all these headlines on Bathla and everything else, it's not inspiring a lot of confidence. I can understand why people like Emma are a little nervous.

Peter from Mandurah - it's a very short question - "Are we currently in a recession? I noticed consumer stocks have been punished, like Wesfarmers, Harvey Norman and JB Hi-Fi." And obviously, Pete, we're officially not in a recession which is two quarters of negative GDP. JB Hi-Fi shares, they floated at $1, they peaked at $120, they're back to $67 in 12 months, so that's a big slump. Wesfarmers have gone from $93 to $77. Poor old Myer, they're wallowing at 19 cents. So, yes, the retail stocks have all come off quite a bit and Alan's 'everyone's miserable' message on the news is consumer sentiment is sagging, isn't it, Alan?

It is, that's right.

It's not a recession, but there is a risk of recession, I think you rightly say.

I think there is a risk of a recession, but we're not in a recession and in fact, unemployment is quite low still.

That is the key point, isn't it? Recessions involve lots of job losses and we haven't had a massive increase in unemployment since Keating's recession in the early 90s. Even the GFC and COVID, everyone loves working with COVID, but we haven't had big structural unemployment in Australia for 30-odd years. Fingers crossed it stays that way.

Chris says, "Big fan of your podcast which my son and I listen to frequently, however I take issue with some comments from your recent episode where there was talk about how we needed migration due to skills shortages and how businesses couldn't find staff. I've noticed that whenever I buy from a business, it's all about how the market sets prices, but as soon as it's the price of labour, the idea of free market goes out the window and it's mysterious staff shortages and sometimes Australians don't want to do this sort of work.

Possibly in future you could refer to businesses being unwilling to pay staff market rates rather than the skills shortages. If there are genuine skills shortages, then as good economists, we should expect the market to encourage people to learn those skills. There's little point if wages are kept artificially low." Oh yeah, I don't know...

Greg from Perth has a similar point, I think he's a tradie and he's getting annoyed with us talking about importing trades, calling us bludgers, "What do you ever do with your hands...?" and noting that Bathla had a visa division, so it is interesting, isn't it, the whole skilled migration issue and with One Nation and German elections and the political move against migration is stronger than ever, so I don't think it's going to happen any time soon, Alan. We're going to suddenly have a big trades migration boost, I mean it's all going the other way politically, isn't it?

Yeah and it's probably worth noting that in the year just finished, net overseas migration was 306,000 and of that, the skilled migration component was 185,000, the rest of it is students and backpackers and other less skilled people and of the 185,000, a very small proportion of those are tradies. In fact, construction trades are not emphasised, are not a priority in the skilled migration package. I think we're a long way from having too many tradies, that's for sure.

We did have a question as well, ripping into the university system saying that universities have dropped the ball on quality and it's all about making money and 600,000-plus international students a year is too much, quality is falling and I do think that's going to be the area where it cops it the most politically, because it's probably the easiest to do politically, as opposed to the PALM Program or aged care nurses, that sort of thing.

Let's finish with 19, Tom, "Big fan of the pod, a question for me... On the recent Tabcorp acquisition of BetMakers, announced in August, the price is 24 cents, which is a decent premium to the previous price of 16.5, however a small premium to their historical price..." and he's basically complaining and saying he doesn't want to take Tabcorp shares and he feels that this company's been taken over on the cheap. I've looked at it, Tom, I've been to a few of these BetMakers AGMs.

They lost $4.5 million last year, they've got accumulated losses of $235 million, so for Tabcorp to offer $267 million to put them out of their misery at 24 cents, it seems okay to me and you're not forced to take Tabcorp shares because the overall scrip component is capped at 25 per cent. If you don't want to take Tabcorp shares, just take their 24 cents in cash, that is an option that you are able to do - and I'd just make the point, Alan, we are seeing another big round of takeovers at the moment, private equity is going crazy. Ingenia copped a $2.7 billion bid this week...

Which it knocked back.

Cleanaway, Steadfast... It's an absolute avalanche of private equity bids and the ASX listing numbers are now down 11 per cent from the peak in January 2023, so we've lost 253 net companies or 11 per cent and quite a few of our big ones from BetMakers to, as I mentioned, Ingenia, Cleanaway, Steadfast... The ASX is thinning out, I don't like it, fewer companies to harass, Alan.

[Laughs] That's great.

What can you do if a board recommends it and the offer's a 20 or 30 per cent premium, it's very rare that you actually can vote that down and besides us little guys, we've got no say because all these decisions are taken by the five biggest shareholders, who typically own 50 per cent in every company. Us small fry, Tom, we've just got to go with the pack and if your board at BetMakers have said, "We've tried hard, we've lost lots and Tabcorp's offered us $2.67," then see you later, thanks for coming, another company that didn't add any value to shareholders, but at least they had a crack, I guess.

Well, thanks everyone for listening to today's episode of The Money Café, I'll be back next week with James Thomson, send in your question to themoneycafe@intelligentinvestor.com.au. Until then, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and a guy on the ABC.

I'm Stephen Mayne and we'll talk to you in a fortnight.

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Got a question for next week? Please send it to themoneycafe@intelligentinvestor.com.au.