The destruction wrought by the fires will add to the ACT’s economic growth.
Economists do not measure human suffering or the destruction of property, but economic activity. Also, the bulk of the money for the reconstruction will come from outside the ACT. It will come in the form of $350 million in insurance money and in the form of Federal Government special disaster grants and other aid promised at the time.
Added to the reconstruction will be a boost in retail as people replace housing contents.
The construction and retail boost will have a multiplier effect through the ACT economy.
But perhaps a further $100 million will be sourced within the ACT. Part of that will be people replacing uninsured and under-insured contents and buildings. The rate of non-insurance of buildings was extremely low. Just six out of the 500 destroyed houses and a further four of the damaged houses.
So the lion’s share of reconstruction will come from without, but even the internally financed reconstruction adds to economic activity.
The consulting firm Access Economics says that the ACT is likely to retain the position of having the lowest unemployment in the nation for some yet because of the fires.
In its Business Outlook for the March Quarter issued immediately after the fires, it said, “The housing sector, which took off in mid-2002, has an even bigger task ahead of it now. Indeed, it is not a message that many would welcome, but bushfires actually add to the pace of measured economic growth.
“In essence, that is because the economic stats don’t show the destruction of property (nor indeed of lives) that the fires wrought. However, they do show the income flows as people put their lives back in working order. That means that the consumption/retail data will show the new furniture, fixtures and fittings bought by the families who lost these in the fires, as well as the new investment in housing stock and cars to replace those lost in Duffy, Chapman and elsewhere along Canberra’s southern outskirts. Similarly, the wages (where they got any) to those who helped out in the days following the fires also boost Territory incomes. . . .
“Employment growth is very good in the ACT, job ads are at high levels, and – doubtless related to those first two points – retail sales growth remains rather more robust than we expected it to. In fact, the title of ‘lowest unemployment in the nation’ may linger for a while yet.”
Access Economics said that the overall impact of the fires on measured economic growth in the ACT was not easy to assess. Moreover, it would occur over the next eighteen months, as rebuilding steadily went ahead.
“However, the complete loss of about one in every 250 homes in the ACT is a major economic event, and our best estimate is that it may add up to one percentage point to measured ACT economic growth over the next 18 months,” Access said.
In the December 2002 quarter Access projected 2003-04 growth of gross state product at 2.6%. It now estimates that growth to be 3.8%, with the bulk of the difference due to the fires.
The ACT already had a better outlook for housing than other states and territories before the fires. With 500 homes o be replaced and 1000 to be repaired that outlook is better. It is equivalent to three months of demand which will be unaffected by the usual factors which affect the housing market: interest rates, population growth, jobs and so on.
Similarly, in the last issue of the Outlook we suggested that the outlook for ACT housing was far less dramatic than that in some other States. To that generally benign outlook has been added the unexpected demand generated by the January bushfires. The replacement of 450 houses is equivalent to an additional three months of demand – demand that will be unaffected by considerations such as the possibility of any changes to mortgage interest rates or to population growth.