With the flood waters receding in Queensland – giving us our first real look at the size of the damage involved – it might be worth going back and having a bit of a squiz at what happened on the economic front immediately following the last big South East Qld flood drama in January 1974. We’ll also take a peek at an interesting mortality stat while we’re at it.
Just about every large destructive event – be it flood, fire or cyclone – has consequences on the prices of goods and services at the local level. For example, if cauliflower farmers were wiped out, cauliflowers would become scarce and the prices would rise. Similarly, if a large number of households had their carpets destroyed by flooding – we’d expect a surge in the number of people trying to buy new replacement carpet, increasing demand for carpet and lifting the price of carpet in the short term as a result.
Often people will fall into the trap of calling this “price gouging” – but in reality, it usually has far,far more to do with ordinary people (you and me) bidding up the price of scarce goods and services, than it does with caricatures of evil retailers rubbing their hands with glee as they make abnormal profits by exploiting the desperation of disaster victims.
The fallout from the 1974 floods is a pretty good textbook example of the sorts of price change differentials we usually see after a disaster. If we look at the Consumer Price Index at the time and see how the prices of various goods and services changed between December 1973 and December 1974 in Brisbane compared to the national level, this is what we get:
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Perhaps somewhat surprising is how the price of food in Brisbane increased at a rate substantially less than the rest of country over the period. What isn’t surprising however, is the way household contents and services jumped nearly a percent higher in price compared to the national average – jumping 5.5% over the year compared to the national average increase of 4.7% .
This comes back to what we mentioned earlier – as household goods that were ruined in the flood had to be replaced, the large bulge in demand (rather than price gouging) simply pushed the prices up. We should expect to see something similar happen in Brisbane over the next 12 months or so on a variety of goods and services.
One of the interesting things about the fallout of the 74 flood was that while the cost of housing increased more in Brisbane than it did nationally (jumping 4.1% over the period compared to the national average of 3.7%) – the increase in cost wasn’t as high as many had expected. There’s quite a bit of anxiety around Brisbane at the moment – particularly in the rental market – that the flood might push up housing costs significantly. Let’s hope that fallout is more akin to 1974 than the 7% and 8% increases that some folks in the property industry are currently throwing around.
The other interesting part on the economic side of the 74 flood was what happened in the construction industry. On the residential construction side, as we were heading into 1974, the country as a whole was experiencing a bit of a residential construction downturn. If we look the quarterly change in dwelling unit commencements for Qld and for Australia as a whole over the period, what we see is that the 74 flood gave Qld a larger than average downturn, but with a slightly higher than average bounce back on the recovery.
But the real story was non-residential construction. When people mention non-residential construction, the first thing that comes to many a mind is CBD high rise office blocks and a sky full of cranes. Yet the reality isn’t actually that exciting. High rise office buildings only make up a relatively small proportion of the total value of non-residential construction – usually between around 5 and 15%, depending on the year. The bulk of non-residential construction is generally made up of things like shops and shopping centres, warehouses, hospitals and school buildings – and usually not in the CBDs of the nation, but out in the ‘burbs.
Heading in to 1974, non residential construction in Qld was growing along fairly robustly. It was nothing to write home about, but it wasn’t sluggish by any yardstick. Then around the time of the flood, something extraordinary happened.
It just took off.
The flood line in the chart sits on the final observation before the January 74 flood – which was December 1973. The big kick along happened pretty much when the flood occurred, which we can also see if we look at the annualised percentage change in non-residential construction value in Qld. Note the mountain of growth that immediately followed the flood.
It’s interesting to note that the rest of Australia had a bit of a growth surge in non-residential construction as well in the back half of the 1970’s – but it didn’t really start nationally until 1976. So Qld was ahead of the game.
The question, I suppose, is how much was just timing coincidence and how much was fallout from the flood itself e.g how much was as a result of businesses choosing to build new and better, rather than simply replace with the same if they were damaged in the flood. Often we’ll find that development begets development – where one business investing in new premises will often encourage competitors to follow. A sort of business version of keeping up with the Joneses.
If the 74 flood did have something to do with the non-residential construction growth surge – it might be worth keeping an eye on the ABS Building Activity releases over the next 12 months.
Finally, there’s an odd little thing in the mortality stats I found the other day. If we look at the number of registered deaths in Qld over the 1970’s, this is what we get:
The 1974 flood killed 14 people in Qld, so the spike is obviously not from those particular fatalities – but it is a pretty unusual spike. If we look at the long term mortality trend as the number of deaths per 1000 people in Qld, what we find is that the mortality rate is in long term decline (as it is across Australia).
In only 3 of the previous 25 years before 1974 was the death rate higher, and it has not been higher in any of the 36 odd years since. So it was a pretty unusual year. However, Qld wasn’t the only state to exhibit this spike in 1974 – NSW also did, but to a slightly weaker extent.
If instead of using crude death rates, we instead look at the standardised death rates over the 1970’s (where we control each state population for their age profile), we can see how the Qld and NSW mortality rates compare to the rest of Australia excluding Qld and NSW. Standardised death rates allow us to effectively compare like with like by controlling for age issues.
As we can see, the large 1974 spike was a uniquely eastern seaboard affair, with the mortality rate in the rest of Australia actually declining in 1974. We also see how the spike was larger among men than women.
If we now look at the change in the death rate from year to year over the period (click to expand):
Not only does the 1974 experience in Qld and NSW really stand out, but the dramatic recovery the following year stands out as well. Whatever multitude of things might have been killing people in 1974, they didn’t hang around.
This got me thinking – what is often not appreciated when it comes to the 1974 flood is that it wasn’t only a Brisbane event. Most coastal catchments south of Brisbane right down to Forster in NSW, still use the 1974 flood as a local yardstick of “how bad a flood is”. Cyclone Wanda caused havoc not only in Brisbane, but from the NSW Mid North Coast up.
I wonder if the fallout from the flood may have had anything to do with that particular spike – be it from diseases, stress, or oldies simply giving up when they lost their family homes?
Of course, it also may just happen to be complete coincidence.