Melbourne’s Miami connection

A few months back I had dinner with an American hedge fund manager. The fund had made good returns shorting the United States and Irish housing markets, and was undertaking reconnaissance of Australia’s capital city housing markets to determine whether similar shorting opportunities were available.

In the days prior to the meeting, the fund manager had spent time touring Melbourne’s housing developments – both detached houses on the urban fringe as well as apartments in the inner and middle suburbs. When I asked the fund manager about what he thought of Melbourne’s housing construction boom, he answered along the lines of: “Melbourne reminds me of Miami”.

For readers not familiar with Miami (Florida), it is located on the South Eastern tip of the United States and is the seventh largest metropolitan area in the country, with a population of around 5.5 million people. It also happens to be one of the cities hardest hit by the recent United States housing bubble/bust (see below chart):

Although Miami’s economy in many ways more closely resembles the cities of Queensland than Melbourne – owing to its significant tourism base (related to its tropical climate) and its inward migration of retirees – its housing market has some distinct similarities to that of Melbourne.

As with all of Australia’s capital cities, the state of Florida had in place (revoked in June this year) state-wide growth management (‘smart growth’) policies that aimed to promote urban consolidation by restricting greenfield housing development (‘urban sprawl’). In the case of Miami, these regulations included: an urban growth boundary (called the “Urban Development Boundary”), which precluded development outside of Miami-Dade county’s western and southern edges as well as its southeastern coastal fringe; high impact fees, which forced developers to pay for new roads, schools and parks associated with growth; and comprehensive plans to determine where and how much development would be permitted.

By reducing the amount of land available for development, taxing new construction, and requiring developers to seek planning permission prior to construction (often a complicated and time consuming process in itself), Miami’s growth management regulations made it impossible for the building industry to supply homes both quickly and cheaply in response to increases in demand from easier credit, population growth and income growth (amongst other things).

As Miami’s housing prices rose quickly in the early-2000s (see above chart), it took until 2004 before Miami’s building industry began responding with increased levels of new home construction (see below chart).

However, by this stage, real estate speculation was at fever pitch with speculators paying over the odds for off-the-plan condominiums and detached homes that they hoped to flip for a profit once completed. The economy was also booming, with employment at record highs:

And strong gains in employment in the construction industry:

Just as home sales were peaking:

The rest is history. Miami’s supply response came too late to mitigate the price rises, with many of the condominium (apartment) and detached housing developments instead hitting the market after prices began to fall (see, for example, this video).

Now the Miami housing market is oversupplied, with most homes selling for a fraction of their former valuations. Meanwhile, Florida is ranked 8th in the United States in foreclosures, despite it being a full recourse state (i.e. where creditors can pursue a borrower’s other assets following mortgage default). And the unemployment rate in Miami has surged from 3.6% in January 2007 to 11.1% currently, with half of Florida’s construction jobs having disappeared.

You can now see why my ears pricked up when the hedge fund manager likened Melbourne to Miami. While I do not consider Melbourne to be at risk of a Miami-style housing crash, Melbourne is, nevertheless, Miami-lite in some ways.

For starters, Melbourne’s building boom began long after home prices began rising, with much of this construction in apartments:

Second, just like in Miami, sales volumes in Melbourne have fallen significantly prior to the homes currently under construction being completed:

And the number of homes on the market has increased significantly:

So far, the bulk of unsold homes in Melbourne appear to be new homes on Melbourne’s urban fringe; although with so many apartments currently under construction, the glut could easily move inwards. An article published on Friday in Property Observer provides a useful insight into the current state of play:

Stale stock on the market in Melbourne ballooned from 19,800 to 31,600 properties in the last three months, according to Prosper Australia spokesman David Collyer. He says stale stock is particularly accumulating in new suburbs on the city fringe.

Collyer defines stale stock as unsold property on the market for more than 60 days.

“Gardens have been primped, interiors polished up, advertisements run, open for inspections attended, auctions conducted and … no sale,” Collyer notes, arguing that it points at a major correction, as the supply and demand equation would need to be restored by price slides across Melbourne.

“Hardest hit are the first-home buyer hunting grounds in Melbourne’s west, with over 5,600 brand-new houses stale and more being added daily.”

In Derrimut, Werribee and Point Cook, the postcode 3030, there were 2650 stale listings, in the 3029 postcode of Tarneit, Truganina, Hoppers Crossing some 1932 sale listings and at Roxburgh Park and Craigieburn, postcode 3064, some 1095 stale listings.

“To give these figures perspective, only 564 Point Cook properties sold in all last year,” Collyer said.

“This overhang is massive. Developers miscalculated. They built way ahead of buyers and have now come to a grinding halt.”

He forecast this could lead to abrupt and widespread unemployment in the construction trades as projects are completed and workers laid off.

The last two sentences are perhaps indicative of where Melbourne’s housing situation most mirrors Miami’s. With the manufacturing sector in terminal decline, Melbourne’s economy has become increasingly reliant on construction. However, with the pipeline of homes currently under construction nearing completion, sales volumes falling, unsold inventories increasing, and population growth declining, there is a distinct possibility that Melbourne’s construction industry could grind to a halt, leading to a sharp increase in unemployment.

While no two housing markets are ever the same, Melbourne’s has enough similarities to Miami’s to invoke caution about the situation currently developing.

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Unconventional Economist


  1. Those unemployed builders could always come to Christchurch, to do our re-build. But wait! Our builders are going to….Australia, as property sales here have stalled;stale inventory is well up and jobs across our productive sector are falling ( that’s ‘property investment’ by the way, if you take out our other employer of dairy – your mining). A builder I know, who left NZ to go to Brisbane, now is off to… Malaysia! Maybe that’s where the next building boom is going to be?

    • The_Mainlander

      Hi Janet,

      as a regualr visitor to Malaysia they have had a building boom for twenty years at least.

      Malaysians are fanatical builders and they too have overbuilt.

      In general the build quality of homes is very avergae but they are well priced a 4 bedroom will come in around 70-100K Australian.

      But you have to be Malaysian to buy!

      It will be a great place to retire to in teh future.


      But hey I love Nasi Lemak and Malaysia so I am biased – and no I am not Malaysian


      I also think Malaysians have a thing for development and concrete they overbuild all sorts of infrastructure… (bridges, causeways, stadiums, apartments etc.) but the climate wears it down pretty fast it is amazing to see!

  2. Very interesting, Unconventional Economist, one further matter is that Miami is the seventh largest city in the US, while Melbourne is the second largest in Australia.

    Any sharp drawback in real-estate prices will be much more painful to the entire nation than specifically Miami was to the US.

    • The USA had 2 “affordable” cities for every 1 “unaffordable” one in the Demographia Reports leading up to their bust.

      Australia has 0 affordable cities.

      Expect YOUR bust to reflect this too.

  3. Builders out in 3029 and 3030 have practically given up on local sales. Take a walk through any display village out there (a solo experience these days, even on a Saturday afternoon) and you’ll find interior design to be targeted specifically at foreign buyers. Builders will freely admit to it, although that source has also dried up.

      • Good decision.

        Take a low-end block out there, say $250K and add it to the ‘as displayed’ price of say a 28sq home ($350K), plus another $50K for gardens, driveways and other non contracted finishes and you’ve paid $650K for a mediocre place, miles from public transport etc.

        Funnily enough that same house can be purchased for probably $500K, second-hand. All of a sudden houses in the burbs are now displaying the same depreciative behaviours as new cars!!

      • >All of a sudden houses in the burbs are now displaying the same depreciative behaviours as new cars!!

        Which is how suburban house prices should be valued, as they are a consumption item, providing basic shelter, whose overall material value depreciates with time, and whose total stock can be added to very quickly and responsively, if allowed to by regulation, and can be built cheaply and quickly (if not gamed by developers to build McMansions on tiny blocks).

        They are more like mid-level Commodores and Falcons than people realise, yet they are priced like Porsches.

        As I’ve long said – we have an affordability crisis in Australia, its just that we all want to afford Porsches, when we need Commodores.

        • I know people living here (3029/3030) and most of them are busy all weekends, doing what? Renovating new homes!!. The product cycle is fast here , every new estate comes with a brand new design that outmodes the old estates pretty fast. In a bid to keep up with the Jones , as you cant do much with an exterior of a five year old house the interior furniture cycle is pretty fast. new decks , new furniture , over-decorating the walls, then pulling it down and then doing it all over again. It never stops!. Relax ..

          • The_Mainlander


            So is mine except I rent and it was built by the Hoffman Brick Works as ‘Executive Housing’.

            It has been/is an amazing place to live I and I have an excellent Landlord who bought it back in the 80’s for I believe around 80k.

            That was back when from what I understand you did not say you were from Brunswick – but I am proud Brunny lad and can’t believe you would not admit to being from Brunswick… I have been back in Australia about 10 years.

            Anyhoo, same type of house two doors up sold for 600k last weekend (inc. taxes, duty etc.) our rent delivers about a 2.5% yield on those numbers!

            Crazy but true.

            My landlord has done well whatever way the market goes. We do well by living here and have an excellent quality of life… why would I buy at that price and have 50% of our income on a mortgage – no thanks I will take the savings and pay the small rent.

            Besides UBank and other investments are easy wins plus with Rates up tomorrow!


            Anyhoo, cool to have other Brunswick MB-ers here.


          • The_Mainlander, I had a guy scoff when I told him what I was paying in rent (it’s not that bad to be honest). It was the same old “gah, all that money and what do you get?”

            I simply responded with “a nice place to live”

            Internally I was thinking “it would cost me well over double that to buy it you moron”. And assuming a 3.7% gross yield it would. It would cost me more in just interest for the first 20 years!

            That’s not even including costs like rates/maintenance/etc…

            Ugh, how anyone could think it was a good idea to buy your own home at current prices?

        • Prince, all houses do depreciate still like a consumption item, the pricing of land is where the appreciation in prices has come..

  4. Anecdotally, Miami is a disaster.
    An acquaintance has family living there – mother-in-law living in townhouse, with the other townhouse on the block occupied by a family friend, in a ‘good’ part of Miami.
    Every other dwelling on the block has a for-sale sign on it, and most are not lived in or visited by owners. They get up in the morning to almost total silence, no traffic, no people no pets.
    Quite an eerie experience apparently.

  5. “While I do not consider Melbourne to be at risk of a Miami-style housing crash…”


    Even though Australia’s house prices have risen further than the US in terms of common valution ratios, i.e. price to income, rental yield.

    Australians also increased private debt levels to higher levels than their US counterparts while bidding up house prices.

  6. any profitable opportunities to “short” Melbourne housnig market?

    or just short big 4? banks’ share prices have already underperform marekt for nearly 15% so far.

  7. While I think Melbourne is overvalued I’m not so sure it matches Miami. The run up in Miami was manic.
    Also, much is said about our personal debt levels but not much is said about the wealth we hold in Super, I think this also needs to be thrown in the mix.
    On another note who is this David Collyer? It seems he’s just shown up late to the party and is trying to shout the loudest

    • David Collyer is part of the fellow Georgists , Bryan kavanagh and Gavin Putland. Their agenda , a very reasonable one is for the government to adopt Henry recommendation of introducing land tax as to avoid land banking.

    • I thought the purpose of superannuation was to provide income during retirement, not to offset debt incurred for current consumption?

      Isn’t that why it receives favourable taxation treatment (i.e taxpayer subsidy)?

      If we start considering superannuation as some sort of offset for debt incurred pre-retirement, then surely what we in reality have is just taxpayer-subsidised consumption, and no real retirement income plan?

      • I agree what you’re saying, but surely, being such a substantial asset, it has to be considered when you’re talking about people’s net situation, especially when comparing with the rest of the world. I see the logic in not considering the ‘net’ value of houses over the loans supporting them because that’s the entire problem (inflated asset prices). But Super, by and large, isn’t heavily invested in residential property (obviously some is and other assets are correlated ie: real commercial, bank shares, etc). I’m not saying super ‘nets’ off our debt but to some extent it must be considered, though its not much help to the younger indebted!

      • The_Mainlander

        Don’t forget the Future Fun is actually just a Super Fund to pay for Public Servants Super – that’s it!!!



  8. Interesting that The Age has given Louis Christopher the soapbox from which to throw the Melbourne housing market under the bus (mixed metaphor alert!). Not the sacred cow it was back in Louis’ APM days it seems.

    If even more owners put their places on the market this Spring then there’s a real risk that the demand / supply imbalance will increase further. And then what? The spin will be on to call bottom, but which way will market sentiment turn? Seems hard to imagine Victorians bailing on bricks & mortar, but will it be the investors getting what they can?

    Certainly a market to watch, but while Sydney levitates the panic should be minimised.

  9. Please correct me if I’m wrong, but wasnt the US property collapse caused by the fact the the banks were giving mortgage loans to people who couldnt possibly ever repay them? And then they repackaged those bad loans, got moodys and fitch to rate them AAA and provided them as guarantees and collaterals to various special purpose vehicles that granted more loans. Or “secured” them with CDS and sold them to pension funds and institiutional investors but there was never enough asset backing for those CDS so when people started defaulting on their loans the whole system collapsed?

    That was my understanding of the story anyway, and if thats the case I dont see too many fundamental similarities with australia. If anything the banks here are way more conservatives and – unless there is some major disaster like a considerable rise in unemployment – the majority of mortgages seem serviceable. I think each market should be looked at separately.

    • Easy credit was a factor, but only part of the story, since only half of the US’ housing markets bubbled (despite similar access to finance). Supply constraints are equally important (Melbourne’s and Miami’s land-use policies are similar). If easy credit is combined with supply constraints, a housing market has the ingredients for a severe bubble/bust. Take away either of these ingredients, and the propensity for housing bubbles is reduced significantly.

      As for unemployment, Miami’s was only 3.6% in 2007 prior to the bust (well below Melbourne’s currently), so I wouldn’t put too much faith in that argument.

      Both markets are different in many ways, but there are similarities as well that are worth considering.

      • Hi UE, thanks as always for your excellent work, but one question: You have said a number of times that you don’t expect Melbourne to have a spectacular housing crash – please could you say a few more words why (or point me to a previous discussion)?

      • Thanks. I guess what I’m trying to gauge is if these similiarities are enough to sustain such a massive plummeting for so long, or they are more temporary in nature ie supply catching up with demand.

        Did they mention what unemployment looked like during the crisis? Also more importantly: did rental yields follow house prices at the same rate? I’m guessing that in a non-financial-crisis environment (like the one I’m hoping Melbourne will have) dropping house prices might make properties more attractive to investors.

        • “I’m guessing that in a non-financial-crisis environment (like the one I’m hoping Melbourne will have) dropping house prices might make properties more attractive to investors.”

          When you’re losing money just by holding a property, you need to be pretty confident of capital gains to not sell, let alone buy more.

          I’ve heard a lot of Internet boasting from people about how they’ll just buy more property if house prices drop – we’ll see over the next few years whether it’s just talk or not.

          Rents need to double or house prices need to halve (or a combination of both) to make Melbourne a sensible place to buy property based on rental yields.

    • Judd, have a look at credit growth here in Australia and housing price growth. We’ve had easy credit here for years as well, and even now with prices falling you can get a 95%+ LVR loan.

      While we didnt go as far as having the no-income-no-jobs-no-assets loans being made, we have managed to run up a pretty impressive debt bill through “equity maaaate” and our own versions of unaffordable housing and loans (FHOG and the like).

      While the details may differ, structurally we are not that different.

      Also housing price falls lead falls in unemployment, so having a low unemployment rate is not a great mitigant for falls in the house price. As UE rightly points out, Miami’s economy was booming right up until the housing bubble burst and took everything else with it.

    • So Jud, you suggest we’ve never had an issue with poor lending. I would suggest you’re wrong.

      I saw first home buyers stretching into new owner occupier homes, having to initially declare the home an investment (to use the rent as part of income) to get them over the line on a loan. At settlement they literally ignored the basis of the loan and moved in. There are other ways to get across the line, none the least being to straight out lie about your income. It has and does happen, driven by the voracious and unregulated mortgage broking industry.

      Come and revisit us with your theories once interest rates hit long term averages or dare we say it a level commensurate with a 140 year boom.

      • Jimbo I got no theories, I dont have a good grasp on what drives this market. If I did I wouldnt be here asking questions…

        You must’ve had some trolls over the years huh?

        • Good on ya for being so gracious, Jud. There certainly have been trolls and spruikers on here.

          The Wall Street derivatives nonsense, is like a whole lot of bets placed on housing market outcomes. It has the same relationship to housing market outcomes, as bets have on the outcome of a horse race, or share prices have on the actual performance of a business and its physical assets. A share market crash seldom means that the businesses whose shares are involved, are in trouble and all their staff are about to lose their jobs. It usually means that P/E ratios have gone adrift from reality and are merely coming back to reality.

          But IF a share market crash WAS because the businesses WERE all in trouble, THAT is what the Housing crash/Wall St crash WAS like this time.

          The fact that a whole lot of bets on Wall Street were wrong about housing market outcomes, does not mean that a whole lot of damage has not occurred in the housing market itself, that could occur anywhere else even without the presence of a gambling market surrounding it. Look at Ireland and Spain.

          In fact, crashes in the “gambling” side of the economy are easily fixed with a but of monetary easing. But a problem in the underlying structure of the allocation of land, labour and capital, is NOT fixable with monetary policy. We are in the process of finding this out.

      • Yep, lots of people with some sense, here on Macrobusiness.

        I am reminded of what Michael Lewis wrote about Ireland. They used to say “we don’t have sub-prime”. But it turned out the ENTIRE MARKET was “sub-prime”.

        BTW did you know “sub prime” means “more than 45% of income going on mortgage servicing”?

  10. During the ‘boom’ times in Miami, a one bedroom condos in Miami sells for well over 500K USD. (over 600K AUD using the exchange rate back then). Melbourne may be bad, but it’s not THAT bad.

    Construction for apartments does not start until a certain percentage of apartments are sold ‘off the plan’. As most local ‘investors’ (i.e. suckers) will not arrange their loan until close to settlement, things can become VERY ugly if they can’t get finance due to a drop in apartment prices.

    • Already happened on the Gold Coast – plenty of suckers left their deposit on the ground and walked come settlement day.

  11. Really great work again by Leith. There sure aren’t many analysts anywhere in the world spotting details like “WHEN” the run-up in construction happened relative to the run-up in PRICES.

    This stuff is actually vital to working out “what happened” and how we stop it ever happening again. I have no hesitation at all in advocating that a steady amount of “overbuilding” of deliberately affordable new homes, fringe growth, and the elimination of “planning gain”; will always be FAR LESS COSTLY in both economics and social terms, than trusting “planners” with calculating “the correct level of supply”.

    Stephen Malpezzi brilliantly said in one of his papers YEARS ago, that “price” is a “sufficient single statistic” to determine whether “supply” is “elastic” enough. This issue is all about supply elasticity. A run-up in construction after the price of urban land has doubled or tripled or worse (and a game of “chase the planning gain” has started), is not just shutting the stable door after the horse has bolted, it is like firing a gun in the direction of the fleeing horse.

    • The_Mainlander

      Maybe Leith should write a book, they have plenty of essays now!

      I think that would be a natural evolution personally… well if Gittins can publish a book! (enough said I will stop now!)



    • High price or high rent is not enough to satisfy the shortage-deniers that there is a problem.
      They require:
      * thousands of tents on their street
      * high average number of people per house
      * zero vacant dwellings per city

      • You obviously don’t live in Melbourne. The amount of current and pipeline supply will ensure plenty of choice for all.

        Soon we will all be able to afford an apartment in South Yarra and a weekend getaway in Richmond. Even then they would have still overbuilt.

        • I don’t live in Melbourne. Where I live I have had to put up with years of premature gloating and celebrations from shortage-deniers who are supremely confident that house prices will crash due to the oversupply.
          Sadly for me, the prices have not yet fallen. Perhaps the oversupply is moot?

  12. Terrific read.

    I’m an American living in Melbourne for the past three years. I would’ve said Melbourne reminded me of San Diego, which also had a massive boom and bust owing in large measure to the flood of inner-city high rise apartments built in the late 00’s. But Miami is probably a better match for all the reasons mentioned.

  13. After I initially commented I clicked the -Notify me when new comments are added- checkbox and now every time a comment is added I get 4 emails with the identical comment. Is there any means you’ll be able to remove me from that service? Thanks!