Australian Property

Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.

With a long history of commitment to home ownership, Australians have always been prepared to structure their finances around property. This showed up in a total dwelling stock to GDP ratio that persisted around a very high 150% from 1960 to 1990. In the late 1990s that shot up to 200% and then embarked on near ceaseless climb to 360% today.

There are many other guides to the extreme overvaluation of Australian property. The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186%. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all. The extent of overvaluation is plain.

What makes the Australian property bubble unique is the degree to which it has warped the nation’s political economy. Once a diverse and vibrant resources and manufacturing economy, over the twenty years that the Australian housing bubble grew that shape changed completely. An huge proportion of the debt underpinning Australian property is borrowed from offshore, almost $1 trillion, mostly by its big four major banks. This perpetually inflated the local currency, as well as input costs like land prices, which dramatically diminished Australian competitiveness and drove tradable sectors like manufacturing offshore. From 14% of output in the 1970s, manufacturing hit 5% of output in 2016, the lowest in the OECD.

Moreover, the centrality of Australia property to the wealth of the national polity increasingly distorted policy and even elections. In the 2008 global financial crisis, the then Labor government bailed out the the big four banks with guarantees to their offshore loans, rewriting the entire rule book for Australia’s financial architecture in one panicked afternoon. Public subsidies poured into demand-side stimulus, as well as RMBS markets. Any notion that Australian property was a “market” evaporated. Australian property was, and remains, a kind of asset quango, a public/private partnership in support of the retirement plans of its pre-dominant Baby Boomer generation.

MacroBusiness cover all elements of Australian property daily.

These guarantees exist to this day and reached their peak distortion to the political economy in 2016 when the ruling Liberal/National Party Coalition government fought and won an election in the singular defense of “negative gearing”, the principal tax policy most responsible for investor’s favouring property over other asset classes.

Contemporary Australia does not just have a property bubble, it has morphed into Propertocracy in which the primacy of house prices determines who leads the country, what policies are chosen and which generations prosper.

9

Parasites bicker over ScoMo’s first home buyer subsidy

By Leith van Onselen The Real Estate Institute of NSW (REINSW) has attacked the Morrison Government’s first home buyer (FHB) deposit subsidy scheme, claiming it will create unintended consequences for the housing market. From RealEstate.com.au: The industry body’s chief executive Tim McKibbin said the government offer was admirable but the prime minister would have been

7

Who is going to soak up the property glut?

Via Bloomie: …there are at least 80,000 reasons to suggest there’ll be no rapid rebound as the worst housing slump in a generation spreads deeper into the economy. That’s how many apartments were completed in recent years in Sydney — adding about 5% to the housing stock — while Melbourne and Brisbane have also seen relatively large

8

High land costs are behind Australia’s dodgy construction quality

By Leith van Onselen A consultant has blamed escalating land costs in the ACT – which has soared past $1,100 per square metre – for the proliferation of building defects across Canberra’s housing developments: Damien Moloney made the observation during the latest round of hearings at the ACT Assembly’s building quality inquiry, which is examining

5

Home buyers in driver’s seat as median selling time balloons

By Leith van Onselen CoreLogic’s latest Quarterly Housing Market Review included the below chart showing that the typical capital city home took 67 days to sell compared as at March 2019 versus 40 days at the same time in 2018: Now, CoreLogic’s Cameron Kusher has released additional analysis on the median time on market across

25

Mr Armageddon: Armageddon postponed

A month ago, we saw Mr Armageddon go nuts at News: With Sydney and Melbourne’s falling house prices infecting other capitals such as Brisbane, Darwin and Perth, some doomsayers say property prices could slump by as much as 50 per cent by 2022. Digital Finance Analytics chief Martin North says Sydney and Melbourne houses will suffer

34

CoreLogic weekly Australian house price update: Stabilisation

By Leith van Onselen In the week ended 23 May 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, remained basically flat (-0.01%): Values rose across Sydney and Melbourne but fell elsewhere: So far in May, dwelling values have fallen 0.45%, with all major markets falling: The quarterly

9

Shane Oliver upgrades housing outlook

From Shane Oliver: Introduction The negatives weighing on Australian residential property prices remain significant but the past few weeks have seen a number of developments that suggest that prices could bottom earlier and higher than we have been expecting. The election outcome removed a key threat, but several other factors also help. This note looks

8

REA: Don’t expect Chinese property buyers to return

By Leith van Onselen The chief economist of REA Group, Nerida Conisbee, has hosed suggestions that Chinese buyers will return en masse to the Australian property market. From The Australian: Chinese buyers have evaporated from the market, and it isn’t surprising given there were so many factors pushing them back — new taxes on foreign

6

Final auction clearance rate rebounds

By Leith van Onselen Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 1.8% decline in the final national auction clearance rate to 55.2% – slightly below the same weekend last year (56.8%) but above last week’s 54.0%: As

13

Joye fastened to ScoMo property teat

Via Chris Joye today: The widespread media consensus that Prime Minister Scott Morrison has “no agenda” is crap. Most critics do not see the agenda because they are projecting their own political prejudices. ScoMo’s agenda is about empowering individual exertion, aspiration and productivity through lower taxes, smaller government, balanced budgets and investments in infrastructure, education,

5

Planning racket exposed as Sydney land speculators gamble on re-zoning

By Leith van Onselen A cabal of speculators that acquired swathes of land on Sydney’s lower north shore, in the anticipation of making a motza once the rezoned for high-rise development, are now sweating on State Government approval. From The Brisbane Times: Developers who have taken a half-billion-dollar gamble on the rezoning of suburban properties

26

Highrise Harry ends discounts

Boom! At the ABC: Billionaire apartment developer Harry Triguboff could not hide his delight at the prospect of an interest rate cut in June and the re-elected Morrison Government’s planned help for first home buyers. The Reserve Bank has given its strongest hint yet that interest rates will fall, almost certainly at its June meeting.

5

Property lobby demands dedicated housing minister

By Leith van Onselen The Property lobby has united in demanding the new Morrison Government introduce a dedicated Minister for Housing. From The AFR: Property developer and Rich Lister Nigel Satterley is leading a powerful industry lobby urging the triumphant Coalition to create a dedicated Federal Housing Minister… [Satterley] said a “full-time housing minister” was

10

Perth property value losses plunge through 19%

By Leith van Onselen Yesterday, CoreLogic’s daily house price index revealed that Perth dwelling value declines have smashed through 19%: This is by far the biggest bust on record for Perth, with the current 19% decline far eclipsing prior price corrections, both in terms of size and duration: The quarterly pace of decline in Perth

12

UBS: APRA won’t lift house prices

Via the excellent George Theranou at UBS: With actual mortgage rates of ~4% + the new 2.5% buffer, the assessed borrowing rate is likely fall to ~6.5%, below the ~7¼% floor, ‘notionally’ increasing borrowing capacity by ~8%. If the RBA also cuts & mortgage rates decline to 3.5%, borrowing capacity rises ~14%. However, given the

16

CoreLogic: APRA cuts won’t lift house prices

Via Cameron Kusher: APRA looks to loosen lending limits – CoreLogic research analyst Cameron Kusher: Earlier today, the Australian Prudential Regulation Authority (APRA) issued a letter to all authorised deposit-taking institutions (ADI) regarding consultation on revisions to prudential practice guide APG 223 residential mortgage lending.  While that may not mean very much to readers specifically

21

Melbourne’s McMansion mushroom cloud rises into MSM

Last year it became apparent that Melbourne’s house and land market had become an giant bubble after the median pricefor a housing lot hit $339,000 – up 21% in only 12 months – with steeper rises in the cost per square metre: In August 2018, the panic began to set in with land speculators rushing for the exits: Speculators who

16

Mortgage brokers rejoice at re-election of Property Council PM

By Leith van Onselen Labor had planned to ban trailing commissions for mortgage brokers from 1 July 2020, so its defeat at the federal election has been welcomed by the mortgage broking sector. The Hayne royal commission had recommended that trailing commissions be abolished and that banks stop paying upfront commissions to brokers. Labor had

58

Bubble on. APRA to cut mortgage servicing requirments

And that’s how it long it took for our corrupt system to turn itself around: The Australian Prudential Regulation Authority (APRA) has begun consulting on possible revisions to its guidance on the serviceability assessments that authorised deposit-taking institutions (ADIs) perform on residential mortgage loan applications. In a letter to ADIs issued today, APRA has proposed

33

UBS bears: Housing downside materially reduced

Via the UBS property bears: Election result materially reduces downside risk for UBS view on housing The main implication of the election is the absence of expected Labor changes, especially to negative gearing, capital gains tax & franking; rather than the Coalition’s mostly ‘status quo’. While this likely has limited impact on our credit tightening

29

CoreLogic daily index surges

With negative gearing reform dead, imminent interest rate cuts, first home buyer subsidies, and likely macro-prudential easing, we expected the Australian housing market to bottom in the second half. But we certainly didn’t expect a rebound this quickly. Check out today’s CoreLogic Daily Index, which shows that Sydney dwelling values surged 0.32% and Melbourne’s by

6

HIA: Crashing house prices drives best affordability in six years

By Leith van Onselen The HIA has released its Housing Affordability Index for the March quarter, which one again proves that the best cure for unaffordable housing is lower prices: “The HIA Affordability Index rose by 2.2 per cent in the March 2019 quarter to post the most significant improvement in affordability since September 2013,”