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.

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Tumbling apartment sales begin to bite

Via The Australian: “There is absolutely no question we have seen a considerable softening in the construction end of the residential apartment space,” Martin Monro, the managing director of listed construction company group Watpac, told The Australian yesterday. “The manipulation of interest rates would clearly impact the housing market … if people can’t see a possibility of

56

Cancel the Apocalypse: House prices are rising!

Or so says Justin Fabo and Ric Deverell, economists at Macquarie Bank: “It is now looking very likely that housing prices at the national level are again rising modestly,” the pair wrote in a note released this week, adding the disclaimer that “large differences remain between locations and type of housing”. Given the seasonal nature

46

Is Australia’s interest-only mortgage cliff as big as US sub-prime?

Domainfax is worried: Queensland property investor Peter Button “grabbed the profit and ran” when his interest-only loan expired and he realised that refinancing would trigger a hefty increase in repayments. “I saw a refinancing issue coming over the horizon, it was easier to just get rid of it,” said Mr Button who recently sold his

2

Australia’s dwelling construction set to decline over 2018

By Leith van Onselen The ABS has released dwelling construction data for the September quarter of 2017, which recorded an increase in dwelling commencements but a fall in completions. According to the ABS, the number of dwelling commencements rose by a seasonally-adjusted 0.7% over the September quarter but were down by 3.3% over the year.

16

Housing finance commitments rise on FHB stimulus

By Leith van Onselen Today’s housing finance data for November, released by the Australian Bureau of Statistics (ABS), posted a big jump in lending to owner-occupiers as well as a smaller increase in lending to investors. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) rose by 2.4% in November in

16

Rental vacancies rise

Via SQM: Vacancy Rates Increase in Most Cities in December   Data released by SQM Research this week has revealed the national residential vacancy rate was 2.5% in December 2017, with the number of vacancies Australia-wide increasing to 80,092 – an increase on the month of November. All capital cities have increased their vacancy rates in December however, Hobart’s vacancy rate

20

And now for some property security bans for business loans

Via the AFR: ING is banning the use of some residential property as security for commercial loans in the latest sign that lenders are growing nervous about the outlook for property price growth. Commercial loan borrowers will also have to provide case-by-case evidence of higher levels of equity in their residential property, a proven record

90

Pascometer redlines on property crash

Weeoo, weeoo, weeoo. I’ve been pretty sanguine about the unfolding property correction. It’s another round of slow melt for now, plodding lower for years as Macroprudential 2.0 tightens then negative gearing is removed. With fiscal stimulus pouring out and the odd rate cut thrown in it’s manageable until we get another external shock. But that

39

CoreLogic: New year brings house price falls everywhere

Via Core Logic, major city house prices continue to sicken with Melbourne joining in so far in January: As the leading mortgage index plunges but listings don’t (talking about year on year changes not the cyclical drops): It will be fascinating to see what the Autumn season brings. My guess is a spreading slow melt.

7

Mortgage conditions “tightest in 15 years”

Via The Advisor: Members of the industry have challenged the assertions of a professor of economics regarding the state of the current lending market and broker remuneration, with one broker stating that it’s harder than ever to get a loan. In an opinion piece for The Australian Financial Review, a professor of economics at UNSW Business

42

Sunday Night pumps Mr IQ’s leverage empire

Dear God, how about some research Sunday Night? He’s Australia’s most surprising real estate mogul but at 32, Nathan Birch’s success has been achieved by following some very basic investment rules. Meet Australia’s most surprising real estate mogul who has amassed a portfolio of hundreds of properties and now he’s sharing his secrets. Part 1 Since

41

Coalition liars comprehensively shamed on negative gearing

By Leith van Onselen The Coalition’s strident defence of negative gearing, and the lies used to support the policy, is looking increasingly toxic for the Turnbull Government. Last week, the ABC’s FOI release from the Australian Treasury showed that Labor’s policy to restrict negative gearing to new builds and halve the capital gains tax (CGT) discount

25

Is Perth’s housing market “close to bottoming out”?

By Leith van Onselen From WA Today comes the eternal question about whether Perth’s housing market is about to recover: Australia’s peak housing body predicts Western Australia’s housing market is close to “bottoming out”… “The WA market is approaching a bottoming out point after record highs in 2014,” he said. “Since then it’s fallen back

8

AFG shows huge drop in interest-only mortgages

By Leith van Onselen Australian Finance Group (AFG) has released its housing finance data for the December quarter, which registered a seasonal fall in mortgage applications, as well as a decline year-on-year. The number of mortgage applications fell by 2.3% over the December quarter and was down by 3.0% over the year, whereas the value

61

Another idiotic housing affordability “solution” emerges

By Leith van Onselen Leading real estate rent-seeker, the Property Council of Australia (PCA), is pushing for another idiotic policy “solution” to fix Australia’s housing affordability woes: offering a government-backed low deposit home loan scheme. From The Australian: A government-backed low-­deposit home loan scheme could help address housing affordability by getting more buyers into the

33

Foreign buyers try to skirt new stamp duty hikes

By Leith van Onselen In the wake of yesterday’s data from ANZ showing a sharp drop in foreign residential property sales (see chart above), as well as the hissy fit from “Highrise” Harry Triguboff, The AFR has reported that foreign buyers are attempting to skirt recent stamp duty increases by purchasing “nominated” off-the-plan apartments whose

10

Sydney home prices fall for 18th consecutive week

By Leith van Onselen The deflation of Sydney’s housing market has continued for the 18th consecutive week, with CoreLogic’s dwelling values index registering another 0.13% decline, and values down a cumulative 2.6% over that 18-week period, and dwelling values also down 2.5% over the past 23 weeks: Sydney’s quarterly growth rate continues to turn negative,

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NSW Premier ignored warnings negative gearing was inflating Sydney home values

By Leith van Onselen In late 2016, the Coalition erupted into civil war when NSW Planning Minister, Rob Stokes, threw a hand grenade at the Turnbull Government’s housing policy, arguing that changes to negative gearing are necessary to make housing more affordable: “We should not be content to live in a society where it’s easy

24

Highrise Harry bawls as foreign property demand falls

The ANZ-Property Council Survey for the March quarter has been released, which revealed a sharp reduction in residential property sales to foreign (non-Australian resident) buyers, with everywhere but South Australia posting declines: As shown above, foreign buyers accounted for 16% of residential property sales nationally, with sales highest in VIC (21%) and NSW (18%). The

32

Real estate lobby calls for dedicated “property minister”

By Leith van Onselen MB often refers to Treasurer Scott Morrison as “Australia’s real estate treasurer” because of his close links with the Property Council of Australia (PCA), where he served as National Manager of Policy and Research between 1989 and 1995. We also frequently deride the Turnbull Government for its staunch defence of negative

8

Ray White still fighting the last war on negative gearing

By Leith van Onselen The chairman of Australasia’s largest property group, Ray White’s Brian White, has hit out at Treasury’s analysis of Labor’s proposed negative gearing and capital gains tax (CGT) reforms, which claimed that Labor’s policy would have a “relatively modest downward impact on property prices”, would shift the “composition of ownership… away from