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.
Housing analysts believe Australia is unlikely to experience more housing bubbles, due to interest rates bottoming, working from home spurring decentralisation, and lower levels of immigration: Chief economist at AMP Capital, Shane Oliver, said the inner city was out of fashion and the new appetite for living further from work would revolutionise the market and
With last week’s release of population growth data for the March quarter, it is once again time to examine how Australia’s dwelling supply is tracking against population growth. The below charts track the following, which are based on the latest available quarterly data: Dwelling approvals to June 2020; Dwelling commencements to March 2020; Dwelling completions
Via the ABC: “Flabbergasted.” That’s the universal response I’ve been hearing from consumer rights advocates to the Federal Government’s proposed abolition of the responsible lending obligations. They simply can’t understand what the Government is aiming to achieve by freeing banks from their legal obligation to check whether potential borrowers can afford to repay a loan
CoreLogic’s preliminary auction clearance rate softened, with 70.5% of reported auctions cleared versus 72.4% last weekend: Sydney’s preliminary clearance rate strengthened again with 74.8% of reported auctions sold, up from 72.4% last weekend. However, Melbourne’s preliminary auction clearance rate was only 28.6% off only 49 reported auctions. According to CoreLogic: There were 1,107 capital city
Ahead of the anticipated announcement of the Federal Governments trashing of responsible lending laws by moving oversight of financial lending from ASIC to APRA, Gunnamatta spoke with David Llewellyn-Smith and Leith van Onselen about the implications of the move, and how this positions the Australian economy. The sound is a touch raw, and the discussion
If you want a prime example of why Australia is the property equivalent of a narco state, read on below. We are only around 18 months out from the Kenneth Hayne banking royal commission, which lambasted Australia’s banks for irresponsible lending. Yet Treasurer Josh Frydenberg has amazingly announced the scrapping of responsible lending laws: Responsible
A consortium of consumer groups have rightfully slammed the Morrison Government’s planned axing of responsible lending laws, issuing the following media statement: MEDIA STATEMENT FRIDAY 25 SEPTEMBER 2020 Consumer groups slam move to remove responsible lending laws Removing credit protections will cause harm to people and the economy CHOICE, Consumer Action Law Centre, Financial Counselling
CoreLogic has released its final auction clearance results for last weekend, which reported a final auction clearance rate of 67.6%, up on last week’s 63.0%: Sydney’s final clearance rate firmed to 67.5% (from 65.9% last week), whereas Melbourne’s surged to 70.0% based on only 10 results. As noted by CoreLogic: Sydney returned a final auction
Via Treasurer Josh Depressionberg yesterday: Australia’s future population will be smaller, and older, than we previously assumed because of the sharp drop we are seeing in net overseas migration. Australia’s population growth is expected to slow to its lowest rate in over a hundred years. As published in the July update, net overseas migration is
It’s fair to say that it has been a sobering six years for Perth’s property market. Perth dwelling values have fallen by over 22% from their June 2014 peak: Rents have also declined by 23% from their 2014 peak: The market is turning around, however, according to CoreLogic’s head of research, Eliza Owen: While transaction
In the week ended 24 September 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.08%: It was the 20th consecutive weekly decline. The fall was driven by Melbourne and Sydney, whereas the other capitals recorded rises: So far in September, dwelling values have fallen by
Via Banking Day: Small lenders have hit out at the Reserve Bank’s access rules for its Term Funding Facility, arguing that it is delivering a big funding “free kick” to the major banks at the expense of competition in the home loan market. Under the A$200 billion funding program set up in March to help
The newly reformed Jessica Irvine is on the case again today with desperate attempts to restore house prices: At some point, “zombie” firms and jobs – kept alive only by regular transfusions of government support – must be shot in the head. CBD cafes, travel agents, airline workers, traditional storefront retailers: how many of these
Evans & Partners’ Matthew Wilson is particularly critical of allowing banks to treat frozen loans as performing until 31 March 2021. Wilson claims the decision to “amend, extend and pretend” is not just delaying the inevitable but also making the eventual hangover worse. He also believes repayment holidays have contributed the phenomenon of “ghosting”, whereby
And here it is from fake news journo Alexandra Cain: Adam Guala, 25, doesn’t do things by halves. He’s just emancipated himself from the rental market by buying not one but two properties in Geelong. But he has had a little help. “I’ve always wanted to buy my own place. But it wasn’t until I
The mask has slipped and the reason Australia has had such high immigration rates has been revealed: The Property Council has called on the Federal Government to extend its successful HomeBuilder stimulus program for new housing construction for a further six months to July 2021. The Property Council has also recommended a ‘Welcome to Australia’
According to Richard Gluyas at The Australian, Australia’s major banks have deployed more staff to their financial hardship units as loan deferral periods for mortgage and small business customers begin to wind down. The banks are also anticipating a sharp rise in loan defaults as government stimulus measures begin to be scaled back. National Australia
Some sanity after last week’s bonkers house price push: Fitch Ratings-Hong Kong/Sydney-21 September 2020: Australia’s house prices are set to decline by 5%-10% over the next 12 to 18 months, as net immigration weakens sharply, says Fitch Ratings. Price declines on this scale would be unlikely to have a ratings impact on Fitch-rated residential mortgage-backed
Another one for the virus psychos, via McKinsey: On March 23, 2020, McKinsey introduced the twin imperatives of safeguarding our lives and our livelihoods and a nine-scenario framework to describe potential economic and COVID-19 outcomes (Exhibit 1). At the time, we wrote that the best combined outcomes depended on a rapid and effective public-health response that controlled the spread
A good appearance from Louis Christopher at the money-losing machine over at Switzer. Balanced and solidly argued.
New research from the National Housing Finance and Investment Corporation (NHFIC) claims the COVID-19 pandemic could cut demand for Australian housing by up to 232,000 dwellings over the next three years: The organisation found that international border closures had effectively shut down net overseas migration, which accounted for 59 per cent of population growth since
CoreLogic’s preliminary auction clearance rate surged, with 72.4% of reported auctions cleared versus 67.3% last weekend: Sydney’s preliminary clearance rate strengthened again with 72.4% of reported auctions sold, up from 70.4% last weekend. However, Melbourne had too few auctions to even report a clearance rate. According to CoreLogic: This week, the combined capital city preliminary
The latest rental data from CoreLogic reveals that apartment rents across Sydney and Melbourne have been hammered since the onset of the COVID-19 pandemic, falling by 4.2% and 4.4% respectively between March and August: CoreLogic’s head of research, Eliza Owen, has released additional data showing that properties closer to the city are more likely to
The latest RBA Bulletin contains an interesting report on COVID-19’s impact on Australia’s residential rental market, which it claims is experiencing “an unprecedented shock” with “reducing demand for rental properties at the same time as supply has increased”: The COVID-19 pandemic is an unprecedented shock to the rental housing market, reducing demand for rental properties
And the spruik just loves it: Why not make it 100% by 2070? Via Bill Evans at Westpac: Westpac expects mild (5%) dwelling price correction through to late 2021 to be followed by 15% surge over the next two years. To date our view has been for a 10% fall in prices nationally from the
In the week ended 17 September 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.07%: It was the 19th consecutive weekly decline. The fall was driven by Melbourne and Sydney, whereas the other capitals recorded rises: So far in September, dwelling values have fallen by
CoreLogic has released its final auction clearance results for last weekend, which reported a final auction clearance rate of 63.0%, up on last week’s 60.5%: Sydney’s final clearance rate firmed to 65.9% (from 62.3% last week), whereas Melbourne’s bombed to 25.0% (down from 32.1% last week). As noted by CoreLogic: The final clearance rate came
According to CBA’s internal data, Australian mortgage lending surged again in August: New lending for housing rose again in August. A recovery in lending is one factor behind our view that dwelling prices will fall only modestly over the next 6months. And we expect dwelling prices to rise solidly in H2 21 (see here). The
The apartment market in Sydney is reportedly imploding, hammering landlords via falling prices and rents: Parramatta, Mascot and Rouse Hill in the northwest have topped a list of Sydney suburbs “oversupplied” with apartments. These suburbs each have more than 1500 units in the pipeline over the next two years, which will increase the current supply
Australian Bankers Association (ABA) CEO, Anna Bligh, last week announced that banks would commence “the largest ever customer contact process in the industry’s history” as it seeks to contact around 400,000 customers that have deferred repayments on around $167 billion worth of mortgages. According to The AFR, one in five deferred mortgage customers have “ghosted”
