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.
In June 2019, Sydney’s 132-apartment Mascot Tower was evacuated after large cracks were discovered. Fresh cracks appeared in February, prompting authorities to close shops and set up an exclusion zone around the building. Then in April it was revealed that apartment owners are face a repair bill of $53 million, or $405,300 per apartment. Thus,
The ABS has released data on the value of construction work done for the September quarter of 2020, which registered another 2.6% seasonally-adjusted decline in total construction activity over the quarter – the ninth consecutive quarterly decline – and a 4.2% decrease over the year: However, the result disappointed analysts’ expectations of a 2.0% decline
Via Bloomie: New Zealand’s government has proposed adding house prices to the central bank’s remit to rein in an overheating property market, prompting investors to reduce bets on lower interest rates. The local dollar jumped. Finance Minister Grant Robertson said Tuesday he has written to Reserve Bank Governor Adrian Orr, asking him to consider amending
Via RBA deputy Guy Debelle: Monetary Policy in 2020 I spoke at the ABE annual event 2 years ago in December 2018. In that speech, I talked about the lessons and questions from the global financial crisis that had occurred 10 years earlier. Today, the global economy has experienced another crisis, but one which has taken a very
Calls are growing to allow first home buyers (FHBs) to access their superannuation savings to purchase a home after the Treasury’s Retirement Income Review found that home owners have far better retirement outcomes than non-home owners. A group of Liberal MPs, led by Tim Wilson, are leading the calls: Mr Wilson… told The Age and
Unsurprisingly, the Australian Banking Association (ABA) supports changes to responsible lending laws in its submission to an inquiry into the federal government’s proposed reforms. The ABA claims the reforms “strike the right balance” between protecting consumers and ensuring that credit is available: A submission by the industry’s peak lobby group, the Australian Banking Association, says
Citi says so at the AFR: “The RBA’s almost singular focus on the currency will lead to the inevitability of what always happens when rates fall—asset prices go up,” Citi’s Brendan Sproules and Thomas Strong said. “Particularly housing. “Certainly, the AFR’s Banking Summit gave credence to this view, with a broad acknowledgement that housing would
Dr Tony Recsei, president of the Save Our Suburbs community group which opposes over-development, has challenged the notion that high density urban planning is more environmentally sustainable than lower density: The assumption that high-density is environmentally superior seems to be based on intuition as no proof is provided to support this claim. Rather, considerable evidence
At the AFR: A submission to the government’s inquiry into the planned law changes from a range of groups, seen by The Australian Financial Review, says it is impossible to provide constructive feedback to proposals for change that are “fundamentally defective”. Organisations behind the submission include the Consumer Action Law Centre, Choice, Financial Counselling Australia,
CoreLogic’s preliminary auction clearance rate softened a little over the weekend, with 73.6% of reported auctions cleared versus 75.1% last weekend: Sydney’s preliminary clearance rate remained strong with 76.2% of reported auctions cleared versus 76.6% last weekend. Melbourne’s preliminary auction clearance rate firmed to 77.1% versus 73.5% last weekend. According to CoreLogic: This week’s volumes
CoreLogic has released its final auction clearance results for last weekend, which reveals that the final national clearance rate firmed to 70.6% from 69.0% the prior week: Sydney’s auction clearance softened to 71.3% from 73.3% the prior week, whereas Melbourne’s firmed to 69.7% from 68.0%. As noted by CoreLogic: There were 1,728 capital city homes
NSW Treasurer Dominic Perrottet’s plan to phase out stamp duty on property transactions and replace it with a land tax has won broad support, including from Mirvac CEO Susan Lloyd-Hurwitz. Lloyd-Hurwitz says stamp duty is a “very poor tax” that lessens mobility and keeps people in the wrong type of housing “for too long”. Lloyd-Hurwitz
21 months is a long time in Australian politics. In February 2019, the Kenneth Hayne released his final report from the banking royal commission which, as its first recommendation, directed the government to keep responsible lending rules: This recommendation came after the Hayne royal commission documented extensive cases of criminal lending and behaviour, leaving Australia’s
That’s the question asked by Tim Lawless at CoreLogic: Australian household debt levels have increased substantially over the past thirty years, with the ratio of household debt to annual disposable income rising from 68% in June 1990 to a recent peak of 188.5% in June 2019. Since June last year, the ratio has reduced slightly
The Consumer Policy Research Centre (CPRC) has partnered with Roy Morgan Research to conduct monthly surveys measuring the financial impacts and consumer experiences of COVID-19 across essential and important services markets, including housing, energy, telecommunications, credit and insurance. The September Report has just been released which shows that around half of Australian renters are experiencing
In the week ended 19 November 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.17%: It was the fifth consecutive weekly rise. All major markets recorded value rises: So far in November, dwelling values have risen by 0.33%, with all major capitals rising: Quarterly value
The Australian Bankers Association (ABA) has provided an update on its members deferred loans, which shows that the mortgage cliff that was towering over Australia’s property market has shrunk by two-thirds from its peak in June: According to the latest data up to November 4, home loan deferrals by the seven largest banks are down
CBA has released its internal mortgage data for October, which shows that mortgage lending consolidated in October, whereas lending for renovations rocketed. Consumer and business lending also remained weak. Key Points: There was a consolidation in lending for housing in October after several months of very strong growth. But lending for renovations continued to rocket
Late last year, NSW Treasurer Dominic Perrottet flagged that he was looking at eliminating inefficient state taxes like stamp duties, to spur growth. Yesterday he put rhetoric into action, launching a reform that would offer owner-occupiers an alternative to stamp duty via a fixed $500 up-front fee plus an annual tax of 0.3% on unimproved
Eighteen months is a very short time in Australian politics. In February 2019 we were all agog at the criminal lending and behaviour unmasked by the Hayne Royal Commission. The Government was humiliated. Regulators humbled. Victims vindicated. Yet, here we are today, at the AFR: At a speech on Wednesday morning to a special, virtual
SQM Research has released its rental vacancy data for October, which reported a small rise in the national vacancy rate to 2.1% from 2.0%: The increase was driven by Melbourne, whose vacancy rate soared by 0.6% to 4.4%: Sydney’s vacancy rate is also elevated at 3.6%, whereas vacancies are fairly tight everywhere else. SQM’s asking
From the Housing Industry Association: “The detached housing market continues to perform strongly and as it accelerates will pull the rest of the Australian economy forward into 2021,” stated HIA’s Chief Economist, Tim Reardon. “New Home Sales fell marginally by 1.3 per cent in the month of October to remain 31.6 per cent higher for
Like many of us, ANZ has reversed its property price forecasts for 2021 and now expects strong price growth, driven by the smaller capital cities: Since our last forecast, fixed rates have moved down substantially — the amount of interest people are paying on fixed-rate mortgages has approximately halved over the past year and a
There are areas of recovery but other segments are still sinking like the Titanic. It’s a genuine patchwork with huge winners and losers: Covid, Our Changing Economy and Monetary Policy Philip Lowe Governor Committee for Economic Development of Australia Annual Dinner Address Sydney – 16 November 2020 Thank you very much for the invitation to speak at
Recent data suggests that Australia’s deferred mortgage cliff has shrunk considerably since the nation went into lockdown earlier this year. According to APRA’s latest monthly update, the number of mortgage deferrals had fallen by around one-third, from a peak of 488,249 mortgages in May to 324,894 mortgages in September. CBA’s latest update also showed that
SQM Research’s new weekly rental listings data shows an extraordinary increase in the number of apartments listed for rent across Melbourne: According to SQM, there were 21,889 apartments listed for rent in the week to 9 November versus 8,154 houses listed for rent. Separate data released by Domain also shows that the number of dwellings
Via AFR c0mes the excellent Vimal Gor, head of bond, income and defensive strategies at Pendal Group: The next side effect we will see is in real estate. The RBA tried to distance itself from the 2016 boom after its rate cuts. This time around, the official cuts may only have been about 0.75 per
Last month, The Guardian reported that Victoria had spent about half the national average per person on social housing and that the stock of social homes has fallen to the lowest proportion of all housing in Australia: The Victorian government has built only 57 of the 1,000 new public housing units it pledged by 2022…
CoreLogic’s preliminary auction clearance rate strengthened this weekend, with 75.1% of reported auctions cleared versus 73.2% last weekend: Sydney’s preliminary clearance rate remained strong with 76.6% of reported auctions cleared versus 78.6% last weekend. Melbourne’s preliminary auction clearance rate firmed to 73.5% versus 71.8% last weekend. According to CoreLogic: There were 1,739 homes taken to
In today’s investment webinar we discussed the RBA’s recently unveiled plans to drop interest rates to unprecedented levels to support the Australian economy and property market, but the million dollar question is, will it work? To help determine this, MB Fund’s Head of Investments Damien Klassen and Head of Advice Tim Fuller are joined by
