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.
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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.
The Australian Bureau of Statistics (ABS) has released home ownership data for the year ended 2019-20, with Australia’s home ownership rate remaining constant at 66%: However, there has been a sharp decline in home ownership rates over the past two decades: Home ownership with or without a mortgage decreased from 71% to 66%. Home ownership
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CoreLogic’s latest housing affordability report showed that the proportion of household income required to meet rental costs has surged over the pandemic, led by Australia’s regions: Another report from CoreLogic, released yesterday, showed that unit vacancy rates are plummeting, in part due to “increased rental demand thanks to the return of overseas migration”: Rent values
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While Sydney’s and Melbourne’s property markets are sliding into the red, Queensland’s continues to rise on the back of strong interstate demand. PropTrack’s Potential Buyers Index, which measures the number of people seriously interested in buying, shows that demand nationally has been trending down since March: But an analysis of the SA3 regions with the
After a year that has seen major Australian construction firms Condev, ABG Group, Probuild and Privium go into liquidation, alongside the collapse of many smaller builders, giant Metricon is the latest industry player on the verge of financial ruin. Amid concerns about cashflow and the rising cost of building materials and labour, Metricon held crisis
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One of the big conundrums arising from the pandemic is the sharp fall in rental vacancy rates across Australia despite negative net overseas migration. Logically, the loss of hundreds-of-thousands of migrants should have seen Australia’s rental vacancy rate rise. However, vacancy rates instead plummeted. One plausible explanation is that Australian’s desire for additional space has
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Australia’s rental crisis continues to worsen, with SQM Research recording a surge in asking rents amid tight vacancies. While the national vacancy rate rose 0.1% in April to 1.1% on the back of the smaller capital cities (see below table), asking rents nationally soared another 1.4% over the month to be 13.8% higher year-on-year: According
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