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.
Via Michael Janda at the ABC: The game is rigged and the fix is in. The east coast housing market downturn is over … at least for now. Don’t take my word for it. A veritable army of tipsters have called the bottom over recent weeks. They include property analysis firms SQM Research, Domain and CoreLogic, AMP
NSW’s peak strata body warns that Sydney apartment owners are facing a $1 billion repair bill to replace dangerous flammable cladding and has called on taxpayers to pay. From The SMH: Mr Duggan estimated that $1 billion was “a more appropriate figure” to remedy the more than 600 buildings affected by combustible cladding. “Enough is
Via Goldman: …as Goldman points out, amid the lingering trade tensions and continued depreciation of CNY in the first half of June, the bank’s preferred gauge of FX flows showed a dramatic jump in June outflows to the tune of $20 billion compared to an inflow of $13 billion in May, while the exporters’ trade repatriation ratio
Above is an interesting graphical summary of Australia’s housing market by ABC News. Here’s the excerpt accompanying the video presentation: Australia has experienced one of the world’s biggest home price booms, driven by near world record levels of household debt. This house of cards looked to be teetering, with double-digit price falls in Australia’s two
From CoreLogic’s Cameron Kusher: CoreLogic estimates of monthly settled sales data points to a levelling in housing market activity, following several years of falling home sales according to research by analyst Cameron Kusher. Despite signs that market activity is leveling out, annual transaction numbers remain lower year on year across every capital city region of
CoreLogic’s daily house price index reveals that Perth’s dwelling value declines have plunged through 20%, marking by far the biggest and longest capital city decline in modern Australian history: While the other major capitals are showing improvement, the quarterly pace of decline in Perth has worsened to 2.4%, suggesting further heavy losses: In a similar
With good reason. As we know, Housing Minister Michael Sukkar has morphed from policymaker to spiv in the blink of an eye, via The Australian: Housing Minister Michael Sukkar has urged first-home buyers to try to snap up a property now, ahead of the government’s signature loan deposit scheme starting next year, warning that housing prices
In the week ended 18 July 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.08%: Values rose across Sydney and Melbourne but fell across the other major markets: The quarterly decline is running at 0.75%, with all major markets suffering losses: Annual losses are running
Australia’s apartment crisis continues to mushroom, with engineers warning the removal of dangerous flammable cladding will expose other building faults and will require at least $3 billion to fix. From The ABC: The State Government has earmarked a budget of $600 million to fix the 500 most dangerous buildings over a five-year period. Each building
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 3.6% decline in the final national auction clearance rate to 65.4% – well above the same weekend last year (52.0%) and above last week’s 64.0%: As you can see, Sydney’s final auction
The SMH has run an article bleating about the “extraordinary collapse in home ownership in Sydney and Melbourne”: The number of people owning their home outright has collapsed by a third as house prices have soared four-fold over the past two decades, leaving a growing number of older Australians shackled to mortgages as they head
The federal government is adamant that the states should bear the full financial cost of remediation work on buildings that have structural defects or use combustible cladding. Industry Minister Karen Andrews says the states should not “shirk their responsibilities”, given the revenue they have gained from the construction boom over the last decade. Meanwhile, Victoria’s
For a long time MB campaigned for a national Housing Minister to address affordability. Careful what you wish for, via The Australian: Housing Minister Michael Sukkar has urged first-home buyers to try to snap up a property now, ahead of the government’s signature loan deposit scheme starting next year, warning that housing prices are likely
Via NAB: The trend decline in foreign buyers of Australian residential property over 2018 and into early-2019 can be attributed largely to the crackdown on capital outflows in China in recent years and to local state government charges on foreign buyers and stricter lending limits by Australian institutions. But this trend reversed in Q2 with
The NSW Office of State Revenue has released stamp duty data to June, which reveals a massive $1.65 billion (24%) decline over the past year and a $2.3 billion (31%) decline since stamp duty receipts peaked in October 2017: The latest retracement in stamp duty receipts follows a sharp 23% decline in property transfers in
Via S&P: Australian prime home-loan arrears stabilized in May after rising in preceding months, according to a recently published report by S&P Global Ratings. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages was largely unchanged, declining to 1.52% in May from 1.53% a month earlier. Arrears in May were up 13 basis
The rent-seeking Property Council has attacked the Victorian Government’s $600 million funding package to remove dangerous flammable cladding, claiming the $300 million building levy “risks massive cost increases”: The Property Council has welcomed the Victorian Government’s plan for the rectification of cladding affected buildings but has warned that a 700 per cent increase in building
In October 2017, Labor’s open borders immigration extremist, Dr Andrew Leigh, penned a spurious article claiming that Australia’s mass immigration ‘Big Australia’ policy has not pushed-up house prices: An OECD survey of the relevant studies concludes that migrants have a minimal impact on housing prices. Seven out of 10 new migrants to Australia either live
The Victorian Government’s $600 million funding package to remove dangerous flammable cladding has been labelled inadequate by consumer advocate Anne Paten, who claims the rectification costs will be “many, many billions of dollars”: Consumer advocate Anne Paten, from the Victorian Building Action Group, said the $600 million funding package would not come close to fixing
Following yesterday’s useful Bloomie chart: Comes another from Oxford Economics: Australia still looks awfully stretched with commencements crashing: And completions to follow: We’ve only blown the froth off our bubble so far.
Via Gottiboff: So, since 1990 we have had three seven to 10-year strong markets plus three tough markets which usually lasted two to three years. Now it’s about to turn. The spark comes from Hong Kong not mainland China, where it is now very hard to extract money. Since then Hong Kong property buying in
SQM Research has released its rental vacancy series for June, which revealed a small rise in the national vacancy rate to 2.3% from 2.2% last month; although it was steady over the year: Over the year, increases in vacancies were recorded in Sydney (+0.7%), Melbourne (+0.4%) and Canberra (+0.4%), whereas they fell in Brisbane (-0.5%),
JMG Building Surveyors CEO John Massey has urged Prime Minister Scott Morrison to resolve what he says is a national crisis concerning professional indemnity insurance. Massey notes that insurance companies are offering private building certifiers coverage with exclusions for cladding and other dangerous materials, but that companies such as his cannot operate without being fully
Via ANZ at the AFR today: “We have revised our forecasts and now expect prices to bottom out in coming months and rise modestly through to the end of 2019, before gaining around 3 per cent in 2020,” ANZ said. …banks now get to use the set their own “floor” rate to test a borrower’s
The property lobby has won again with Victorian taxpayers to spend $600 million for rectification workers to remove flammable cladding from the state’s high-rise buildings: Victorian taxpayers will help fund major rectification works on buildings with dangerous combustible cladding, Premier Daniel Andrews says. His Government has announced a $600 million package to fix hundreds of
From CoreLogic’s quarterly auction report: CoreLogic recorded a strengthening trend in auction clearance rates over the June quarter – the last time the result was this strong was back in June 2018. Clearance rates across Melbourne, Australia’s largest auction market, showed an increase over the June quarter while Sydney’s clearance rate has outperformed both the
A handy table from Bloomie: The key measure is household debt-to-GDP. So Australia may not win the obscenity award for highest prices following its correction but it wins the most impossible to inflate further gong.
Via CoreLogic, new listings continue to be very weak and unsold inventory is now down year on year: The leading mortgage index is still below last year but the gap has closed markedly: The market continues to rebalance more bullishly (or less bearishly). Full report.
Five of Australia’s largest business groups – Master Builders Australia, the Australian Industry Group, the Insurance Council of Australia, the Property Council of Australia and the Australian Construction Industry Forum – have demanded urgent federal government intervention to fix the insurance crisis afflicting private building certifiers in the wake of widespread reports of faults and
Billionaire Meriton apartments developer, “Highrise” Harry Triguboff, has threatened NSW Premier Gladys Berejiklian with legal action for Ryde MP Victor Dominello’s opposition to Meriton’s 1270 Meriton unit development in Sydney’s Macquarie Park. From the Daily Telegraph: In an extraordinary display of force by the country’s third richest person, the Meriton founder wrote a personal letter
