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.
Recent reports by Grattan Institute and the Reserve Bank of Australia have argued that zoning is a significant cause of Australia’s high home prices. Yet neither organisation has applied the appropriate economic theory to the property market, leading to conclusions that are almost the complete opposite of reality. The main issue in property is that the static equilibrium assumptions
From Lyndsay David today: I guess we can all thank god that ASIC and APRA don’t regulate the aviation industry. Because if they did, there would be planes falling from the sky. The Banking Royal Commission is slowly shifting from becoming a serious one-off investigation into misconduct within the financial services sector to nothing short
Karen Maley is livid: Commissioner Kenneth Hayne will need the wisdom of Solomon as he tackles what is fast becoming the most critical issue in the financial sector: how to prevent the $1.6 trillion that Australians have salted away in superannuation savings from being pillaged by unscrupulous financial advisers. More: A group of planners from
By Leith van Onselen The slow deflation of Sydney’s housing market eased this week, with values falling only 0.01% in the week ended 19 April, according to CoreLogic: Sydney home values have now declined by a cumulative 4.4% over the past 32-weeks, with values also down 4.3% over the past 37 weeks. Sydney’s quarterly growth rate
By Leith van Onselen In the week ended 19 April 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.10%: Values fell across all major markets except Adelaide: So far in April, values have fallen by 0.17%, driven by Sydney and Melbourne: So far in 2018,
Breaking from ME Bank ME’s standard variable rate for existing owner-occupier principal-and-interest borrowers with an LVR of 80% or less, will increase by 6 basis points to 5.09% p.a. (comparison rate 5.11% p.a.^). Variable rates for existing investor principal-and-interest borrowers will increase by 11 basis points, while rates for existing interest-only borrowers will increase by
Even as the Australian financial sector is eaten by the giant royal commission crocodile, it appears the always bullish property industry has no idea that a voracious predator is belting its way. From the new ANZ/Property Council industry survey: The ANZ/Property Council Survey gauges the property industry’s: sentiments about the outlook for Australia’s national and
Via Propertychat: As you are probably aware the lending landscape is changing rapidly, what was possible a month ago is now a struggle. One of the biggest issues we are facing right now is a new responsible lending requirement for property investors to fully disclose the ALL COSTS of maintaining their properties. This includes insurance,
From Australian Broker comes a sombre analysis of the interest-only mortgage reset looming for Australia’s housing market: In January, UNSW professor of economics Richard Holden published a sobering observation of Australia’s relationship with high-LVR and IO loans. In it he reported Australian banks lend an average 25% more than their US counterparts and that these
Via the AFR: Over the past two months, the BBSW has surged 0.32 percentage points, or 32 basis points, to 2.08 per cent. The rate looked to have stabilised late March, only to restart its steep upward trajectory this month. The short-term money market rate directly affects the cost of bank wholesale funding costs. The
By Leith van Onselen SQM Research has released its rental vacancy series for March, which revealed a 0.1% fall in the national vacancy rate over the month and a 0.2% decline over the year: Over the year, decreases in vacancies were recorded in Adelaide (-0.3%), Perth (-0.9%), Brisbane (-0.3%), and Canberra (-0.2%), whereas an increase
By Leith van Onselen We already know that the dream of owning a detached house with a backyard has been slipping away in Sydney: Well, new planning changes allowing narrow blocks to be subdivided are set to accelerate the decline: Under the new medium-density housing code announced last week, duplexes, terraces and manor houses can be
Via Cameron Kusher of CoreLogic. Melbourne’s slow melt: Versus Sydney’s not so slow melt: And Darwin’s endless melt: Much more melting ahead.
By Leith van Onselen One of the common arguments against ‘urban sprawl’ is that it endangers Australia’s food bowl – the food producing farms that sit beyond the urban fringe of our major cities. In recent times we have witnessed alarmist reports from various bodies, such as the University of Technology Sydney, warning that Sydney
By Leith van Onselen CoreLogic has released its Quarterly Rental Report, which reveals a two-speed rental market, with rental growth also beginning to slow after recently climbing off the canvas: The quarterly report measures the percentage change in rental prices over the first quarter, which is typically the strongest for rental appreciation and growth, as
Via Goittiboff: I have been in touch with two of the top five non-apartment builders in Australia and neither realised that the Royal Commission was threatening to go after the banks over unfair lending practices if they keep lending to homebuyers on the basis of false living expense estimates. …Both builders explained that the majority
By Leith van Onselen With the release yesterday of the ABS lending finance data for February, it’s an opportune time to once again chart how capital city house prices are tracking against housing finance. As readers no doubt already know, housing finance has historically been strongly correlated with values, so any shift in finance can
By Leith van Onselen The Australian Automobile Association (AAA) has warned that the amount of revenue that the federal government collects from fuel excise is at risk to the tune of $20 billion because of a growing switch to electric and high-efficiency vehicles, and has urged an inquiry into the adoption of road-user pricing. From
Via CoreLogic comes the leading mortgage index which remains down solidly year on year, but has shown a trend seasonal rise off the canvas: Total capital city for-sale listings are still higher year-on-year, led by Sydney: Whereas dwelling values continue to trend lower:
By Leith van Onselen Australia’s speculator frenzy has continued to moderate, according to today’s Lending Finance data for February, released by the ABS. As shown below, the annual value of investor loans in New South Wales (read Sydney) continues to fall, whereas Victoria (read Melbourne) has also moderated. By contrast, investor loans in the other major
By Leith van Onselen The rent-seekers at the HIA have released dodgy commissioned modelling from economic consultants – the Centre for International Economics (CIE) – warning of housing Armageddon if Labor’s policy to halve the capital gains tax (CGT) discount is implemented: “According to research released today, an increase in Capital Gains Tax would result
From ABC’s The Business: Spot on.
Via the AFR: The nation’s third-largest residential property lender is warning brokers that their future mortgage recommendations will need to satisfy strict new internal guidelines and ‘external’ scrutiny, a reference to regulatory or possibly legal action. “We recognise the need for trust in brokers and look forward to public policy discussions about measures that will
CoreLogic released its auction report yesterday, which reported a fall in the preliminary national auction clearance rate to 64.5 from 65.3% last weekend (later revised down to 62.8%). The preliminary clearance rate was also well below the 73.9% recorded in the same weekend of last year: Auction volumes nationally were 1,890 – well above the
Via a panicky Domainfax and following this week’s WBC tightening: Tom Crowley, National Australia Bank’s acting general manager of home lending, said the bank was collecting “granular” details of a customer’s expenses, and it was keen to work with regulators and other lenders to improve their assessments of borrowers’ finances. …Managing director of mortgage broker Homeloanexperts.com.au,
CoreLogic’s Cameron Kusher has produced new research showing that values in the most expensive 25% of the property market are falling the fastest, whereas values for the most affordable 25% have actually risen in value: Over the March 2018 quarter, national data shows that dwelling values were down by 0.5%, however digging below the surface
By Leith van Onselen In the week ended 12 April 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.10%: Values fell across three major markets and rose in two: So far in April, values have fallen by 0.10%, driven by Sydney and Melbourne: So far
By Leith van Onselen After last week’s brief reprieve, the deflation of Sydney’s housing market continued this week, with values falling another 0.19% in the week ended 12 April: Sydney home values have now declined by a cumulative 4.4% over the past 31-weeks, with values also down 4.3% over the past 36 weeks. Sydney’s quarterly growth
By Leith van Onselen Today’s housing finance data for February posted a 2.8% decline in the number of new home finance commitments (both construction and new), although commitments were up by 7.5% over the year: Looking at the state-by-state breakdown, which is presented below on a rolling annual basis since it is not seasonally adjusted,
By Leith van Onselen The Queensland Productivity Commission has released a new report into housing affordability which finds that: Brisbane house prices have increased around 300% in real terms since 1986 (a bigger increase in than the Australian capital city average of 262%), primarily driven by the cost of land rather than the quality of
