Australian Property

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.

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Brisbane property the winner from Sydney’s lockdown

I have been bullish on Brisbane property for some time. The main reason is that Brisbane dwelling values are exceptional value in a relative sense when compared to its larger East-Coast counterparts, Sydney and Melbourne, as illustrated clearly below: The other reason is that net internal migration into Brisbane has remained robust throughout the pandemic: After

21

Albo cashes investment property as negative gearing reform scrapped

This may seem like a cheap shot. But optics is everything in politics. Only a day after Labor dumped the negative gearing and capital gains tax reforms taken to the past two elections, leader Anthony Albanese sold his Marrickville investment house for $2.35 million, banking a $1.2 million gross profit: From the article: [Albanese] and

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HIA dances on negative gearing’s grave

The Housing Industry Association (HIA) has issued a media release cheering Labor’s decision to axe the negative gearing reforms taken to the prior two federal elections, claiming it will boost dwelling supply and affordability: “[The] announcement by the Australian Labor Party to drop plans to increase taxes on housing through changes to negative gearing and

5

CoreLogic: Busiest auction market since 2017

CoreLogic has released its Quarterly Auction Market Review, which reveals that Australian auction volumes were the busiest since 2017 over the June quarter of 2021; although this drove the auction clearance rate down from the March quarter’s record high: There were 31,605 homes taken to auction across the combined capital cities over the three months

4

NAB ramps-up property price forecasts

NAB has released its residential property survey for Q2, with its Residential Property Index reaching a new survey high of +71 points in the second quarter: The rebound in NAB’s index is universal, although WA, SA and TAS have begun to turn down: NAB has also ramped-up its dwelling growth forecasts for 2021 from 14.1%

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Coalition launches another fake housing affordability inquiry

Here we go again. A new federal inquiry into ‘housing supply problems’ will be launched by the Morrison Government to examine the contribution of property taxes and restrictive planning and zoning regulations [my emphasis] Treasurer Josh Frydenberg has approved a parliamentary committee inquiry into housing supply to be led by Liberal MP Jason Falinski, chairman

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Auction market solid in face of lockdowns

With both Sydney and Melbourne still in hard lockdown, the nation’s auction market continues to hold up well. CoreLogic record a preliminary national clearance rate of 74.8%, down only slightly from the prior weekend’s 76.3%. Sydney’s preliminary clearance rate softened to 74.8% from the prior weekend’s 77.1, whereas Melbourne’s also softened to 71.9% from 76.1%.

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Forget record low rates, younger generations pay most for housing

Think Tank Per Capita has released a new discussion paper entitled “Generation Stressed”, which shows that Australian households have experienced “a significant increase in the lifetime expenditure on the median mortgage” over the generations, specifically: “For a Silent Generation family buying in 1970, the average repayment cost over the course of the mortgage was 11.2%

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Do rising house prices threaten the Morrison Government?

News.com’s Tarric Brooker believes that soaring property prices and the locking-out of first home buyers could dent the reelection chances of the Morrison Government: In the 1970s then British Prime Minister Margaret Thatcher came to the conclusion that one of the key factors in providing citizens with a stake in society was home ownership… Many

5

Lockdowns to further tighten property market

CoreLogic’s June property market report revealed that total for sale listings were tracking 25% below the five-year average: The latest REA Insights report shows similar results with active listings down around 20% year-on-year: At the same time, annual property sales hit their highest level since February 2004, with every mainland capital city and region recording

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What’s up with Perth’s housing market?

Perth’s housing market continues to behave differently from the other major capital cities. Perth property price growth has stalled recently, while the other major capitals have roared ahead: Accordingly, Perth’s quarterly value growth is running at one-third the pace of the 5-city average: Perth is also the only major capital city market yet to rise

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Rental growth red hot across most of Australia

CoreLogic’s June property price results recorded 6.6% annual rental growth, which was the strongest annual increase in rents since February 2009: Now CoreLogic has released its quarterly rental review, which shows that rental growth is booming across the entire nation, with the exception of Melbourne and Sydney: As expected, house rental rises continue to outpace

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Auction clearances strong in face of lockdowns

With both Sydney and Melbourne in hard lockdown this weekend, I was expecting the nation’s auction clearance rate to take a heavy hit. Not so, with CoreLogic recording a preliminary national clearance rate of 76.3%, basically the same as last weekend’s 76.4%. Sydney’s preliminary clearance rate firmed to 77.1% from the prior weekend’s 76.5%, whereas

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Property affordability June 2021 update

Australian property market prices continued to climb over the last month, with the past six months seeing some of the strongest growth on record. Mortgage interest rates edged higher as the Reserve Bank of Australia ended its Term Funding Facility. There are some extraordinary divergences in affordability. It has never been cheaper in some markets

2

Auction market solid despite lockdowns

The auction market has largely swept aside Sydney’s lockdown, with the final national clearance rate rising to 73.7% from 72.1% the prior weekend off similar volumes (2,104 versus 2,168 the prior weekend). As shown in the next table, Sydney’s final clearance rate rose to 74.3% from 70.5% the prior weekend. This was off 650 auctions

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A detailed look at Australian dwelling construction

Yesterday, the Australian Bureau of Statistics (ABS) released dwelling construction data for the March quarter, which showed that detached house commencements hit the highest level on record over the quarter, whereas unit commencements fell to a nine-year low: By contrast, actual dwelling completions remained depressed over the quarter, suggesting the pipeline of construction is well

21

One-third of Aussie properties cheaper to buy than rent

CoreLogic has released a new report showing that it is cheaper to service a mortgage than rent across one-third of the nation’s properties, with New South Wales and Victoria primarily responsible for warping the results: CoreLogic analysis suggests servicing a mortgage is now cheaper than paying rent on 36.2% of Australian properties, which is higher

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I’m shocked! Shocked! Developers hate Victoria’s zoning windfall tax

May’s Victorian Budget implemented a new windfall gains tax for properties whose value is boosted by a council rezoning. This tax will apply to properties where the value is boosted by more than $100,000, with a 50% tax on windfalls above $500,000. The clearest indication that this windfall tax is good policy has come from

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Forget vaccines. House prices cure COVID!

That’s the message from today’s Westpac consumer sentiment release: • The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 1.5% to 108.8 in July from 107.2 in June. The survey was conducted over the week of July 5–9, during the lock-down in Sydney and restrictions in regional NSW but before the tightening of restrictions announced