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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How housing killed Australia’s productivity

The Australian’s Robert Gottliebsen has written an interesting article, based on research by former ANZ Bank director John Dahlsen, explaining how Australia’s housing obsession has diverted resources from the real economy and is stifling the nation’s productivity: In the decade before the 1987-89 crash banks poured vast sums into business credit but they were enticed

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Jason Falinski: Immigration has no impact on housing supply

Liberal MP Jason Falinski, who is the chairman of the parliamentary inquiry into housing affordability and supply, has penned a contradictory propaganda piece in The Australian claiming that Australia’s housing woes are caused entirely by a ‘lack of supply’, which is supposedly unaffected by mass immigration: For years governments, through inaction or special interest lobbying,

4

Rents boom as listings dry up

Domain has released is Q4 Rental Report, which shows that house rents nationally surged by 7.4% across the capital cities in 2021, with all cities other than Melbourne recording strong growth: Capital City Dec-21 Sep-21 Dec-20 QoQ YoY Sydney $600 $580 $550 +3.4% +9.1% Melbourne $445 $430 $440 +3.5% +1.1% Brisbane $480 $460 $425 +4.3%

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Mortgage commitments signal Aussie property market slowdown

As regular readers know, I consider the growth in new mortgage commitments to be the key short-term indicator for property prices. The latest ABS housing finance data for November, released on Friday, showed that mortgage growth slowed sharply over the prior six months. This suggests that dwelling value growth should slow given most homes in

4

Investor mortgage demand hits all-time high

The Australian mortgage market rebounded in November, according to new data released today by the Australian Bureau of Statistics (ABS). The total value of new mortgage commitments rose by a seasonally adjusted 6.3% in November 2021 to be up 33.2% year-on-year: Investor mortgage demand has finally surpassed its 2015 peak. They are also growing at

4

Brisbane, Adelaide hold up house prices

CoreLogic with their early new year read on housing markets: “Housing market activity is typically very quiet through late December through to late January, however we are seeing some data flowing through that gives us an early view on activity.  Based on the early readings so far, housing values are up across each of the

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HIA: Housing shortages to re-emerge with mass immigration reboot

Housing Industry Association chief economist Tim Reardon warns the lack of recent new development of city apartments will become evident in 2022 as Australia’s national borders reopen and migrants and international students return in large numbers. Australian Bureau of Statistic figures reveal that just 76,000 townhouses and apartments were approved in the year to October,

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CoreLogic weekly house price update: New year rebound

In the week ended 23 December, the CoreLogic daily dwelling values index rose 0.27%: All major markets recorded rises: Quarterly growth across the five major markets has moderated to 2.99%, with massive variation across the capitals: Annual growth remains strong at 21.1%, with Brisbane, Adelaide and Sydney recording above average growth and Melbourne and Perth

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Aussie houses earned much more than workers in 2021

CoreLogic’s Tim Lawless has provided the below charts showing the average change in house values across Australia’s eight capital cities in 2021: While Brisbane houses (30.4%) experienced the strongest percentage growth in 2021, in sheer dollar terms it was dwarfed by Sydney, whose median house value soared by $314,188 over the calendar year. Across every

3

Why Brisbane’s property boom will continue

Brisbane was the fastest growing major capital city in 2021, recording dwelling value growth of 28.4% according to CoreLogic: Industry experts are tipping Brisbane to lead price growth again in 2022, buoyed by strong internal migration and superior affordability compared with its southern counterparts: Domain chief of research and economics Nicola Powell said, out of

6

Aussie rents boom like its 2008

CoreLogic has released data showing that rental growth nationally rose by 9.4% over the 2021 calendar year – the strongest annual growth since January 2008: Nationally, dwelling rents increased by 9.4% over the 2021 calendar year. Unit rents were up 7.5% over the year compared to the 10.1% lift recorded in house rents. Rental growth

2

Auction market ends 2021 in the gutter

Australia’s auction clearances have fallen heavily after weeks of record listings: Last weekend’s final auction clearance rate was 61.1%, down from 64.0% the prior weekend off a near record 4,783 auctions (down from 4981 the prior weekend): As noted by CoreLogic: Historically we would see auction activity start to taper off in the lead up

10

Rental crisis as owners sell up?

The Australian claims that the tidal wave of landlords selling their investment properties is causing a rental crisis: Changes to tenancy laws in several states combined with Covid eviction moratoriums and soaring property prices have led many landlords to decide to sell up, property experts say… A majority of the changes to Queensland’s tenancy laws

1

Pretending to care about housing affordability

Fairfax’s Kate Burke has asked: “Why won’t governments fix housing affordability?”: Rapidly rising property prices have led to increasing concerns around affordability, but support for government intervention may actually decline as affordability worsens, a new paper suggests. Authors of the study argue that homeowners seek to protect their property price gain from being taxed away

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The never-ending property money laundering circus

Last month I reported testimony from the head of Transparency International Australia (TIA), Serena Lillywhite, to the Senate committee examining money laundering. Ms Lillywhite claimed “Australia has become the destination of choice for illicit financial flows … which too often end up in the property market” before asking “how much evidence of money laundering in

6

CoreLogic weekly house price update: Melbourne falling

In the week ended 23 December, the CoreLogic daily dwelling values index rose only 0.11%: Brisbane and Adelaide drove growth, whereas Melbourne fell: So far in December, dwelling values have risen by 0.42% across the five major markets led by super strong growth across Brisbane and Adelaide. Melbourne values have fallen: Quarterly price growth remains

4

Firstmac: Get set for debt-to-income mortgage curbs

Lender Firstmac believes that debt-to-income mortgage curbs are on APRA’s agenda: Brisbane-based Firstmac… argued the regulator seemed poised to introduce some new steps. “We’re probably not far away from a second round of macro [intervention], which will most likely be debt-to-income ratios,” [chief financial officer James Austin] said… [Firstmac said] such a ratio would potentially limit

5

Brisbane property the big COVID winner

Brisbane’s property market has experienced the strongest growth out of the major capital cities this year, according to CoreLogic: The Centre for Population’s 2021 Population Statement suggests that Brisbane’s bull run could continue on the back of strong interstate migration from Sydney and Melbourne: Net interstate migration is forecast to increase for all states except

9

Coalition summons more first home buyers with subsidies

Federal Housing Minister Michael Sukkar says the federal government is considering an expansion of its low-deposit scheme for first home buyers at a time when aspiring buyers face being priced out of the surging property market. Launched in January 2020, it allowed 10,000 first-home buyers to acquire a ‘modest’ home with only a 5% deposit.

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Sydney and Melbourne property market flooded by supply

CoreLogic has released its weekly indicators report, which shows that property listings across both Sydney and Melbourne have surged and are now running above the levels of last year: By comparison, total listings across the other major markets are running below the same time last year, with Brisbane and Adelaide especially tight. Auction volumes across