By Leith van Onselen I have explained previously (here, here and here) how the ACT Government deliberately manipulates urban land supply in order to maintain exorbitant land/house prices. Despite having an abundance of developable land, the Government has for a long-time drip-fed supply to the market, maintaining an artificial land shortage (scarcity) and, in the
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.
By Leith van Onselen Industry Super chief economist, Stephen Anthony, penned a detailed article in Fairfax over the weekend warning of a “homelessness epidemic” in Sydney and Melbourne due to the serious lack of affordable and social housing, and offering policy solutions: Australia stands on the precipice of a major social crisis. Industry Super estimates
The Australian has been doing some shopping around: Australian banks have been dragging their feet in meeting new rules on home lending, despite regulatory appeals to wean the industry off riskier loans. The Australian understands no major bank has yet been given the green light to grow their property investor lending book above 10 per
CoreLogic released its auction report yesterday, which reported another fall in the preliminary national auction clearance rate to 55.8% from 55.9% last weekend (later revised down to 52.6%). Sydney’s auction clearance rate was also revised down to 50.1%. The preliminary clearance rate was also way below the 69.4% recorded in the same weekend of last
Via the AFR: Commonwealth Bank home loan applicants will from next week be subject to two rounds of detailed quizzing about their weekly spending on everything from school fees to gym memberships, children and pets. The formal categories cover: children; pets; clothing and personal care; communication; education; food and groceries; housing and property expenses; insurance; medical,
By Leith van Onselen Australia’s speculator frenzy continues to retreat, according to today’s Lending Finance data for May, released by the ABS. As shown below, the annual value of investor loans in New South Wales (read Sydney) is falling fast, whereas Victoria (read Melbourne) is also moderating. Investor loans in the other major jurisdictions are either
From NAB’s quarterly property industry survey yesterday: -Survey-Q2-2018 NAB’s survey results have highlighted to a trend decline in foreign buying activity in recent quarters resulting from policy changes in China on foreign investment outflows and tighter restrictions on foreign property buyers in Australia. In Q2 2018, there were fewer foreign buyers in the market for
By Leith van Onselen In the week ended 12 July 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, declined another 0.11%: Values fell across all major markets except Adelaide: So far in 2018, home values have declined by 1.93%, with only Brisbane and Adelaide recording a value
By Leith van Onselen Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: CoreLogic has released its final auction results, which reported a 5.0% decline in Sydney’s auction clearance rate to just 50.1%, with Melbourne’s also falling by 2.1% to 56.1%: According to CoreLogic: Clearance rates have remained relatively consistent
Via Westpac on yesterday’s housing finance numbers: Australian housing finance approvals were firmer than expected in May, the number of owner occupier loans rising 1.1% vs expectations of a 2% decline, and the value of investor loans up 0.1% in the month. The result was against the wider ‘run of play’ for housing markets which
Via Morgan Stanley: Morgan Stanley’s forward-looking housing model – MSHAUS – set a new historical low at -1.0 in the June quarter. “Credit has tightened further, sentiment is slipping, and additional stock is hitting the market,” said Morgan Stanley strategists Daniel Blake and Chris Nicol. “While consensus is now bearish on dwelling prices, this model
Via The Advisor: Interest-only mortgagors are generally wealthier and have a higher risk appetite than other mortgagors, but they are increasingly turning to alternative sources of finance as lending criteria tighten, a Westpac economist has said. Writing in a bulletin titled Profiling Australia’s ‘interest-only’ borrowers, Westpac senior economist Matthew Hassan and graduate William Chen looked at two
By Leith van Onselen The ABS yesterday released dwelling construction data for the March quarter of 2018, which recorded increases in both dwelling commencements and completions driven by Melbourne and Sydney apartments. According to the ABS, the number of dwelling commencements rose by a seasonally-adjusted 5.2% over the March quarter and were up 10% over
By Leith van Onselen Australia’s falling housing market: Combined with record debt loads: And falling houshold income: Has created a mortgage default ‘powder keg’, according to DFA’s Martin North, who believes small mortgage rate increases could push nearly one million Australian households into default: “I’m almost certain they’ll be forced to lift those rates, it’s
By Leith van Onselen Today’s housing finance data for May posted a 0.8% rebound in the number of new home finance commitments (both construction and new), although commitments were down by 5.2% over the year and by 10.7% since the July 2017 peak: Nevertheless, the annual number of new home commitments is still running near
By Leith van Onselen Today’s housing finance data for May released by the Australian Bureau of Statistics (ABS) revealed a small rebound slump in overall finance commitments, led by owner-occupiers. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) rose by 1.8% in May in seasonally adjusted terms but was down
By Leith van Onselen In a taste of things to come, award winning builder, Bayside Construct, has gone into voluntary administration, which follows a series of similar failures. From The AFR: Melbourne builder Bayside Construct, which won a national award last year for the country’s best medium-rise residential development, collapsed last week under debts of
Via Domainfax comes chief executive of broking giant Aussie Home Loans, James Symond: After banks have tightened credit standards “dramatically” in the last year, Mr Symond said more customers Aussie was dealing with were falling outside the lending policies of banks, which have ramped up their scrutiny of customers’ living expenses. …”I’m hoping everyone is looking
Via the LF Economics client letter: Since our August 2017 report arguing the peak had come and gone, and as discussed with yourself, or your colleagues over the last several months, we had been patiently and discretely gathering in-the-field research to validate a few outstanding findings that required time to make an objective analysis for
With Australian property values falling for nine consecutive months: Online mortgage marketplace, HashChing, is urging Australia’s financial regulators to relax mortgage standards: Lending regulations have gone overboard, said Chief Customer Officer Siobhan Hayden said, and the tightening restrictions have, at times, become the reason for the unnecessary disapproval of loan applications. HashChing’s recent broker survey
By Leith van Onselen CoreLogic’s latest dwelling sales data paints a sobering picture for those groups heavily reliant on property transactions, such as real estate agents and state governments (via stamp duty). It also points straight down for house prices. The next chart plots annual sales volumes across the five major markets to March 2018,
Via UBS: What do we expect Wayne Byres to say at the upcoming ABE speech? Wayne Byres is due to speak at an upcoming ABE event on Wednesday 11th July. The topic is “Developments in housing markets” and the discussion will be around “APRA’s current views of the mortgage lending market, its regulatory and supervisory
By Leith van Onselen A few weeks back, the ABS has released the March quarter property data showing the total number of dwellings in each state. Although this series only dates back to September 2011, it is arguably the best data to use when assessing actual dwelling supply, since unlike the ABS’ various quarterly housing
By Leith van Onselen For years, MB has ridiculed fake lefty, Jessica Irvine, for staunchly lobbying for ‘open borders’ mass immigration (e.g. here, here and here), while at the same time decrying the poor state of housing affordability, especially in her home city of Sydney. Yesterday, Irvine penned an article entitled “How to fix Australia’s
Moving up the volume chain now, via the AFR: Macquarie on Monday signalled that higher variable rates would come into effect on July 13 for new customers and 10 days later for existing customers. The bank joins a host of other lenders including AMP, Bank of Queensland, IMB and Auswide, Suncorp, ME Bank and Pepper
For years, MacroBusiness has warned that Australia’s $1 trillion in net foreign debt, driven by the Australian banks’ heavily reliance on offshore borrowings to fund their mortgage books, represents a clear and present danger for the Australian economy. For example, earlier this month we noted: Australia’s banks would never have experienced anywhere near the same
By Leith van Onselen To be sure, there are stiff headwinds facing Australia’s housing market over the next few years, including: The massive roll-over of interest-only mortgages into principle and interest (raising repayments by 35% to 50%); Tightening lending standards arising from the banking Royal Commission; Rising bank funding costs; and Labor’s negative gearing and