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.


CoreLogic weekly house price update: still booming

CoreLogic’s daily dwelling values index registered another strong increase in the week ended 15 April, with values rising by 0.42% across the five major capital cities: All major capital city markets recorded weekly price growth with Adelaide (0.52%) recording the strongest increase and Perth (0.16%) the smallest: We are half way through April and already


VIC urged to follow NSW and end stamp duty

The Victorian Chamber of Commerce & Industry (VCCI) has recommended the Victorian Government follow NSW’s lead and abolish stamp duty in its upcoming 2021 Budget. CEO Paul Guerra says that switching to a broad-based land tax regime will provide greater revenue certainty for the government while reducing the cost burden on home owners: Now is


HomeBuilder delivers massive jump in housing starts

The Australian Bureau of Statistics (ABS) yesterday released Building Activity data for the December quarter of 2020, which revealed a big 18.6% rise in dwelling commencements over the quarter driven by a 27.0% surge in detached house commencements: By comparison, unit & apartment commencements rose by only 4.6% over the quarter and are tracking close


Australia’s two-speed rental market

SQM Research has released its rental report for March, which reveals an extremely tight rental market outside of Sydney and Melbourne, which are suffering from high apartment vacancies from the collapse of international student arrivals. As shown in the next table, the national rental vacancy rate rose 0.1% in March to also be 0.1% higher


CoreLogic: Australia’s auction market has never been this hot

CoreLogic has released its Quarterly Auction Market Review, which reveals that Australia’s combined capital city auction clearance rate was the strongest on record in the March quarter of 2021: CoreLogic’s weekly auction clearance rate across the combined capitals has been at or above 80% just five times since 2008, and four of those were in


Aussie property’s stunning COVID rebound

Just over a year ago, COVID-19 was declared a global pandemic by the World Health Organization (WHO). A nation-wide lockdown ensued, which was followed by a further 14-week hard lockdown across Victoria over winter and then several short lockdowns across various states. Australia’s property market was negatively impacted at the beginning of the pandemic. Millions


The depressing reality of ‘tiny homes’

Over the past few years we have witnessed housing ‘experts’, planners and policy wonks endlessly spruik ‘tiny homes’ as a solution to Australia’s chronic housing affordability problems. The most recent example was a fortnight ago. The reality could not be further from the truth. Travel throughout Australia and you will find caravan parks providing long-term


Why macroprudential mortgage curbs are harder this time around

Several commentators have questioned the efficacy of Australian financial regulators imposing macroprudential mortgage curbs, arguing that it would disproportionately harm first home buyers (FHBs) who tend to take out larger mortgages with smaller deposits: Alison Pennington, senior economist at the Australia Institute’s Centre For Future Work, claims macro-prudential tightening “would have unequal and unfair consequences


Auction results strong again

CoreLogic has released its preliminary auction results for the weekend, which reported a clearance rate of 79.9% off 1,879 auctions. This was up on the 79.4% preliminary figure recorded last week, which was later revised down to 77.1% at final collection. Sydney continued to lead the way recording a preliminary clearance rate of 82.8% off


RBA does the retail property bleed out

From the RBA today: The pandemic has accelerated structural change and so has added to strains for retail commercial property Retail commercial property in Australia was already facing a challenging environment prior to the pandemic. The margins of retailers, particularly bricks-and-mortar retailers for discretionary goods, were being compressed by intense competition from both large international


All-time highs for property in east. West not so much

Via CoreLogic: Low mortgage rates, a swift economic recovery, which has spurred consumer sentiment, and low listing volumes have catapulted national housing values to new record highs. At the end of March, the CoreLogic national home value index increased a further 2.8%, placing values 5.6% above the previous market peak in October 2017. The combined value of


Ardern reforms to slash 20% from NZ property

Jacinda Ardern was partly elected to address house price inflation. Instead, her first term delivered spiraling prices. Fed up, this year the Ardern Government has dropped a series of draconian measures on property markets including: Adding house prices to the RBNZ mandate. Negative gearing and deductibility of mortgage costs against property investments will be phased


Property for sale inventory crunched again

SQM Research has released its Stock on Market data for March, which has recorded a heavy 16.7% year-on-year decline in the number of listings, with every market except Melbourne recording falls: The decline in total listings came despite a solid 10.7% year-on-year increase in new listings (i.e. advertised for less than 30 days): According to


Household mortgage stress still very high

Courtesy of Martin North: The latest results from our household surveys confirms that there are more households in financial stress than before the pandemic hit. As the various Government support mechanisms are ratcheted back, we will see the true impact on the community. Household debt is also turning higher again. We have 41.1% of mortgaged


Sydney property smashes more records

CoreLogic’s March dwelling value results recorded a whopping 3.7% monthly rise in Sydney home values, which was the strongest monthly result since August 1988: As of yesterday (i.e. 6 April 2021), Sydney’s quarterly dwelling value growth was tracking at an insane 7.1%, which is the strongest quarterly growth since October 1988: Thus, the last time


Aussie tradies run off their feet by housing construction boom

Thursday’s lending indicators data from the Australian Bureau of Statistics (ABS) revealed that loans for new home construction hit the six consecutive monthly record high in February 2021, surging 166% year-on-year: As noted by HIA Chief Economist, Tim Reardon: “The number of construction loans to owner occupiers in the three months to February 2021 is


Mortgage market points to once-in-generation property boom

As regular readers know, I consider the growth rate in new mortgage commitments to be the number one short-term indicator for Australian property prices. This is due to the incredibly strong historical correlation between new mortgage commitments and dwelling value growth. On Thursday, the Australian Bureau of Statistics (ABS) released data on new mortgage commitments


How Labor can still fight for housing affordability

There’s some serious scuttlebutt around Labor’s position on negative gearing reform today. Previously, the media has reported that senior Labor figures had decided to dump negative gearing reforms at its national conference. That happened but according to the AFR it’s not over: House prices are out of control and likely to generate angst in the