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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Why is Perth’s housing market lagging?

For all intents and purposes, Perth Property should be experiencing a mega boom. Mortgage demand in Perth is through the roof. New mortgage commitments were up a whopping 106% in trend terms in the year to April, with mortgage demand typically leading dwelling value growth: The latest market indicators from the Real Estate Institute of

16

Gottiboff screams ‘apartment shortage’

Robert Gottliebsen must have gotten off the blower to his mate ‘high-rise’ Harry Triguboff, because today’s drivel in The Australian reeks of blatant special pleading: NSW and Victorian governments are adopting strategies that, by accident or design, are slashing the building of new high-rise apartment towers… When overseas students return to Australia there will be

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Greens seek to kill responsible lending reforms

Yesterday, Treasurer Josh Frydenberg defended the Coalition’s proposed wind back of responsible lending laws, telling reporters they are essential to helping the economy recover from COVID: “Ensuring consumers and small businesses can get timely access to credit as the economy continues to recover from the COVID crisis”. “The reforms are intended to improve efficiency, reducing

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Sydney pushes auction clearances higher

CoreLogic’s preliminary report on the weekend’s auctions reported a higher clearance rate driven by strong results from Sydney. The national preliminary clearance rate rose to 77.8% from 77.4% the prior weekend. This was off significantly higher auction volumes, up to 2,418 from the prior weekend’s 1,426 (which was negatively impacted by the Queen’s Birthday holiday).

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Auction market signals weaker property price growth

CoreLogic released its final auction report for last weekend, with the final clearance rate rising to 73.6% from 70.6% the prior weekend, which was negatively impacted by Melbourne’s hard lockdown. As usual, Sydney drove the market recording a final clearance rate of 74.1% (down slightly from 75.6%), whereas Melbourne’s final clearance rate rebounded to 68.8%

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Phil Lowe: Macroprudential to come before rate hikes

In the Q&A to yesterday’s Keynote Address at the Australian Farm Institute Conference, RBA Governor Phil Lowe stated that the Council of Financial Regulators (i.e. RBA, Treasury, APRA and ASIC) are actively looking at macroprudential tools to curb the mortgage/property market (listen from around the 34 minute mark): “The Council of Financial Regulators meeting last

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Why mortgage stress has risen

Digital Finance Analytics (DFA) has released its mortgage stress figures for May, which shows that around 41% of households remained ‘mortgage stressed’, up significantly from the pre-pandemic level of 32.9%: Martin North explains the rise in mortgage stress as follows: Our approach to measuring stress is unique in that we examine household cash flow –

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OECD blames restrictive planning and zoning for expensive housing

The OECD has blamed Australia’s restrictive planning and zoning for driving the fourth sharpest property price increase in the developed world over the past 20 years: Paris-based OECD director of policy studies in the economics department, Luiz de Mello, said low interest rates had contributed to rising house prices. But restrictive regulations were also a

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Aussie housing values now four-times larger than economy

The ABS yesterday released its property price data for the March quarter, which valued Australia’s dwelling stock owned by households at $7.9 trillion, whereas the total housing stock was valued at $8.3 trillion. As shown below, the ratio of the dwelling stock owned by households against Australian GDP hit a record 4.0 times as at

1

Auction clearances rebound on Melbourne reopening

CoreLogic’s preliminary report on the weekend’s auctions reported a higher clearance rate as Melbourne reopened. The national preliminary clearance rate rose to 77.4% from 73.5% the prior weekend. However, this was off significantly lower auction volumes, down to 1,426 from the prior weekend’s 2,691, owing to the Queens’s Birthday long weekend. Sydney continued its strong

16

‘Terrifying’ creaking haunts Melbourne high-rise residents

Seriously, who would want to own a high-rise apartment? Over recent years, hundreds of buildings have been forced to remove dangerous flammable cladding at the cost of millions. Multiple apartment towers have also been plagued by building faults, costing owners thousands in rectification costs. In 2019, Four Corners aired a segment entitled Cracking Up, where

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CoreLogic: Risky mortgage lending on the rise

CoreLogic has released new data showing the increasing risk profile of Australian mortgage lending as investors have flooded back into the market. While the percentage of high loan-to-value ratio (LVR) lending fell over the March quarter to 10.4% from 11.3% – likely reflecting the reduction in first home buyers active in the market: The percentage

3

ANZ delivers double rate hike for fixed mortgages

Goodbye TFF, goodbye rock bottom mortgages. ANZ just double-hiked its fixed-rate mortgages on the four year to 2.49% and five year to 2.69% The discounted variable is at 1.94%. This process will continue for months yet as banks are forced to refinance into more expensive wholesale debt as the RBA ends its Term Funding Facility

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Melbourne shutdown delivers year’s weakest auction result

CoreLogic released its final auction report for last weekend, with the final clearance rate falling to 70.6% from 73.5% the prior weekend. It was the lowest final auction clearance rate recorded in 2021. As usual, Sydney led the market recording a final clearance rate of 75.6% (down slightly from 76.0%), whereas Melbourne’s final clearance rate

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NSW Government: Rebooting immigration will cause housing shortages

Last week, the NSW Productivity Commission (PC) released a White Paper explicitly stating that Sydney’s housing shortage was caused by an unexpected boom in Sydney’s population when the federal government threw open the immigration floodgates in 2005: Much evidence suggests that our State, and Sydney in particular, has not delivered enough housing over many years.

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Negative gearing is yesterday’s problem

The AFR reported that the proportion of landlords negatively gearing rental properties fell to 58.6% in 2018-19, according to the latest Australian Taxation Office (ATO) statistics. This was the lowest level on record and well down on the peak of 69.6% in 2007-08. There were also 19,113 fewer negatively-geared landlords than in 2017-18, representing the

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Mortgage stress numbers seem implausible

Another month has gone by and mortgage stress continues to grow, according to Digital Finance Analytics as reported in The AFR: “Many households in stress have less hours worked than they want, and no income growth. Bigger mortgages by first time buyers and equity drawdowns are lifting repayments as lending standards ease and more interest-only

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Should we fret the household debt?

Judo Bank CEO Joseph Healy yesterday expressed concern about the “almost uncontrollable rise in household debt” across Australia. This was 180% of disposable income at the end of 2020, according to data from the Reserve Bank. Healy is particularly concerned about the growth in mortgage lending, arguing that it is “foolhardy” to assume that interest