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 The Grattan Institute’s John Daley last week gave a presentation to the Council of The Ageing conference on Housing for Senior Australians, whereby he noted that senior Australians generally face less housing pressures than younger Australians, but that the situation is likely to deteriorate from the 2030s due to falling home
The rarely useful Elizabeth Knight put her finger on something over the weekend: There is a hidden and worrying risk lurking for a particular set of mortgage borrowers, whose level of financial stress is about to get a whole lot worse. It’s those home owners with interest-only loans that are now increasingly under the pump
CoreLogic released its auction report yesterday, which revealed a further softening in the national auction clearance rate to 69.1% from 69.6% last weekend, but was still above the 64.4% recorded in the same weekend last year: Auction volumes nationally were 2,323 – above the 2,218 recorded in the same weekend last year. As shown above,
Cross-posted from The Conversation: Does the Australian government have the policy, organisational and conceptual capacity to handle the country’s A$6 trillion housing stock? We ask this question in a newly released research report. The answer is critically important to both household opportunity and prosperity, and to the management of our largest national asset. Australians’ wealth
Citi went shopping: Channel checks indicate apartment rebates have moved to >10%. Feedback from our Australian Property Conference and mystery shopping highlight a clear change in the apartment market, particularly so in Perth, Brisbane and to a greater extent in Melbourne. A tier 1 developer is now offering a 5% 12-month rental guarantee plus
Via AFR: The days of Chinese companies bidding up asset prices in Australia appear to be numbered, after the banking regulator in Beijing ordered a review of the sector’s exposure to the most acquisitive private firms. The companies singled out for review include property and entertainment conglomerate Dalian Wanda, which has interests in Sydney and
By Leith van Onselen Lost among the ruckus over the South Australian Budget’s implementation of its own bank levy was the announcement that foreign buyers and temporary residents will also be levied an additional 4% stamp duty from 1 January 2018: Surcharge on foreign buyers of residential property The State Government is introducing a conveyance
By Leith van Onselen Last week, Victoria’s Planning Minister, Richard Wynne, assured Melbournians that a fire like the one which engulfed London’s Grenfell Tower, killing more than 50 people, could not happen in Melbourne: “This would not be possible in Melbourne, or Australia in fact, because we have the strongest building codes really of any
Remember Mr IQ A.K.A Nathan Birch? He’s dumping properties: For a long time now, I’ve been collecting properties like kids collect action figurines in a happy meal. I never like to see one go. But recently, the finance environment has changed… It’s a bitter pill to swallow for a buy and hold investor – but
By Leith van Onselen In the week ended 22 June 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged by 0.72%: The surge in prices was driven by Sydney and Melbourne: So far in June, home values have risen by 0.92%, driven by Sydney, Melbourne and Perth:
By Leith van Onselen With the release this week of the ABS residential property price data for the March quarter, it is an opportune time to once again plot house prices against total finance commitments (excluding refinancings) as also measured by the ABS. First, below is the national picture, which shows finance approvals typically leading
By Leith van Onselen Retired economics professor, Peter Abelson, is the latest to call for stamp duties to be replaced by land taxes, arguing that such a reform could assist housing affordability. From Adam Creighton: Large increases in housing supply would have only a “small” impact on Sydney house prices, according to analysis commissioned by
By Leith van Onselen John Warhurst, an emeritus professor of political science at the Australian National University, has penned a well-argued piece calling for a Royal Commission into political corruption. From The SMH: …we remain relatively unconcerned by the parade of corruption and its near neighbour, unethical insider lobbying, in our public affairs. Too often,
Domainfax & Co are desperately fighting to keep the permanently high plateau for house prices alive today: The housing boom on Australia’s east coast will be over in two years but a crash like the US subprime crisis in 2007 is not likely, research and forecast group BIS Oxford Economics says. The strong house price growth in
Via Huffpost: The slowdown in Greater Toronto’s housing market this spring appears to be more than a one-month blip. Sales in the country’s largest housing market have fallen by half, compared to the same period a year earlier, according to real estate board data obtained by Bloomberg. The Toronto Real Estate Board counted 2,999 sales
Please explain: Senator Hanson has called for limits to foreign non-resident home ownership in Australia and will be raising the issue today, on the floor of the Senate. According to Senator Hanson the shortage of affordable housing available for Australians can be addressed by limiting foreign non-residents to one new property and enforcing laws to
By Leith van Onselen The Housing Industry Association (HIA) has released its latest Housing Outlook, which forecasts a steady decline in dwelling starts over the next three years, with renovation activity also forecast to peak before falling: “The housing boom was not consistent across Australia and now with NSW and Victoria cooling, all indicators are
By Leith van Onselen The NSW Government’s fake concern over the dire state of Sydney housing affordability continued yesterday with the release of the State Budget, which included more token measures to boost supply. From Australian Broker: The NSW Government has announced it will spend more than $720m over the next four years to address
By Leith van Onselen The ABS yesterday released its property price data for the March quarter, which valued Australia’s dwelling stock owned by households at a record $6.27 trillion dollars. As shown below, the total value of Australia’s dwelling stock was an all-time high 7.7 times employee incomes as at March 2017, up massively from
By Leith van Onselen SQM Research has released its rental vacancy series for May, which revealed a 0.2% fall in the national vacancy rate over the month as well as a 0.2% fall over the year: As shown above, rental vacancies fell across almost all capitals in May. Over the year, decreases in vacancies were
This is turning into a smash: Effective on 30 June 2017, Westpac will reduce its variable rate interest rates for customers paying principal and interest on their owner occupier home loans by 8 basis points to 5.24% per annum (comparison rate 5.38% per annum*). Westpac will also adjust interest only rates for variable home loans
By Leith van Onselen The ABS has today released its property price index – incorporating both detached houses and units – which registered a 2.2% rise in home values nationally over the March quarter and a 10.2% gain over the year, an acceleration from the 7.7% annual growth initially reported in the 2016 calendar year:
Via S&P: The number of delinquent housing loans underlying Australian prime residential mortgage-backed securities (RMBS) increased to 1.21% in April from 1.16% a month earlier, according to a recent report by S&P Global Ratings. Part of the increase reflects a decline in outstanding loan balances, but we believe interest-rate rises announced by different lenders during
Drip, drip, drip. The Dumb Bubble cops another downgrade in Australia: Moody’s Investors Service has today downgraded the Baseline Credit Assessments (BCAs), long-term ratings and Counterparty Risk Assessments (CRAs) of 12 Australian banks and their affiliates, reflecting elevated risks in the household sector which heighten the sensitivity of the banks’ credit profiles to an adverse
From AMP: The pricing and policy changes for investment property loans, include: Variable interest rates for new and existing investment property loans will increase by 35 basis points For all new investor property loans, the maximum loan-to-value ratio (LVR) is reducing to 50%. This change applies to all new loans with an investment property as
