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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Ghost Melbourne permanent

Dictator Dan says Melbourne is now a permanent ghost city, at the AFR: In a sign that Melbourne’s CBD may never fully recover, Mr Andrews predicted workers would continue to work remotely and said many businesses had reported high productivity levels since the shift to remote work caused by the coronavirus pandemic. “We will see

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Sydney, Melbourne rents pounded

Via Domain: Source: Domain Rent Report, December quarter 2020 UNITS – MEDIAN WEEKLY ASKING RENT Capital City Q4 2020 QoQ Change YoY Change Sydney $470 -5.1% -7.8% Melbourne $388 -3.0% -7.6% Brisbane $400 1.3% 3.9% Adelaide $340 0.0% 7.9% Perth $350 2.9% 12.9% Canberra $495 3.1% 3.1% Darwin $420 7.7% 7.7% Hobart $400 0.0% -2.4%

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Realty locusts swarm into early election

Via REIA: Australia’s housing market recorded respectable growth over 2020 and with limited stock and strong demand, 2021 should see further price increases, REIA President Adrian Kelly said. Mr Kelly said the winding back of Jobkeeper and Jobseeker may see temporary issues for tenants in some capital cities but the trend to relocate to the

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What happens to property when stimulus ends?

Federal Government stimulus – most notably the HomeBuilder and First Home Loan Deposit Scheme – has done a terrific job juicing new home construction. Detached house approvals have hit a 20-year high: Whereas construction finance commitments have experienced an unprecedented rise: This has inevitably posed the question of “what happens to construction when the stimulus unwinds”?

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A mortgage lending showdown is brewing

In September MB was left flabbergasted when Treasurer Josh Frydenberg, out of nowhere, announced the government would abolish responsible lending rules. This was a watershed moment in Australia’s transformation into the property equivalent of a narco state given this decision to abolish responsible lending laws directly contravened the very first recommendation from the Hayne Banking

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Sydney and Melbourne property listings surge

Property listings rose strongly in Sydney and Melbourne in December when compared to December 2019, according to new figures from SQM Research: Listings in Melbourne were up over 30.5% year-on-year while Sydney listings rose 13.8%. However, year-on-year listings across the rest of the nation were all down. Newer listings, in particular, have increased across Sydney

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RBA Charts the Aussie economy

It’s that time of month, even though the boffins and gearlever holders are on holidays for January they still managed to put out a glorious make benefit for MacroBusiness readers Chart Pack. First, its the measure that all economists love and politicians are slavishly devoted to – GDP: COVID-19 really put the guts into GDP

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University students shun Victoria, adding to rental pain

Melbourne’s harsh 16 week lockdown has driven interstate applications for places at Victorian universities in 2021 down 13% compared to 2020. By contrast, interstate applications for places at NSW universities are up 14.9% compared with 2020. Demographics Group MD Bernard Salt notes that applications would have been made at the height of Victoria’s lockdowns in

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Australia’s mortgage time bomb defused

The Australian Prudential Regulatory Authority (APRA) has released data on loan deferrals to November 2020, which reveals that the number and value of deferred mortgages has plunged. The number of mortgage deferrals had shrunk by around three quarters, from a peak of 488,249 mortgages in May to 118,919 mortgages in November. In a similar vein,

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The dawning of a new age of suburbia

By Ross Elliott, cross-posted from The Pulse: “Mr. Covid has been the best city and regional planner Australia has ever had. The suburbs will shine and regions will grow. Maybe we should forget about big city infrastructure projects for a while and spend it on our future resilient communities where people look out for each

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Sydney and Melbourne apartment rents hammered

CoreLogic’s December housing market report, released yesterday, included the below interesting chart showing the monumental collapse in Melbourne and Sydney apartment rents following the COVID-19 induced collapse in immigration: According to CoreLogic: …weak demand and high supply has driven a sharp drop in rents. Demand for inner city unit rentals has been significantly impacted by

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High-rise “slums” are symptoms of mass immigration

The SMH’s Elizabeth Farrelly – a former Sydney Councillor – has penned another article decrying the proliferation of low quality “slum” high-rise apartments across her beloved Sydney: I love cities, especially Sydney, and especially their ancient inner cores. I support density and renewal. But not like this. Even by comparison with the seventies, this new

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CoreLogic: Housing demand running well ahead of supply

CoreLogic’s December housing report, released today, contains interesting data showing the extent to which market housing demand is running well ahead of supply, which is helping to fuel rising prices: Low inventory levels have been a feature of the Australian housing market through 2020. Although the number of new listings surged higher through spring and

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Aussies still shunning debt. Unless it’s for a new home

Yesterday’s private credit data from the RBA showed that personal credit continues to hover near its lowest level on record: The outstanding stock of personal loans fell by a near record 12.4% in the year to November, easily eclipsing the falls experienced during the early-1990s recession (-6.0%) and the GFC (-7.8%). The only area where

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Fake greens pump mass property development

The NSW Greens have called for an end to ‘rate capping’ in local government areas experiencing rapid population growth and high-rise development: Councils in fast-growing parts of Sydney would be given greater powers to increase rates to help meet the needs of their surging populations under a proposal by the Berejiklian government. The exposure draft,

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Aussie mortgage growth launches

The RBA has released its private sector credit aggregates data for the month of November, which continued the strong rebound in mortgage growth. A chart plotting the long-run time series is shown below: Annual mortgage growth continues to trend higher, but remains low overall at just 3.4%. However, quarterly mortgage growth has rebounded hard, climbing

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Auction market ends 2020 on a high note

SQM Research has released its final auction report for last weekend, which reveals the market ended 2020 on a strong note: While SQM’s auction clearances are always lower than its competitors (CoreLogic and Domain), they are running around their highest level since COVID hit in March when the property markets in Sydney and Melbourne were