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.
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
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%
If anything, getting more so. Listings are crushed: While mortgage originations are solid seasonally adjusted: Though it must be remembered that these are owner-occupied only and investor mortgages remain weak. Overall, though, higher property prices ahead, especially ex-Sydney and Melbourne.
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
Via Cameron Murray: Interest costs on borrowing 100% of the value of a home are about 0.7x the rent in Brisbane and Adelaide. A touch under 100% in Sydney and Melbourne. pic.twitter.com/wy5OvnCI3c — Cameron Murray (@DrCameronMurray) January 11, 2021 Just don’t add that principal!
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”?
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
Yesterday’s dwelling approvals data for November, released by the ABS, revealed that detached house approvals hit a fresh 20-year high: At the same time, however, unit & apartment approvals have retraced to around 2010 levels: Today, I want to focus on the high-rise apartment segment, which has driven the apartment bust. The next chart shows
In the week ended 7 January 2021, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.04%: It was the 11th straight monthly rise. All major markets except Melbourne recorded value rises: Quarterly values continue to rebound with rises recorded across all major capitals: However, annual price
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
The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of November. At the national level, the number of dwelling approvals rose by a seasonally adjusted 2.6% to 17,205. The overall rise in approvals was driven by house approvals, which surged by 6.1% whereas the volatile units & apartments segment fell
We had previously operated under the wrong assumption that the 30-year decline in mortgage rates had run its course given the RBA official cash rate (OCR) had little further room to fall: That is, with the OCR hitting its lower bound, we wrongly believed that banks would have minimal ability to cut deposit and wholesale
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
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
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,
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
Domain has declared 2020 the year of the First Home Buyer (FHB): Many first-home buyers entered 2020 fearful they had missed their window to buy, but the unexpected events of the year have prompted the biggest entry-level property buying spree in a decade… The year started with the rollout of the First Home Loan Deposit
NSW Planning Minister Rob Stokes believes the state must continue to build homes despite the immigration-driven slump in population growth: Mr Stokes said the pandemic would slow population growth in the short term but would not alter the long-term increase that informed housing and land development targets. “We still need more houses to catch up
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
From CommSec: Home prices are rising across the country. In fact home prices only fell in two of the 88 regions in the past month. And over the past year all but 12 regions posted gains in home prices. The icing on the cake: data shows that in 39 of the 88 regions, home prices
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
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
The Reserve Bank of Australia (RBA) has released household debt data for the September quarter of 2020, which reveals that the ratio of household debt to disposable income fell to 179.9% from 182.6% in the June quarter: Within this figure, the ratio of mortgage debt to household disposable income fell to 138.0% in September from
According to CoreLogic, Australian dwelling values rose another 0.89% in December at the 5-city level, with all major markets experiencing strong growth: It was the third monthly rise in a row at the 5-city level: Over Q4, dwelling values rose by 1.7% across the major capitals: The smaller major capitals drove the quarterly price growth:
In the week ended 24 December 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.29%: It was the 10th straight monthly rise. All major markets recorded value rises: So far in December, dwelling values have risen by 0.78%, with all major capitals rising: Quarterly values
Domain has run a series of reports on the swelling rental vacancies across Sydney and Melbourne. First Sydney: The amount of time Sydney homes are sitting advertised for rent has stretched out to 50 days, despite the fact nearly a third of rentals across the city have slashed their asking price. The latest figures from
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
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,
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
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
