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.
They just keep getting more bearish at UBS: New comprehensive credit reporting rules from mid-next year could reduce borrowing capacity by about $100,000 for many households, as credit card limits and other debts are taken into account, the bank said. …When negative gearing arrangements were limited in 1985 and a capital-gains tax was introduced, the
More fresh doom online from 60 Minutes via Martin North:
Excellent news this, from the Property Investment Professionals of Australia survey: Australian property investors are shrugging off finance issues, concerns about taxation policy changes, and the market slowdown in Sydney and Melbourne with a growing majority believing this year is a better time to invest than last, the 2018 Property Investment Professionals of Australia (PIPA)
By Leith van Onselen The Morrison Government has been accused of stifling the development of a “build-to-rent” sector in Australia. This follows the passage of laws last week that would ban managed investment trusts from acquiring residential property unless the property is targeted at low-income consumers. This law, in turn, will reportedly prevent apartments from
By Leith van Onselen After spending years denying that Australian housing was expensive or that there was a housing bubble, Michael Pascoe has joined the property rent-seekers in calling for Labor to abandon its negative gearing and capital gains tax (CGT) reforms until after the market is stable. From The New Daily: What could be
Leith noted earlier today another new poll showing the collapse of community support for mass immigration. Also today we get the bell tolling for the NSW government, at Domainfax: Just weeks after an embarrassing loss for the Liberals in the Wagga Wagga byelection, and as ministers engage in open warfare over a bitter preselection battle, the
From Martin North:
By Leith van Onselen The NSW Office of State Revenue has updated its stamp duty data for August 2018, which reveals that residential stamp duty receipts are plummeting following a monumental five-year boom: As shown above, annual NSW residential stamp duty receipts ($6,616 billion) in August retraced further from October’s all-time high of $7.516 billion;
CoreLogic released its auction report yesterday, which reported another very weak wekend of auctions with the preliminary national auction clearance rate at just 55.5% versus 55.0% last weekend (later revised down to 51.8%). The preliminary clearance rate was also way below the 66.2% recorded in the same weekend of last year: Auction volumes nationally were
Via Westpac: APRA’s approach to housing pays off The macroprudential approach to easing credit growth while not spurring a shock to the housing market has “pleasantly surprised” regulators. This is the assessment of JP Morgan chief economist Sally Auld. Speaking on a panel at the Breakfast with the Economists in Sydney on Friday. Auld joined
A bit of property bull porn from Tim Lawless today: “Overall, it’s hard to see a scenario where Australian housing values could fall off a cliff. For this to happen we would need to see a material about face in labour market conditions, a global shock or a material rise in interest rates – none
The AFR is in meltdown defending its real estate buddies today (Domain being in business with them and all): Real Estate Institute of NSW president Leanne Pilkington said she was left “horrified and speechless” over an “outrageous” competition run in NSW by fixed-fee agents Purplebricks to pressure vendors to lower their asking prices. As revealed
By Leith van Onselen The NSW Government is following its counterparts in Victoria and the ACT in implementing new rental reforms: NSW renters are set to see the biggest shake up of rental laws in more than two decades. The major changes will include limiting rental increases for periodic leases to once a year, set
As the Hayne Royal Commission prepares its interim report, the panic is growing. Citi expects Hayne to expose “systemic over-lending”: In our view the most material conclusion of the commission is likely to be that the lending process presently isn’t sufficiently responsible. Responses to this issue are likely to involve increased due diligence which will
By Leith van Onselen Yesterday afternoon, CoreLogic released its final auction clearance rate, which fell to just 51.8% – the lowest level since 2012: Interestingly, Domain analyst Eliza Owen also released research explaining the strong correlation between auction clearance rates and dwelling prices: Figure 1 shows the rolling annual clearance rate (Australia wide) alongside annual
By Leith van Onselen In the wake of the tiny fall in net overseas migration (NOM) yesterday, which remains at more than triple the historical average (see above chart), the Housing Industry Association (HIA) had a good old fashioned sook, via media release: “Changes to visas for skilled workers have delivered an immediate hit to
By Leith van Onselen In the week ended 20 September 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, declined another 0.17%: Values fell across three major markets and rose in two: So far in September, home values have fallen by 0.40%, driven by Melbourne, Perth and Sydney:
By Leith van Onselen Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a large 4.0% decline in Sydney’s auction clearance rate to just 48.6%, with Melbourne’s also falling by 3.1% to 54.1%: According to CoreLogic, this was the weakest
By Leith van Onselen It seems the property industry by-and-large does not support Prime Minister Scott Morrison’s claim that Labor’s negative gearing and capital gains tax (CGT) reforms would crash the market. Below are the responses from various industry insiders: THE AGENT: Starr Partners chief executive officer Douglas Driscoll warned far more research was needed
Via S&P: Australian prime home loan arrears rose year on year in July but remained unchanged month on month, according to a recently published report from S&P Global Ratings. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages, which has been steady at 1.38% since May, was up from 1.17% a year earlier.
By Leith van Onselen Our Property Council Prime Minister, Scott Morrison, has recommenced his scare campaign against Labor’s promised negative gearing and capital gains tax reforms, describing them as a “sledgehammer” that would “crash” the housing market. From News.com.au: “The risk is this,” the Prime Minister said. “If you now take the sledgehammer of negative
By Gareth Aird, Senior Economist at CBA Key Points: Australian residential property prices have fallen over the past nine months. Further declines appear likely over the next year due to softer credit growth, a continued lift in apartment supply, less foreign demand and more rational price expectations from would-be buyers. We retain our view, however,
Mr North removes himself from the crucifix.
Just in case you’re still wondering whether or not Labor is going to win the federal election next May, via the AFR: Murdoch met with Seven West proprietor Kerry Stokes and implied the very opposite. “Malcolm has got to go,” he told the Perth billionaire. Stokes, whose interests extend well beyond media into mining services
By Leith van Onselen SQM Research has released its rental vacancy series for August, which revealed a 0.1% fall in the national vacancy rate over the month and a 0.1% decline over the year: Over the year, decreases in vacancies were recorded in Adelaide (-0.3%), Perth (-1.2%), Brisbane (-0.6%) and Canberra (-0.3%), whereas increases were
By Leith van Onselen The ABS yesterday released its property price data for the June quarter, which valued Australia’s dwelling stock owned by households at $6.58 trillion, whereas the total housing stock was valued at a record $6.93 trillion. As shown below, the total value of Australia’s dwelling stock owned by households was 7.58 times
By Leith van Onselen CoreLogic has released its Cordell Construction Monthly report, which reveals that Australia’s construction pipeline rose in August. Specifically, the overall construction pipeline was valued at $23.5 billion in August, with apartments the second biggest construction segment behind civil engineering: There was also a big jump in the number of apartment projects
By Leith van Onselen Moody’s Analytics has released a report forecasting a 1.6% fall in housing prices across Australia in 2018. The firm expects house prices in Sydney to decline by 5.1% in 2018, although some suburbs will record larger declines while others will record growth. House prices in Melbourne are forecast to rise by
By Leith van Onselen The ABS has released its property price index – incorporating both detached houses and units – which registered another 0.7% decline in home values nationally over the June quarter and a 0.6% decline over the year: Sydney (-0.7%), Melbourne (-1.2%), Perth (-0.1%), and Darwin (-0.9%) recorded quarterly declines in values, whereas
Via CoreLogic comes the leading mortgage index, which continues to bounce but remains well below 2014 levels in trend terms: Total listings are the highest since 2012 though well below those levels, led by Sydney and Melbourne: Whereas prices continue to fall, now down 3.5% year-on-year: Full report here
