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.

2

Chinese capital outflows accelerate

Via Goldman: …as Goldman points out, amid the lingering trade tensions and continued depreciation of CNY in the first half of June, the bank’s preferred gauge of FX flows showed a dramatic jump in June outflows to the tune of $20 billion compared to an inflow of $13 billion in May, while the exporters’ trade repatriation ratio

41

Australians have bet the house on rising property prices

Above is an interesting graphical summary of Australia’s housing market by ABC News. Here’s the excerpt accompanying the video presentation: Australia has experienced one of the world’s biggest home price booms, driven by near world record levels of household debt. This house of cards looked to be teetering, with double-digit price falls in Australia’s two

1

CoreLogic: “Sales point to a levelling in housing market activity”

From CoreLogic’s Cameron Kusher: CoreLogic estimates of monthly settled sales data points to a levelling in housing market activity, following several years of falling home sales according to research by analyst Cameron Kusher. Despite signs that market activity is leveling out, annual transaction numbers remain lower year on year across every capital city region of

14

Perth property losses crash through 20%

CoreLogic’s daily house price index reveals that Perth’s dwelling value declines have plunged through 20%, marking by far the biggest and longest capital city decline in modern Australian history: While the other major capitals are showing improvement, the quarterly pace of decline in Perth has worsened to 2.4%, suggesting further heavy losses: In a similar

34

Engineer: Flammable cladding removal will expose “litany” of problems

Australia’s apartment crisis continues to mushroom, with engineers warning the removal of dangerous flammable cladding will expose other building faults and will require at least $3 billion to fix. From The ABC: The State Government has earmarked a budget of $600 million to fix the 500 most dangerous buildings over a five-year period. Each building

17

Syd/Mel final auction clearance rate surges above 70%

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 3.6% decline in the final national auction clearance rate to 65.4% – well above the same weekend last year (52.0%) and above last week’s 64.0%: As you can see, Sydney’s final auction

28

States told flammable cladding is their problem to fix

The federal government is adamant that the states should bear the full financial cost of remediation work on buildings that have structural defects or use combustible cladding. Industry Minister Karen Andrews says the states should not “shirk their responsibilities”, given the revenue they have gained from the construction boom over the last decade. Meanwhile, Victoria’s

37

Housing Minister: Do buy now!

For a long time MB campaigned for a national Housing Minister to address affordability. Careful what you wish for, via The Australian: Housing Minister Michael Sukkar has urged first-home buyers to try to snap up a property now, ahead of the government’s signature loan deposit scheme starting next year, warning that housing prices are likely

17

Foreign property buyers bounce off the lows

Via NAB: The trend decline in foreign buyers of Australian residential property over 2018 and into early-2019 can be attributed largely to the crackdown on capital outflows in China in recent years and to local state government charges on foreign buyers and stricter lending limits by Australian institutions. But this trend reversed in Q2 with

5

Mortgage arrears stable

Via S&P: Australian prime home-loan arrears stabilized in May after rising in preceding months, according to a recently published report by S&P Global Ratings. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages was largely unchanged, declining to 1.52% in May from 1.53% a month earlier. Arrears in May were up 13 basis

21

Scumbag Property Council lashes Victorian flammable cladding levy

The rent-seeking Property Council has attacked the Victorian Government’s $600 million funding package to remove dangerous flammable cladding, claiming the $300 million building levy “risks massive cost increases”: The Property Council has welcomed the Victorian Government’s plan for the rectification of cladding affected buildings but has warned that a 700 per cent increase in building

15

RBA: High immigration has destroyed housing affordability

In October 2017, Labor’s open borders immigration extremist, Dr Andrew Leigh, penned a spurious article claiming that Australia’s mass immigration ‘Big Australia’ policy has not pushed-up house prices: An OECD survey of the relevant studies concludes that migrants have a minimal impact on housing prices. Seven out of 10 new migrants to Australia either live

54

Flammable cladding removal to cost “many, many billions of dollars”

The Victorian Government’s $600 million funding package to remove dangerous flammable cladding has been labelled inadequate by consumer advocate Anne Paten, who claims the rectification costs will be “many, many billions of dollars”: Consumer advocate Anne Paten, from the Victorian Building Action Group, said the $600 million funding package would not come close to fixing

20

Building sector “could collapse” from insurance crisis

JMG Building Surveyors CEO John Massey has urged Prime Minister Scott Morrison to resolve what he says is a national crisis concerning professional indemnity insurance. Massey notes that insurance companies are offering private building certifiers coverage with exclusions for cladding and other dangerous materials, but that companies such as his cannot operate without being fully

12

ANZ: Property to boom 3% in 2020

Via ANZ at the AFR today: “We have revised our forecasts and now expect prices to bottom out in coming months and rise modestly through to the end of 2019, before gaining around 3 per cent in 2020,” ANZ said. …banks now get to use the set their own “floor” rate to test a borrower’s

85

Victorian taxpayers bail-out flammable builders

The property lobby has won again with Victorian taxpayers to spend $600 million for rectification workers to remove flammable cladding from the state’s high-rise buildings: Victorian taxpayers will help fund major rectification works on buildings with dangerous combustible cladding, Premier Daniel Andrews says. His Government has announced a $600 million package to fix hundreds of

3

CoreLogic: Auctions “evidence that housing conditions are stabilising”

From CoreLogic’s quarterly auction report: CoreLogic recorded a strengthening trend in auction clearance rates over the June quarter – the last time the result was this strong was back in June 2018. Clearance rates across Melbourne, Australia’s largest auction market, showed an increase over the June quarter while Sydney’s clearance rate has outperformed both the

14

Building industry demands government ‘fix crisis’ in building industry

Five of Australia’s largest business groups – Master Builders Australia, the Australian Industry Group, the Insurance Council of Australia, the Property Council of Australia and the Australian Construction Industry Forum – have demanded urgent federal government intervention to fix the insurance crisis afflicting private building certifiers in the wake of widespread reports of faults and

18

Highrise Harry strong arms Gladys Berejiklian over development

Billionaire Meriton apartments developer, “Highrise” Harry Triguboff, has threatened NSW Premier Gladys Berejiklian with legal action for Ryde MP Victor Dominello’s opposition to Meriton’s 1270 Meriton unit development in Sydney’s Macquarie Park. From the Daily Telegraph: In an extraordinary display of force by the country’s third richest person, the Meriton founder wrote a personal letter