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.


AFG confirms mortgage market bounce

Australian Finance Group (AFG) has released its housing finance data for the December quarter, which registered a strong annual bounce in the number and value of mortgage applications. The number of mortgage applications fell by 1.9% over the December quarter but surged by 18.9% over the year, whereas the value of applications fell by 1.8%


Negative equity plagues Melbourne house and land buyers

Over 2018 and early 2019, there were regular reports of house and land buyers across Melbourne tumbling into negative equity, resulting in buyers defaulting on thousands of sales contracts. The below article, published in March 2019, encapsulated the issue that was developing: Melbourne, which has been by far the hottest new property market, is facing


NSW moves too late on dodgy high-rise builders

After experiencing an unprecedented boom in high-rise apartment construction over the past decade: And with flammable cladding and structural faults proliferating across Sydney, the NSW Government has finally taken action by giving the NSW Building Commissioner the power to block dodgy developers from building high-rise: Designed to prevent repeats of the Opal and Mascot Towers


Morrison Government mired in corruption

A little summary from Crikey makes the point today: Attorney-General Christian Porter will lead a review into the community sports grants scandal despite the program netting his own electorate nearly one million dollars. Porter’s announcement follows revelations by the ABC that Scott Morrison’s local soccer club boasted about essential funding for a project weeks before the grants were announced. Morrison, whose office


Construction mortgages lowest since 2012

Thursday’s housing lending data from the Australian Bureau of Statistics revealed that mortgages for the construction of new homes dived to the lowest level since 2012, as illustrated below: According to the Housing Industry Association (HIA): “The weakness in construction lending in November is largely a legacy of the very soft sales volumes that home


The Economist does the housing affordability disaster

The Economist has published an article on the West’s “horrible housing blunder”, which pins the blame for unaffordable housing well and truly on supply-side constraints, combined with inefficient demand-side subsidies: At the root of that failure is a lack of building, especially near the thriving cities in which jobs are plentiful. From Sydney to Sydenham,


Aussies aren’t “choosing to live in apartments”. They are forced to.

Data from the Housing Industry Association shows that the median housing lot in Australia is now 441.2sq m, compared with the traditional quarter-acre block of 1,000sq m. The rising cost of residential land is also prompting more people to opt for high-density living, with apartments now accounting for 30% new housing developments. Demographer Bernard Salt


Demographia: Australian housing among world’s most unaffordable

The 16th Annual Demographia International Housing Affordability Survey has been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed even though affordability improved on the back of heavy price falls between 2017 and mid-2019. This year’s report assesses 309 urban markets in eight


Trailor trash propaganda. Tiny houses just won’t go away

Via The Conversation this time and gleefully reproduced at the ABC: The reasons for choosing to go tiny range from reducing debt, inability to afford a conventional home, the search for sustainability, a life crisis, or even preparing for an uncertain future in the face of climate change by going off-grid. Or perhaps a combination of these.


Mortgage surge to propel house prices higher

Yesterday’s new mortgages data from the Australian Bureau of Statistics (ABS) contained more bullish news for Australian house prices with both owner-occupied and investor mortgage demand rising in November, continuing the solid rebound that began in mid-2019 following the federal election: As shown in the next chart, there is a very strong correlation between new


CoreLogic weekly house price update: slowing

In the week ended 16 January 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.14%: The rise in values was fairly broad-based, but again driven by Sydney and Melbourne: So far in January, dwelling values have risen by 0.39%, driven by Melbourne and Sydney: Quarterly


Domain: Sydney, Melbourne rents plummet

Domain has released its December quarter rental report, which reported falling house rents in 2019, driven by large declines across Sydney and Melbourne: As shown above, house rents across the combined capital cities fell be 0.7% in 2019, driven by falls of 2.8% and 2.3% respectively across Sydney and Melbourne. House rents in Darwin (-1.0%)


Australian mortgage demand strengthens

Today’s new mortgage data for November from the Australian Bureau of Statistics (ABS) recorded more growth: Total new mortgage commitments (excluding refinancings) rose by 1.8% in November, with owner-occupied mortgages rising 1.6% and investor mortgages rising 2.2%. Year-on-year, total new mortgage commitments (excluding refinancings) rose by 5.9%, with owner-occupier mortgages rising by 10.0%, offsetting a


Australia’s property parasites see more price boom

The latest quarterly ANZ/Property Council survey of property parasites has been released, with insiders expecting Australia’s house price boom to continue, alongside a recovery in residential construction activity: Strong house price expectations over the next 12 months have offset modest confidence in the economy to deliver an improved outlook for the property industry according to


Australian dwelling starts collapse

The ABS has released dwelling construction data for the September quarter, which recorded further widespread falls in construction activity. According to the ABS, the number of dwelling commencements crashed by a seasonally-adjusted 11.7% over the September quarter, and by 27.2% over the year. Detached house commencements fell by 4.8% over the quarter and by 16.8%


Sydney’s rental vacancy rate rockets

SQM Research has released its rental vacancy data for December, which registered a 0.3% rise over the month but no change over the year: As noted by SQM, rental vacancies typically rise in December, thus the monthly increase represents seasonality. SQM also believes that this may represent the peak, given the sharp falls in dwelling


84% of Sydneysiders concerned about high-rise build quality

With high-rise apartments mushrooming across Sydney: A new poll commissioned by the Committee for Sydney has revealed that 80% of Sydneysiders are concerned about the structural soundness of high-rise apartment buildings: An Ipsos poll of residents for advocacy group the Committee for Sydney found the quality of construction and the structural integrity of towers were


FOMO hits Australia’s mortgage market

According to Domain, mortgage brokers are being inundated with applications from homebuyers wishing to break into the market: Mortgage brokers report they have been inundated with inquiries and home loan applications during what would traditionally be a holiday break. Most interest has come from owner-occupiers including first-home buyers, while some investors are also keen, according


Tassie’s housing crisis escalates

Following his re-election in 2018, Tasmanian Premier Will Hodgman rejoiced at the acceleration in the state’s population growth: Tasmania’s population is growing at its fastest rate in five years and the State Government wants to see more of it… “There’s no doubt that Tasmania has ample room for additional intake of people from interstate or


CoreLogic weekly house price update: still rising

In the week ended 9 January 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.20%: The rise in values was fairly broad-based, but again driven by Sydney and Melbourne: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are still


The great high-rise apartment bust rolls on

On Wednesday, the Australian Bureau of Statistics (ABS) released its dwelling approvals data for November, which recorded a modest rebound in apartment approvals: However, apartment approvals remained 48% below their June 2016 peak. Today, I want to focus on the high-rise apartment segment, which has driving the apartment bust. The next chart shows the picture


Mortgage stress rockets to record high

Mortgage rates may have cratered, but mortgage stress has lifted to another record high with 1.1 million households now under stress, comprising 32.7% of borrowing households. From Martin North: We are releasing the results of our rolling household surveys, which were completed before the latest round of bushfires started raging. Nevertheless, the results are a