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.
CoreLogic’s daily dwelling values index registered another strong increase in the week ended 15 April, with values rising by 0.42% across the five major capital cities: All major capital city markets recorded weekly price growth with Adelaide (0.52%) recording the strongest increase and Perth (0.16%) the smallest: We are half way through April and already
Via Banking Day: In Melbourne and Sydney, it’s a renters market and lending for investment housing is taking off as the epicentre of credit stress in banking. Rents in Melbourne, the worst hit market, are down as much as 16 per cent since the pandemic and the long lockdown hit the city hard. “Over the
The Victorian Chamber of Commerce & Industry (VCCI) has recommended the Victorian Government follow NSW’s lead and abolish stamp duty in its upcoming 2021 Budget. CEO Paul Guerra says that switching to a broad-based land tax regime will provide greater revenue certainty for the government while reducing the cost burden on home owners: Now is
The Australian Bureau of Statistics (ABS) yesterday released Building Activity data for the December quarter of 2020, which revealed a big 18.6% rise in dwelling commencements over the quarter driven by a 27.0% surge in detached house commencements: By comparison, unit & apartment commencements rose by only 4.6% over the quarter and are tracking close
Bill Evans at Westpac is baffled by his own result: • The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 6.2% to 118.8 in April from 111.8 in March. This is an extraordinary result. The Index is now at its highest level since August 2010 when Australia’s post-GFC rebound and mining boom were in full
First the update. Australia’s failing vaccine rollout is still firmly stuck in the Third World: On the ground, there are stories of gaps all over the place: Australia’s largest health care provider, BUPA, has had zero contact with the Morrison Government for its aged care vaccination program. It has no vaccines, no plan to go
SQM Research has released its rental report for March, which reveals an extremely tight rental market outside of Sydney and Melbourne, which are suffering from high apartment vacancies from the collapse of international student arrivals. As shown in the next table, the national rental vacancy rate rose 0.1% in March to also be 0.1% higher
Via CoreLogic’s weekly leading indicators. Credit is easing seasonally but is still very high for the owner-occupiers driving the boom: There are some signs of life for fresh for sale inventory but the stock is still painfully low: More price gains over winter on this data. Full report.
CoreLogic has released its Quarterly Auction Market Review, which reveals that Australia’s combined capital city auction clearance rate was the strongest on record in the March quarter of 2021: CoreLogic’s weekly auction clearance rate across the combined capitals has been at or above 80% just five times since 2008, and four of those were in
Just over a year ago, COVID-19 was declared a global pandemic by the World Health Organization (WHO). A nation-wide lockdown ensued, which was followed by a further 14-week hard lockdown across Victoria over winter and then several short lockdowns across various states. Australia’s property market was negatively impacted at the beginning of the pandemic. Millions
As much of the press tips into phony handwringing over house prices again, even as it relies entirely on the bubble for its only source of profit growth, Chris Joye is having none of it. He argues that: Property is the cheapest it has been in a very long time. Buyer incomes have been lifted
Over the past few years we have witnessed housing ‘experts’, planners and policy wonks endlessly spruik ‘tiny homes’ as a solution to Australia’s chronic housing affordability problems. The most recent example was a fortnight ago. The reality could not be further from the truth. Travel throughout Australia and you will find caravan parks providing long-term
Several commentators have questioned the efficacy of Australian financial regulators imposing macroprudential mortgage curbs, arguing that it would disproportionately harm first home buyers (FHBs) who tend to take out larger mortgages with smaller deposits: Alison Pennington, senior economist at the Australia Institute’s Centre For Future Work, claims macro-prudential tightening “would have unequal and unfair consequences
CoreLogic has released its preliminary auction results for the weekend, which reported a clearance rate of 79.9% off 1,879 auctions. This was up on the 79.4% preliminary figure recorded last week, which was later revised down to 77.1% at final collection. Sydney continued to lead the way recording a preliminary clearance rate of 82.8% off
Bill Evans at Westpac: …the loan approvals to investors account for around 32% of the total housing loans (including all owner occupiers) compared to 65% in 2017 when APRA introduced a range of controls aimed at curtailing investor activity. On the other hand the Bank points out the solid starting point that will support the
From the RBA today: The pandemic has accelerated structural change and so has added to strains for retail commercial property Retail commercial property in Australia was already facing a challenging environment prior to the pandemic. The margins of retailers, particularly bricks-and-mortar retailers for discretionary goods, were being compressed by intense competition from both large international
CoreLogic has released its final auction clearance results for the Easter long weekend, with the nation’s clearance rate falling to 77.1%, down from the recent high of 83.1% recorded the prior weekend: In fact, it was the first time in five weeks that the final national clearance rate fell below 80%. Auction volumes were also
Via CoreLogic: Low mortgage rates, a swift economic recovery, which has spurred consumer sentiment, and low listing volumes have catapulted national housing values to new record highs. At the end of March, the CoreLogic national home value index increased a further 2.8%, placing values 5.6% above the previous market peak in October 2017. The combined value of
Jacinda Ardern was partly elected to address house price inflation. Instead, her first term delivered spiraling prices. Fed up, this year the Ardern Government has dropped a series of draconian measures on property markets including: Adding house prices to the RBNZ mandate. Negative gearing and deductibility of mortgage costs against property investments will be phased
Australian dwelling values grew less strongly in the week ended 8 April, only registering a 0.34% rise across the five major markets: It was the softest weekly price increase in nine weeks, which illustrates just how strong the nation’s property market has been. Sydney continued to lead the nation’s dwelling value growth, recording a rise
CoreLogic produces a handy set of leading indicators for property markets. The first is for mortgages that have been seriously overheating. Normally we see an Autumn peak but this year it has come later and higher. Be aware that the index is only for owner-occupiers but they have driven the price boom to date anyway:
SQM Research has released its Stock on Market data for March, which has recorded a heavy 16.7% year-on-year decline in the number of listings, with every market except Melbourne recording falls: The decline in total listings came despite a solid 10.7% year-on-year increase in new listings (i.e. advertised for less than 30 days): According to
Domain continues its laudable series bashing the RBA today. It has good sources, especially our favourite, Gareth Aird at CBA, but, alas, I have to disagree with its conclusion that Australia has delivered its last “kick of the can” to house prices: The RBA does care about house prices (mostly true). Financial liberalisation is the
The Economist has released a new report looking at the synchronised house price boom taking place across rich nations. The Economist claims that this boom is unusual in that it is being driven almost uniformly by suburban houses rather than the inner cities: Across the 25 countries tracked by The Economist, real house prices have
Courtesy of Martin North: The latest results from our household surveys confirms that there are more households in financial stress than before the pandemic hit. As the various Government support mechanisms are ratcheted back, we will see the true impact on the community. Household debt is also turning higher again. We have 41.1% of mortgaged
The RBA yesterday gave a quiet warning on house prices when it noted that it said it “will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.” It does not take Einstein to see where that ends up eventually. There’ll be a wave of macroprudential tightening to blow
CoreLogic’s March dwelling value results recorded a whopping 3.7% monthly rise in Sydney home values, which was the strongest monthly result since August 1988: As of yesterday (i.e. 6 April 2021), Sydney’s quarterly dwelling value growth was tracking at an insane 7.1%, which is the strongest quarterly growth since October 1988: Thus, the last time
Thursday’s lending indicators data from the Australian Bureau of Statistics (ABS) revealed that loans for new home construction hit the six consecutive monthly record high in February 2021, surging 166% year-on-year: As noted by HIA Chief Economist, Tim Reardon: “The number of construction loans to owner occupiers in the three months to February 2021 is
As regular readers know, I consider the growth rate in new mortgage commitments to be the number one short-term indicator for Australian property prices. This is due to the incredibly strong historical correlation between new mortgage commitments and dwelling value growth. On Thursday, the Australian Bureau of Statistics (ABS) released data on new mortgage commitments
There’s some serious scuttlebutt around Labor’s position on negative gearing reform today. Previously, the media has reported that senior Labor figures had decided to dump negative gearing reforms at its national conference. That happened but according to the AFR it’s not over: House prices are out of control and likely to generate angst in the
