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.

6

HomeBuilder grants trigger ‘land frenzy’

The Morrison Government’s HomeBuilder subsidy, which gives up to $25,000 to eligible households to build or substantially renovate their homes, has ignited massive surge of buyers of house and land packages, according to agents and developers: Inquiries have tripled and land sales have gone up by more than 300 per cent since the HomeBuilder scheme

168

Brace for mass mortgage defaults

According to the latest mortgage deferral data from the Australian Bankers Association (ABA), repayments on nearly 500,000 mortgages have been deferred for six month, totaling $175.6 billion: That equates to an average mortgage size of $350,000 that has had repayments deferred by Australia’s banks. On Tuesday, comparison site Mozo warned that many mortgage holders could

72

77% of Aussies yearn for a house with backyard

Over the past decade, Australia’s mainstream media spun propaganda claiming that Australians are “choosing” high density apartment living over detached housing due to its convenience. We were also frequently told that changing lifestyles has meant that most Australians do not want a large backyard. I have always claimed that this notion of Australians “choosing” to

10

Auction market neither boom nor bust

CoreLogic’s preliminary auction report reported a slight rise in the preliminary clearance rate (from 64.5% to 65.1%) off solid volumes: Once final results are received later this week, we are likely to see the weighted average clearance rate fall to around 60%. If so, this would mean that auction clearances are hovering just below the

1

Property listings swell across Melbourne

With dwelling values diving across Melbourne: Vendors are rushing to sell their properties, according to SQM Research: Most capital cities experienced decreases in property listings over the month… Melbourne and Perth were the only capital cities to record increases in listings, 2.7% and 0.4% respectively. Year-on-year listings show more significant declines for nearly all capital

3

Working from home crushes office rents

Earlier this week, Roy Morgan Research reported that around one third of employed Australians have been working from home (WFH), with 36% of capital city workers WFH: As shown above, so-called ‘knowledge’ industries concentrated in Australia’s CBDs have been most impacted by WFH. The impact on CBD occupancy rates has been dramatic, according to The

10

Why Melbourne is the property market’s dead canary

CoreLogic’s head of research, Eliza Owen, has released a report examining why Melbourne is leading Australia’s property downturn: The July CoreLogic index results show the Melbourne property market is the worst capital city performer since the onset of COVID19. June marked the third consecutive month of value falls across the city. This sees values down

19

CoreLogic weekly house price update: Still falling

In the week ended 2 July 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.16%: It was the eighth consecutive weekly decline. The falls were broad-based: Quarterly dwelling value growth is negative, driven by Melbourne: Annual price growth remains strong, but is fading: The next

4

Auction volumes continue to rebound

CoreLogic has released the final auction clearance rate for last weekend, which rebounded to 60.6% versus 59.6% last week off solid volumes: According to CoreLogic: There were 1,485 capital city homes scheduled for auction last week, returning a final auction clearance rate of 60.6 per cent, the highest clearance rate seen since 31st May. In

22

Coalition pledges never-ending first home subsidies

Housing Minister Michael Sukkar was interviewed by Sky News yesterday where he signaled that the Morrison Government would indefinitely subsidise first home buyers’ property purchases: “10,000 places [in the FHB deposit subsidy scheme] have been released today. This scheme allows people to purchase their first home with a deposit of as little as 5%. One

42

High rise apartment construction to collapse

The Australian Bureau of Statistics (ABS) yesterday released its dwelling approvals data for April, which recorded a heavy 35% monthly fall in apartment approvals: Apartment approvals were also 69% below their November 2017 peak. Today, I want to focus on the high-rise apartment segment, which has driven the apartment bust. The next chart shows the

14

MSM does Sydney rental rout

Unit Rental Vacancies Surge in Inner Sydney over June – Rents Falling. Nine News Reports Exclusively#housingmarkethttps://t.co/QEFHQzkJFB — Andrew Wilson (@DocAndrewWilson) July 1, 2020 There is no end in sight to the deterioration as: eviction and mortgage forbearance ends; foreign students and immigration remain stalled; AirBnB remains busted; the construction pipeline delivers still more supply; high

27

Opal Tower owners sue government after 500 additional defects found

The insurance premium for Sydney’s Opal Tower – which was evacuated on Christmas Eve 2018 amid severe structural cracking – has been increased by $1.1 million after 12 experts found more than 500 additional defects. The find has prompted the owners’ corporation to sue the New South Wales government. Owners’ corporation chairman Shady Eskander said

5

Dwelling approvals collapse

The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of May. At the national level, the number of dwelling approvals collapsed by a seasonally adjusted 16.4% to 12,736. The overall decline in approvals was driven by units & apartments, which fell by 34.9%, whereas house approvals fell by 4.4%. Over

8

SQM: Reported auction results exaggerated

SQM Research has released its weekly auction survey, which reported clearance rates for Sydney and Melbourne in the 40s: Last week, Sydney recorded a final auction clearance rate of 49.6% with Saturday auctions breaking through the 50% barrier (50.3%). While the mid-week results disappointed at 45.7%. Sydney auction volumes rose again to 621 properties. Melbourne

7

Australia’s 30-year mortgage tail wind runs out of puff

The Reserve Bank of Australia (RBA) yesterday released its household debt data for the March quarter, which revealed that the ratio of household debt-t0-disposable income rose to 186.9%, whereas mortgage-debt-to-disposable income retraced slightly to 142.0%: As you can see, both are a fraction below record highs. However, due to the cratering of mortgage rates to

1

Moody’s: Mortgage delinquencies head for GFC highs

Via Moody’s Summary » The 30+ days delinquency rate for prime Australian residential mortgage-backed securities (RMBS) increased to 1.79% in March 2020 from 1.55% in December 2019 and 1.57% in March 2019. » Delinquencies will continue to increase in 2020 because of the economic disruptions caused by the coronavirus outbreak. Delinquencies will continue increasing over

19

Mortgage rate war heats up

With Australia’s official cash rate crashing to just 0.25%, mortgage rates have also cratered to all-time lows: Some smaller lenders have even lowered mortgage rates below 2% for the first time ever as competition intensifies: Mortgage loan interest rates have plunged below the two per cent mark for the first time ever in Australia. Experts

16

Aussie property values dive 0.9% in June

CoreLogic’s dwelling value results for June are out at the 5-city level, with values falling 0.85% over the month amid universal declines: It was the second consecutive monthly decline: Over the June quarter, dwelling values fell by 0.4% across the major capitals: Melbourne has suffered the biggest quarterly falls: The next chart plots quarterly price

68

Don’t buy Aussie property now!

Unless you want to lose money. For investors, there is simply no reason to buy and plenty of reasons to sell. Even for first home buyers, there’s no reason to buy and plenty of reasons to rent. First, there is huge unemployment that is going to be very sticky with unprecedented wage pressures, via Credit

53

The ‘Population Ponzi’ – Employment, Migrants, Incomes and Manufacturing & Australia’s lost Economic narrative

In the 1950s and 60s Australia had a policy of supporting manufacturing development in Australia, and its capacity to absorb large numbers migrants largely reflected its industry protection. Given the operation of the then Industrial Relations Commission, those industries tended to have remuneration outcomes which enabled both the migrants coming to Australia, and the pre