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.
By Leith van Onselen In the week ended 20 July 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.20%: The surge in prices was driven by Melbourne, with Perth in the red: So far in July, dwelling values have increased by 1.61%, again driven by
Please find above an interview I gave this morning on Perth Radio 6PR regarding the WA economy and Perth housing market. For reference, below is the key chart relating to my argument about WA’s housing construction falling (hence dragging on jobs and growth), while at the same time easily outpacing population growth (suggesting further oversupply):
By Leith van Onselen The extent that Australia’s high-rise apartments are exposed to combustible cladding similar to that which engulfed London’s Grenfell, killing more than 50 people, is beginning to come to light. Yesterday, the second day of the Senate’s inquiry heard that thousands of apartments in Sydney and Melbourne are potentially at risk. From
Christ, this is a life raft to a drowning man: Expensive tax breaks like negative gearing and capital gains tax concessions must be pared back if the broader voting public is going to support the hard calls needed to repair the budget, shadow treasurer Chris Bowen said. Mr Bowen has told the Melbourne Institute economic forum
There is sometimes confusion about the returns available on property in a self-managed super fund (SMSF) – especially as the mathematics starts to get confusing with relative rates of return, real vs nominal and opportunity cost vs risk, before tax and after tax returns. But I have a much easier way to explain why it
By Leith van Onselen ABC Lateline last night ran an interesting segment on the Western Sydney housing market, which is the most vulnerable to a correction. The segment profiles a new housing estate 50 kilometres north-west of the city, called the Hills of Carmel, whereby a typical house and land packages are on sale for
By Leith van Onselen Domain (formerly Australian Property Monitors) has released its State of the Market Report for the June quarter, which revealed a stark divergence between prices and rents, with dwelling prices recording solid growth but rents falling. The below tables show the change in stratified median prices for both houses and units: As
It appears MB’s constant prodding and mockery has paid off. Domainfax has been forced to deliver some editorial balance by recruiting Chris Kohler from The Australian and his debut is dark: Homeowners who have been wrestling with their mortgage repayments are about to find things can get a whole lot worse as the Reserve Bank
By Leith van Onselen The Victorian Government is reportedly reviewing rules for renters, which could lead to greater security of tenure. The ABC has examined the proposals: As more Victorians find themselves locked out of the property market and many choose to rent long term instead of buy, the State Government is reviewing the rules
The RBA has always been a very easy central bank to forecast. No matter what it said, it above all followed the data. Thus when other’s listened to its hawkish rhetoric in 2011 and 2014 and fell for imminent rate hikes, we were very confidence that they were wrong. We knew that the economy was
By Leith van Onselen SQM Research has released its rental vacancy series for June, which revealed a 0.2% rise in the national vacancy rate over the month but a 0.1% fall over the year: As shown above, rental vacancies rose across almost all capitals in June, except for Darwin (flat). Over the year, decreases in
By Leith van Onselen The 2016 Census painted a nasty picture for Melbourne’s renters. First, the Census showed that immigration-fueled population growth has overwhelmed the number of dwellings built, despite Melbourne’s epic construction boom: Second, the Census revealed that the number of households in rental and group accommodation has soared in Melbourne, as it has
By Leith van Onselen In the wake of Deloitte Access Economics’ report yesterday claiming that the RBA sitting on housing “powder keg”, ABC’s The Business last night ran a segment examining the issue, featuring SQM Research’s Louis Christopher and the REA Group’s chief economist, Nerida Conisbee. As expected, Ms Conisbee played down the prospects of
From Moody’s comes mortgage arrears that are stable in aggregate but two speed under the bonnet: The number of delinquent housing loans underlying Australian prime residential mortgage-backed securities (RMBS) remained at 1.21% in May, unchanged from April, according to a recent report by S&P Global Ratings. While the Standard & Poor’s Performance Index (SPIN) for
By Leith van Onselen The Grattan Institute has lamented the sharp decline in Australia’s home ownership rate among younger cohorts, pinning part of the blame on a chronic housing supply in the major cities. From The ABC: Australia’s housing boom is no secret, and has been going for 20 years, Mr Coates said. It has
By Leith van Onselen Professor Brendan Gleeson from the University of Melbourne has penned a somewhat contrarian article questioning the efficacy of what he calls “vertical sprawl” – the proliferation of low-quality high-rise apartments across the East Coast of Australia: The towers crowding out the centre of Australian cities are a symptom of failed governance
UBS presents a semi-bear case: Commencements of 195k in 2017 & 175k in 2018 Q1-17 dwelling commencements fell more than expected, down 11% q/q & 19% y/y, the ~largest fall since the GFC, to 202k a.r., the lowest since Q2-14 (albeit likely partly weather related). Q1 was hit by a slump of private medium-density (-15%
Via the Canadian Real Estate Association: The number of homes sold via Canadian MLS® Systems fell 6.7% in June 2017, the largest monthly decline since June 2010. With sales having also declined in each of the two previous months, activity in June came in 14.1% below the record set in March. June sales were down from
Cross-posted from The Conversation: Vacant housing rates are rising in our major cities. Across Australia on census night, 11.2% of housing was recorded as unoccupied – a total of 1,089,165 dwellings. With housing affordability stress also intensifying, the moment for a push on empty property taxes looks to have arrived. The 2016 Census showed empty
By Leith van Onselen LF Economics has released a new report, entitled “An Illustrated Guide to the Latest Trends in the Perth Housing Market”, which reveals a sinking market, yet ironically the ‘bubble’ is getting larger because rents are falling faster than prices. Below are some key extracts: The Perth housing market looks to have
The Pascometer does it again. If you want a non-bank interest-only loan you’d better hurry: A new power will be provided to APRA to make rules with respect to lending finance by non-ADI lenders, for the purpose of addressing financial stability risks. APRA will also be provided a power to issue directions to a non-ADI
The nation is sagely listening to the increasingly shrill warning emanating from the Pascometer:
From CoreLogic: The leading mortgage index is markedly below 2014 levels and listings rebounding above last year is not yet back 2015. It’s like waiting for Godot, I know, but this data still hints at softening house price growth. Full report.
CoreLogic released its auction report yesterday, which reported a firming in the national auction clearance rate to 72.4% from 70.7% last weekend, and was also above the 70.5% recorded in the same weekend last year: Auction volumes nationally were 1,612 – way above the 1,391 recorded in the same weekend last year. As shown above, Sydney’s auction
By Martin North, cross-posted from the Digital Finance Analytics Blog: The Treasury has released its exposure draft for consultation on the plans announced in the budget to disallow travel expense deductions and limit depreciation for plant and equipment used in relation to residential investment property. Closing date for submissions: Thursday, 10 August 2017. As part of
