By Leith van Onselen Find below a speech today from APRA chairman, Wayne Byres, to CEDA’s 2017 NSW Property Market Outlook, whereby Byres admitted that APRA did not lower its incredibly generous investor mortgage speed limit from 10% because it is afraid the huge pipeline of apartments due for completion will not be absorbed [My emphasis]:
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 The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of March 2017: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.3% MoM; -0.6% QoQ; -1.5% YoY) is still in the gutter and falling, whereas business credit
From Chris Joye today: So Sydney house prices have fallen in April for the first time on a month-on-month basis since December 2015, validating last week’s call that the easy-money fuelled Aussie housing boom is grinding to a halt. According to CoreLogic’s daily hedonic index—the only measure that tracks price movements on a timely basis—home values across
I’m not sure where one stops and the other begins so let’s assume it’s a single entity, from Gottiboff today: The unprecedented campaign to reduce dwelling prices is starting to have a real impact. The best forward indicator, Sydney apartment prices, has started to ease and sales volumes are falling. And it would appear that
By Leith van Onselen Ben Phillips from the Australian National University’s (ANU) Centre for Social Research and Methods has released new modelling estimating that capping negative losses at $10,000 could impact 300,000 property investors and could raise $1.5 billion for the Federal Budget. From The AFR: Ben Phillips from the Australian National University’s Centre for
It’s the share price crash that keeps on giving, yesterday hitting a new closing low of 59 cents, now down 72% from float: The new trigger appears to have been this story: Speculation is mounting that more of McGrath Estate Agent’s franchisees are heading for the door as the share price of the listed real
By Leith van Onselen In the week ended 27 April 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.29%: Values fell in three major capitals, rose in one, and was flat in one: So far in April, home prices have risen by 0.15%, with growth
By Leith van Onselen The ABS’ latest CPI data showed that housing rents nationally have registered zero growth in inflation-adjusted terms over the past five years (see my earlier post): Despite this, the number of affordable rental properties is at all-time lows according to a Anglicare’s latest Rental Affordability Snapshot. From The ABC: Each year
Poor young Australia. Via Essential, Do-nothing Malcolm’s visa changes have not moved the needle: Even though support is good: But note the youth results. Strongest in favour of immigration and protecting visa rorts, even as they play a major role is their own disenfranchisement. Exemplary global citizens suffering for their values.
By Leith van Onselen ABC’s 7.30 Report last night ran a depressing segment on the Western Australian economic/property crash. The segment features a project engineer named Brad Wright, who has seen his income slashed and has lost a tonne of money in investment properties: BRAD WRIGHT, PROJECT ENGINEER: People have had their income slashed to
Canada’s largest mortgage non-bank mortgage lender appears to be going under, via Bloomberg: Home Capital Group Inc.’s shares plunged more than 60 percent after the mortgage lender disclosed a costly new loan to tide it over as its deposits dwindle, intensifying a spiral of bad news for the company. The C$2 billion ($1.5 billion) loan is
Readers will know that MB has a bearish three-stage bust outlook for Australian house prices. phase one is monetary authorities pulling up prices and triggering minor falls (in the east as well as west). We see a little more tightening as needed but we may already be there; phase two is fiscal authorities tightening on
From the always excellent Jonathon Mott at UBS: Is the purple patch coming to an end? Over the last six months the Aussie banks have enjoyed a purple patch. While share prices have been supported by the global reflation trade and investors closing underweight positions, EPS forecasts have been revised upwards for the first time
Via Investor Daily: In a ‘Spectrum Insights’ article released recently, Spectrum Asset Management principal Damien Wood put forward his views that the third-party channel is a significant risk that could spark problems for Australia’s banks. Mr Wood noted that while high levels of household debt and interest-only mortgages have received plenty of attention, Australia’s preferred
By Leith van Onselen The March quarter consumer price index (CPI) data, released yesterday by the Australian Bureau of Statistics (ABS), revealed continued weak rental growth at the national capital city level. According to the ABS, rents nationally grew by just 0.1% over the March quarter of 2016 and by only 0.6% over the year
By Leith van Onselen The Property Council of Australia (PCA) yesterday released its 10-point plan for housing affordability, which is worth critiquing. Below are key extracts from the Media Release: “For twenty years we have had a logjam of costly regulation, poor planning decisions and excessive taxation across all levels of government. This has driven
From Moody’s: Moody’s Investors Service says housing affordability deteriorated on average across Australia over the year to March 2017, a credit negative for Australian residential mortgage backed securities (RMBS). Rising housing prices outstripped the positive effects of lower interest rates and moderate income growth. In the near term, Moody’s expects housing affordability to continue to
By Leith van Onselen The Housing Industry Association (HIA) has released its land sales report for the December quarter of 2016, which revealed further appreciation in vacant lot prices to unprecedented levels, as well as a crash in the number of lots sold (see next chart). According to the HIA release: “The volume of residential
By Leith van Onselen From The Australian comes the latest Newspoll survey, which reveals that a clear majority of voters support reducing tax breaks for housing investors: The Newspoll found that support for tighter rules on property investors cut across party lines, with 52 per cent of Coalition voters backing the changes compared with 57
From Macquarie: In this regards, the most indebted 10% of households are at most risk from rate increases. Our analysis below dissects this group by income quintile (i.e., highest 10% of households based on debt-to-income measure split into income quintiles). While a large share of debt (i.e., ~50%) resides within the highest income quintile, when
By Leith van Onselen Digital Finance Analytics’ Martin North has done a great job in highlighting the mortgage stress building across Australia. On Monday, North’s research received extended coverage in the Herald-Sun, whereby some 300,000 Victorian households are already feeling the pain of higher mortgage rates, flat incomes and rising costs of living. On Monday
By Leith van Onselen The Turnbull Government’s May 2017 Budget is tipped to include superannuation incentives for retirees as part of its strategy to address housing affordability. The Government is reportedly considering a proposal to give retirees who sell their family home and move to a smaller property an exemption from the $1.6m cap on
Via Australian Broker: A staggering 57% of mortgage holders could not handle a $100 increase in their loan repayments, according to new research by Finder.com.au. This additional $100 is equivalent to an interest rate rise of just 0.45% based on the national average mortgage of $360,600. This means the average standard variable rate of 4.83%
By Leith van Onselen Modelling by PwC suggests that allowing home buyers to pay land tax rather than stamp duty could generate significant savings. PwC estimates that home buyers in NSW could save around $10,000 over the life of a 45-year mortgage by electing to pay land tax rather than stamp duty. PwC has proposed