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.

1

Mortgage arrears remain pressured

Via S&P: Australian prime home-loan arrears fell in July. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages dropped to 1.49% in July from 1.51% a month earlier. That’s according to S&P Global Ratings’ recently published “RMBS Arrears Statistics: Australia” report. The trend is seasonal; arrears typically fall at this point in the

11

Defect crisis slams apartment sales

Why would anyone buy an apartment today? Via the AFR: Buyer fears about high-rise apartment fires and construction risks are causing sale times to blow out by more than 60 per cent compared with a year ago, creating bottlenecks for sellers. Lenders are also making it tougher for borrowers to buy apartments by blacklisting some

23

Flammable cladding buildings kept secret

The New South Wales Government has instructed councils to keep flammable cladding locations secret in order to thwart potential terrorists from setting these buildings alight, as well as to protect apartment values. From The Guardian: In NSW, a taskforce has spent two years auditing 185,000 building records to understand how widespread flammable cladding is. Laws have been

10

Corrupt APRA warns on housing speculation, eggs it on

The corrupt Wayne Byers and his disgraced APRA have undertaken a new round of arse covering, from a speech Friday: APRA recently issued its four-year Corporate Plan for 2019-2023. In it, we called out four key outcomes we will be seeking to deliver for the Australian community: maintaining financial stability and resilience within the financial

20

Auction clearances remain strong

Auction clearance rates remained strong over the weekend, with the preliminary rate nationally coming in at 75.7%, down slightly from 77.0% last weekend: Auction clearances were also way above the 51.8% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 80.3%, down from 83.1% last weekend, but way above the 48.6% recorded

15

UBS: House prices entering pointless “mini-boom”

Via the excellent George Tharenou at UBS: …we expect RBA rate cuts & APRA credit easing to trigger a ‘mini-boom’ for home prices (5-10% y/y) & home loans (15-20% y/y). Nonetheless, ‘this cycle will be different’…we expect much of the typical multiplier from strong house prices, to the ‘real’ economy, to be unusually muted in

6

Melbourne land bubble deflates

Last year it became apparent that Melbourne’s house and land market had become an giant bubble after the median price for a housing lot hit $339,000 – up 21% in only 12 months – with steeper rises in the cost per square metre: In August 2018, the panic began to set in with land speculators rushing for the exits.

8

Australian property sales crash to fresh 23-year lows

Below are the latest charts, derived from CoreLogic data, plotting annual sales volumes across Australia’s capital cities to May 2019: Sydney (-48%), Melbourne (-38%), Brisbane (-41%), and Perth (-37%) are all down massively from their most recent peaks, whereas across the combined capitals sales are down 36%. In fact, the last time annual sales volumes

6

ScoMo’s sub-prime FHB guarantee rises

Via Ian Rogers at Banking Day: The First Home Loan Deposit Scheme will kick in from 1 January 2020, allowing up to 10,000 borrowers a year to benefit from guarantees for lenders from the Australian government. The National Housing Finance and Investment Corp will administer the scheme, with a bill to enable this policy introduced

19

Professors: Property bubble has engulfed society

Via Domain: Forget blue or white collar workers – our society is now broken down by the size of our investment housing portfolio. New research by academics at the University of Sydney suggests the office room debate about property prices and Australians’ intimate understanding of negative gearing points to how we have become an “asset

13

CoreLogic weekly Australian house price update: rocket man

In the week ended 12 September 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.35%: The rise in values was again driven by Sydney and Melbourne, where values rocketed: Quarterly dwelling values are now rising solidly, again driven by Sydney and Melbourne: However, annual losses

8

Strong mortgage rebound driven by Sydney and Melbourne

CoreLogic’s research analyst, Cameron Kusher, has released some interesting analysis of last week’s ABS housing finance data, showing that NSW (Sydney) and VIC (Melbourne) are leading the strong rebound, which is reflected by their rising dwelling values: The ABS results confirmed that housing finance commitments data has shown a sharp rise with the uplift in

4

Gottiboff parties as the bubble is back!

Via Gottiboff today: Last Friday three massive Sydney apartment complexes were given the approval go-ahead and Harry Triguboff’s Meriton will immediately proceed with developing all three in a $3 billion project – the biggest apartment building operation in Australia’s history. …But bank market share of the boom funding has been decimated. Meriton reports that 50

3

Litigants pass the buck for flammable cladding debacle

Back in March, the Victorian Civil & Administrative Tribunal (VCAT) ruled that those who consulted to builder LU Simon on Melbourne’s Lacrosse Building were responsible for the flammable cladding that caused a potentially fatal fire in 2014. LU Simon was also ordered to pay apartment owners $5.75 million in damages arising from the fire, but

6

Final auction clearance rates strengthen

Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 4.7% decline in the final national auction clearance rate to 72.3% – well above the same weekend last year (55.3%) and also above last week’s 70.0%: As you can see,

18

Tiny home mania born from housing policy failures

Last week, we reported that the New Zealand Government had effectively abandoned its “Kiwibuild” program to build 100,000 public houses after it fell way behind target, replacing it instead with a range of demand-side policies that would actually lift dwelling prices and make housing less affordable. Now, the NZ Government has sought changes to council

1

Home ownership falls as each generation passes

The Australian Institute of Health and Welfare (AIHW) 2019 welfare report has recorded falling rates of homeownership as each generation passes, alongside growth in renters, especially among younger Australians: While Census data provides the most comprehensive view of housing tenure among Australian households, it is limited to once every 5 years. Other survey data can

30

SQM: Perth property now 10% undervalued

SQM Research’s managing director, Louis Christopher, has released another report measuring the over/undervaluation of Brisbane’s, Adelaide’s and Perth’s housing markets against GDP, which shows that Perth’s is the only major market that is currently undervalued: Brisbane On our measurement, Brisbane is offering close to fair value. This comes after an extended period whereby there has

8

RBA: Mass immigration behind Australia’s unaffordable housing

RBA Governor, Phil Lowe, has once again blamed Australia’s mass immigration policy for inflating housing values and making homes unaffordable: So what does the governor worry about? He worries about opportunity and about inequality… And he worries that high house prices can entrench inequality from one generation to the next… Hold on. Aren’t you to

54

NSW cracking apartment owners left destitute and bankrupt

Owners of apartments in the Mascot Tower, which was evacuated in mid-June after experiencing severe cracking, have been left destitute and facing potential bankruptcy because they cannot afford to pay a special levy to fund remediation works: Apartment owners in Sydney’s cracked Mascot Towers have asked for the NSW government to help fund remediation works

7

Wayne Byers gobbles CCP chockies as mortgages rocket

More pressure today for Australia’s most corrupt regulator, Wayne Byers and his disastrous APRA, via Domain: Banking regulators may have to tighten lending standards sooner than expected amid fresh signs the Reserve Bank of Australia’s back-to-back interest rate cuts have enticed investors back into the property market. …ANZ economists Adelaide Timbrell and Felicity Emmett said

16

Mortgage market suggests sluggish property rebound

Yesterday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) rebounded strongly in July; albeit it was still down a hefty 14% over the year in trend terms, driven by an epic 22% crash in investor commitments, whereas owner-occupied commitments also fell by 11%: As regular readers of

31

Indians behind Melbourne’s house-and-land bubble

The relentless symbiosis between property developers and Australia’s massive immigration program has been illustrated again, with Indian migrants taking control of Melbourne’s house-and-land market. From The Age: Villawood Properties, which specialises in residential land developments in Melbourne’s outer suburbs, says the number of Indian-born buyers on their housing estates has jumped from 12 per cent