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

RBA throws Guy Debelle under the Bernanke bus

From RBA deputy chair today: Assessing the Effects of Housing Lending Policy Measures Today I will summarise the Bank’s assessment of the various measures put in place to address the risks around housing lending. I will draw on Chapter 5 of the recent Financial Stability Review (FSR). I think it is important in terms of accountability that we

7

Is the rental impact of Airbnb even worse than first thought?

By Leith van Onselen Earlier this month, the Australian Housing and Urban Research Institute (AHURI) released a report arguing that short-term letting (STL) portals like Airbnb account for one in seven rental properties in Sydney’s and Melbourne’s inner-city and beachside suburbs. This report featured the below chart showing that there were just over 20,000 Airbnb listings

8

Sydney’s final auction clearance rate crashes to 42%

By Leith van Onselen 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 large 3.5% decline in the national auction clearance rate to 43.3%, with Sydney’s auction clearance rate diving 6.3% to just 42.1% and Melbourne’s falling 2.1% to

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Another day, another worst ever negative gearing attack

By Leith van Onselen Uber-wealthy property investor and media director at the Seven Network, Bruce McWilliam, is not happy about Labor’s negative gearing policy. You see, McWilliam is one of Sydney’s biggest property investors with a portfolio of at least 20 eastern suburbs properties worth an estimated $200 million. And he believes it’s unfair that Labor’s policy will

49

Is anyone factoring in the Chinese property bust?

Paging the RBA! Attention RBA! One of the less amusing features of the unwinding property cycle is the invisible Chinese dimension. This is becoming a serious issue. Indeed it’s possible that it the key driver of property price falls yet it is ignored and invisible. After all, the boom in Chinese inflows was ignored and

40

Louis Christopher: Sydney and Melbourne property crash the base case

By Leith van Onselen SQM Research has released its latest Boom-to-Bust Report, which projects heavy losses for Sydney, Melbourne and Darwin property in 2019: SQM’s base case forecast is for dwelling prices to fall between -6% to -3%, which is a continuation of the current falls of 4.5% over the past 12 months. Sydney and

29

You can take the blog out of Domainfax but not the reverse

Business Insider’s David Scutt going all doe-eyed for house prices today: Australians, collectively, think now is the best time to buy a home in over three years, encouraged by lower prices, especially in Sydney and Melbourne. The ‘time to buy a dwelling’ index in the Westpac-MI Australian Consumer Sentiment report surged by 11.8% in November,

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New Aussie Battler Party launches daft housing non-solutions

By Leith van Onselen A new micro political party, the Aussie Battler Party, has launched some ridiculous housing policy proposals in a bid to win a Victorian upper-house seat in this month’s election: The party’s founder Stuart O’Neill, a self-employed life coach [said]… his party’s policies include establishing a government-backed mortgage lender for people on low

18

So, is the HEM doomed or not?

Yesterday’s Federal Court decision to stomp on ASIC’s WBC settlement has all tongues wagging. Martin North sees as bullish: The use of HEM may well be back in play, following the latest from the Westpac ASIC case.  Given that at some banks HEM is still being used for around half of applications, and the Royal Commission commented

44

ANZ slams and bolts door on easy mortgages

Via The Advisor: ANZ has informed brokers that it will introduce enhanced home loan verification requirements, effective from 20 November. Key changes include the following: PAYG income: Brokers are required to obtain three months’ bank statements showing salary credits in order to verify income (in addition to payslips). For casual, temporary and contract employees, six months

16

Another day, another worst ever negative gearing reform attack

By Leith van Onselen Peter Gleeson’s moronic attack yesterday on Labor’s negative gearing policy has found company, with Australian Taxpayers Alliance (ATA) director, Satya Marar, also claiming Labor’s policy would somehow “slam the vulnerable”: …renters and retirees on self-managed super funds are set to take the greatest hits… While existing investors and super fund holders can

11

Sydney landlords savaged by falling prices and rents

By Leith van Onselen SQM Research has released its rental vacancy series for October, which revealed a 0.1% decline in the national vacancy rate over the month and a 0.1% decline over the year: Over the year, decreases in vacancies were recorded in Melbourne (-0.1%), Adelaide (-0.3%), Perth (-1.1%), Brisbane (-0.7%) and Canberra (-0.2%), whereas

15

Bottom-feeders gobble Brisvegas apartments

Hmmm…at the AFR: Former Macquarie banker Andrew Hooper-Nguyen and his business ­partner, the co-founder of ASX-listed Excel Coal, Chris Ellis, have made a bulk purchase of brand new apartments at Rich Lister Tim Gurner’s FV tower in Brisbane where there have already been discounts of 24 percent from sales made four years ago. …”Market weakness

34

Joye: “plenty of options” to stabilise house prices. Are there?

So says Chanticleer: Joye’s message was not to panic. Even if the market were to really tank there were plenty of options for regulators and governments wishing to stabilise the situation. It is my view that when the RBA is forced to cut next year it will stabilise the market for a while (assuming it

29

Judge shoots down Westpac “liar loan” fine

Via the ABC: In an extraordinary move, the Federal Court has refused to approve a $35 million penalty for Westpac, despite the bank admitting it broke responsible lending laws.The penalty was a negotiated settlement between Westpac and the Australian Securities and Investments Commission (ASIC).However, in a highly critical judgment, Justice Nye Perram said “admirable ingenuity

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New winner for worst ever negative gearing reform attack

By Leith van Onselen Just when I thought we’d hit peak stupid in the negative gearing debate, along comes The Courier Mail’s Peter Gleeson with the following faeces laden argument that Labor’s policy will somehow hit battlers the most: OF ALL the destructive policies to be implemented under a Bill Shorten-led People’s Socialist Republic of

6

RBA and Treasury versus APRA and ASIC?

So says CoreLogic’s Tim Lawless in a well considered argument at the AFR: Tim Lawless of housing data firm Corelogic said that for “the first time in forever” there was a potential split among top regulators that make up the Council of Financial Regulators in how to deal with a declining property market. While the

9

CoreLogic: Worst yet to come for Aussie housing market

By Leith van Onselen CoreLogic is dialling up the warnings about Australia’s budding housing bust. After Friday’s disastrous housing finance figures, which showed both owner-occupied finance crashing, Cameron Kusher predicted both housing growth and sales will take another leg down: Given the ongoing declines in dwelling values, particularly in Sydney and Melbourne, and the now apparent

3

Negative gearing reform polling still strong

Via The Australian: An exclusive Newspoll conduct­ed for The Australian reveale­d a seven-point fall in suppor­t for Mr Shorten’s centrepiece housing policy amid a softening market, although backer­s of Labor’s tax overhaul still outweigh opponents by 47 to 33 per cent. Of those surveyed, 42 per cent believed the policy would cause house prices to

10

The Kouk: Negative gearing reform to “put a floor on house prices”!

By Leith van Onselen I know Stephen Koukoulas is a Labor guy and is a good team player, but he’s drawing a long bow suggesting that Labor’s negative gearing and capital gains tac (CGT) might actually “put a floor on house prices”: The government is claiming that the negative gearing change will “take a sledgehammer”,

10

CoreLogic fugly: Mortgages sag, listings rocket, auction fails widen

CoreLogic’s weekly housing indicators are fugly today. Mortgage credit is fading when it should be surging: Listings are ripping towards 2012 highs:   And auction failure is now near universal having spread from suburbs to inner city and out to neighbouring centres: The bust is still clearly building momentum. Full report.  

4

CoreLogic: Dwelling values to keep falling

By Leith van Onselen A few weeks back, CoreLogic’s Cameron Kusher predicted a 15% peak-to-trough decline for Sydney and Melbourne dwelling values. However, after Friday’s disastrous housing finance figures, which showed both owner-occupied finance crashing: And investor finance crashing: Cameron Kusher predicted both housing growth and sales will take another leg down: While the decline