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

CoreLogic: Australia’s auction market has never been this hot

CoreLogic has released its Quarterly Auction Market Review, which reveals that Australia’s combined capital city auction clearance rate was the strongest on record in the March quarter of 2021: CoreLogic’s weekly auction clearance rate across the combined capitals has been at or above 80% just five times since 2008, and four of those were in

19

Aussie property’s stunning COVID rebound

Just over a year ago, COVID-19 was declared a global pandemic by the World Health Organization (WHO). A nation-wide lockdown ensued, which was followed by a further 14-week hard lockdown across Victoria over winter and then several short lockdowns across various states. Australia’s property market was negatively impacted at the beginning of the pandemic. Millions

30

The depressing reality of ‘tiny homes’

Over the past few years we have witnessed housing ‘experts’, planners and policy wonks endlessly spruik ‘tiny homes’ as a solution to Australia’s chronic housing affordability problems. The most recent example was a fortnight ago. The reality could not be further from the truth. Travel throughout Australia and you will find caravan parks providing long-term

4

Why macroprudential mortgage curbs are harder this time around

Several commentators have questioned the efficacy of Australian financial regulators imposing macroprudential mortgage curbs, arguing that it would disproportionately harm first home buyers (FHBs) who tend to take out larger mortgages with smaller deposits: Alison Pennington, senior economist at the Australia Institute’s Centre For Future Work, claims macro-prudential tightening “would have unequal and unfair consequences

3

Auction results strong again

CoreLogic has released its preliminary auction results for the weekend, which reported a clearance rate of 79.9% off 1,879 auctions. This was up on the 79.4% preliminary figure recorded last week, which was later revised down to 77.1% at final collection. Sydney continued to lead the way recording a preliminary clearance rate of 82.8% off

3

RBA does the retail property bleed out

From the RBA today: The pandemic has accelerated structural change and so has added to strains for retail commercial property Retail commercial property in Australia was already facing a challenging environment prior to the pandemic. The margins of retailers, particularly bricks-and-mortar retailers for discretionary goods, were being compressed by intense competition from both large international

5

All-time highs for property in east. West not so much

Via CoreLogic: Low mortgage rates, a swift economic recovery, which has spurred consumer sentiment, and low listing volumes have catapulted national housing values to new record highs. At the end of March, the CoreLogic national home value index increased a further 2.8%, placing values 5.6% above the previous market peak in October 2017. The combined value of

13

Ardern reforms to slash 20% from NZ property

Jacinda Ardern was partly elected to address house price inflation. Instead, her first term delivered spiraling prices. Fed up, this year the Ardern Government has dropped a series of draconian measures on property markets including: Adding house prices to the RBNZ mandate. Negative gearing and deductibility of mortgage costs against property investments will be phased

5

Property for sale inventory crunched again

SQM Research has released its Stock on Market data for March, which has recorded a heavy 16.7% year-on-year decline in the number of listings, with every market except Melbourne recording falls: The decline in total listings came despite a solid 10.7% year-on-year increase in new listings (i.e. advertised for less than 30 days): According to

11

Household mortgage stress still very high

Courtesy of Martin North: The latest results from our household surveys confirms that there are more households in financial stress than before the pandemic hit. As the various Government support mechanisms are ratcheted back, we will see the true impact on the community. Household debt is also turning higher again. We have 41.1% of mortgaged

93

Sydney property smashes more records

CoreLogic’s March dwelling value results recorded a whopping 3.7% monthly rise in Sydney home values, which was the strongest monthly result since August 1988: As of yesterday (i.e. 6 April 2021), Sydney’s quarterly dwelling value growth was tracking at an insane 7.1%, which is the strongest quarterly growth since October 1988: Thus, the last time

5

Aussie tradies run off their feet by housing construction boom

Thursday’s lending indicators data from the Australian Bureau of Statistics (ABS) revealed that loans for new home construction hit the six consecutive monthly record high in February 2021, surging 166% year-on-year: As noted by HIA Chief Economist, Tim Reardon: “The number of construction loans to owner occupiers in the three months to February 2021 is

49

Mortgage market points to once-in-generation property boom

As regular readers know, I consider the growth rate in new mortgage commitments to be the number one short-term indicator for Australian property prices. This is due to the incredibly strong historical correlation between new mortgage commitments and dwelling value growth. On Thursday, the Australian Bureau of Statistics (ABS) released data on new mortgage commitments

13

How Labor can still fight for housing affordability

There’s some serious scuttlebutt around Labor’s position on negative gearing reform today. Previously, the media has reported that senior Labor figures had decided to dump negative gearing reforms at its national conference. That happened but according to the AFR it’s not over: House prices are out of control and likely to generate angst in the

6

Property rents accelerated in March

CoreLogic has released new data on Australia’s rental market, which shows that growth accelerated across almost every market segment in the year to March 2021. In particular, Darwin and Perth rents are rising at a record-setting pace across both Perth and Darwin, growing by 5.9% and 7.7% respectively over the quarter, according to CoreLogic’s Tim

1

Mortgage demand remains red hot

The Australian mortgage market remains red hot according to new data released today by the Australian Bureau of Statistics (ABS). While the value of new mortgage commitments retraced by a seasonally adjusted 0.4% in February 2021, it was up 48.8% year-on-year and remains only a whisker below all-time highs: The growth in new mortgage commitments

22

House approvals boom while apartment approvals bust

Never has there been such a strong divergence between the construction of detached houses and apartments. Yesterday’s dwelling approvals data from the Australian Bureau of Statistics (ABS) revealed that 14,072 detached houses were approved over the month – a 58% increase year-over-year and the highest monthly count since the series began in 1983: It is