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.
So say the excellent Damien Boey at Credit Suisse: RBA Deputy Governor Debelle has just delivered a “glass half-empty” speech about the housing construction cycle. Key points were as follows: 2020 shapes up as being the low year for residential construction, but the Bank can see through the trough to the other side. Long lead
With Perth dwelling values having crashed by more than 21%: Property lobbies have met with the Western Australian Government to demand a housing stimulus package. From The West Australian: Major property industry players met senior McGowan Government ministers yesterday to plead their case for a sweeping stimulus package aimed at breathing life into the WA’s
From CoreLogic’s head of research, Tim Lawless: Rising home values, low mortgage rates and comparatively attractive rental yields are bringing investors back into the housing market. Despite the bounce in investment activity since June, investors still comprise a relatively small proportion of housing activity. The value of home loans committed to by investors has recorded
In the week ended 17 October 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.39%: The rise in values was again driven by Sydney and Melbourne: Quarterly dwelling values continue to rise strongly, again driven by Sydney and Melbourne, where prices are rocketing: The rebound
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 3.8% decline in the final national auction clearance rate to 73.5% – well above the same weekend last year (47.0%) and above last week’s 67.6%: As you can see, Sydney’s
Instead, it will lower living standards. With dwelling construction crashing, and population growth remaining turbo-charged on the back of never-ending mass immigration, pundits are now tipping that Australia’s housing market will soon shift back into chronic shortage: “CBA estimates suggest an undersupply of apartments from 2020,” CBA economist Kristina Clifton said… Ms Clifton said an
In July, the Victorian Government launched a $600 million funding package to remove dangerous flammable cladding, the cost of which is to be split 50/50 by taxpayers and a new developer building levy. Now, the Victorian Government has announced new laws to chase ‘dodgy’ builders for the costs of rectification. From The AFR: On Tuesday
Yeh, they’re onto it at last. Deputy Governor Guy Debelle today: The housing market has a pervasive impact on the Australian economy. It is the popular topic of any number of conversations around barbeques and dinner tables. It generates reams of newspaper stories and reality TV shows. You could be forgiven for thinking that the
As stalled developments mushroom across Australia’s east coast following a surge in completions: The AFR reports that desperate developers are offering up to $20,000 in cash to clear the backlog of high-rise apartments and house-and-land packages: Cash payments of $20,000 are being offered to buyers of high-rise apartments around Melbourne’s central business district amid concerns
SQM Research has released its rental vacancy data for September, which revealed that vacancies nationally declined by 0.1% over the month and was flat over the year: Across the capital cities, vacancy rates fell across almost every market in September, whereas the situation over the year was mixed. According to SQM: It was a better
Via the ABC: Owners and residents of Sydney’s Mascot Towers have been advised existing cracks in the building have widened and new cracking has developed requiring urgent remediation works to avoid a “structural failure”. In the latest update on the troubled apartment block, law firm Mills Oakley, acting on behalf of the owners corporation, said
CoreLogic has released its quarterly rental review, which reveals that rents fell for the third consecutive month, driven by sharp falls across Sydney: In fact, the only capital city to record strong rental growth in the year to September was Hobart, where rents rose by 6.2%. Hobart is also the rental growth leader over the
We noted yesterday how the Real Estate Institute of Western Australia (REIWA) have demanded additional first home buyer (FHB) subsidies to lift Perth’s dead market, including reintroducing the $7,000 First Home Owner Grant for established properties and increasing the stamp duty exemption threshold for FHBs. Now, the McGowan State Government has launched a TV advertising
Via S&P: Australian prime home-loan arrears fell in August. That’s according to S&P Global Ratings’ recently published “RMBS Arrears Statistics: Australia.” The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages declined to 1.41% in August from 1.49% a month earlier. While arrears typically fall at this point in the annual cycle, the magnitude
Ryan Dinse, Editor of Money Morning, has penned an article entitled “Could Tiny Homes Be the Future of Australian Housing?”, which presents “tiny homes” as a worthy replacement for the Great Australian Dream of owning a detached house on a traditional block of land: In the wake of home ownership plummeting and savvy innovators dreaming
Good stuff here from Martin North: This very much reminds me of the 2003 Sydney bust. The west continues to fall as the east rebounds. This will lead to stagnation in time as the “move up ladder” stalls with western households trapped in negative equity. The difference this time is that in 2003 Sydney was
From CoreLogic’s quarterly auction report: Over the 3 months to September 2019, the clearance rate across the combined capital cities came in at 69.9 per cent across 16,730 auctions, the strongest quarterly clearance rate seen since the June 2017 quarter (71.7 per cent). The weekly auction clearance rates have continued to improve over the September
Thursday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) rebounded strongly in August: As regular readers of MB will know, we consider the flow of housing and investor finance commitments to be premier indicators for dwelling value growth. This view is based on the incredibly strong historical
If there’s one iron clad truth in property, it’s that land values appreciate while structures depreciate. This is certainly the case in both Melbourne and Sydney, where high-rise apartment value growth has badly lagged detached house growth over the past decade, according to new research from propertyology. From The Age: Analysis by Propertyology, a company
The Real Estate Institute of New South Wales (REINSW) has released its September quarter rental vacancy report, which reveals a material tightening in the city’s vacancy rate: Sydney’s rental vacancy rate fell from 3.6% in August to 2.9% in September – the lowest reading since October 2018. The results follow Domain’s latest rental report, which
With Perth’s property market experiencing its biggest downturn on record: The Real Estate Institute of Western Australia (REIWA) has demanded a raft of additional first home buyers (FHB) subsidies to fix the dead market: REIWA released a six-point plan to address the issue, under which the state would increase the stamp duty exemption threshold for
It’s never enough bubble for Joshy Recessionberg: The big four banks will be officially investigated for their repeated failures to pass on the full extent of central bank rate cuts to consumers under a government-launched probe into home-loan gouging. Josh Frydenberg has directed the Australian Competition & Consumer Commission to investigate the pricing of residential
Auction clearance rates surged over the weekend, with the preliminary rate nationally coming in at 77.3%, up significantly from 71.3% last weekend: Auction clearances were also way above the 47.0% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 82.3%, up from 79.8% last weekend, and way above the 45.1% recorded in
There have been times when Chris Joye has made good sense. As well as times when he becomes property bubble obsessed. Sadly we’re back to the latter as he pushes Frydenberg’s mad house price bubble plan today: There is considerable value in the RBA demonstrating that QE means it has ample monetary policy ammunition left.
Owners of the 132 apartments in the Mascot Tower, which was evacuated in mid-June after experiencing severe cracking, claim they are facing financial “execution” as the remediation bill surges past $20 billion: One loan proposal would offer up to $20 million at a 7.7 per cent variable interest rate per annum over 15 years, with
Spring is usually a time of surging property listings. But not this year, according to CoreLogic’s Head of Research, Tim Lawless: The number of new listings being added to the combined capitals housing market has seen a hefty 44% rise from the depths of the winter slowdown in early July through to the first week
In the week ended 10 October 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.32%: The rise in values was again driven by Sydney and Melbourne: Quarterly dwelling values continue to rise strongly, again driven by Sydney and Melbourne, where prices are rocketing: The rebound
With this week’s release of dwelling commencements and completions data for the June quarter, it’s once again time to examine how Australia’s dwelling supply is tracking against population growth. The below charts track the following, which are based on the latest available quarterly data: Dwelling approvals to June 2019; Dwelling commencements to June 2019; Dwelling
Via the ABC’s Michael Janda: As house prices start taking off again, especially in Australia’s two biggest cities, many first-time buyers are wondering how they can break into the market. But what if there are tricks to save tens, or even hundreds, of thousands of dollars on a home, without trading off size, location or
Via New Daily: The company that built Sydney’s Opal Tower is embroiled in another safety scare at a different city apartment block. Residents of Otto Rosebery have been warned against leaning on their balconies or allowing more than three people to stand on them, after an investigation found the balustrades were of “inadequate strength”. Parents
