Following yesterday’s Domain float, it’s a more than fair question given the prima facie similarities between the business models. Both are real estate listings firms. Both derive profits from selling property. Strategically, both are under attack from online disruptors. There are two major difference between the businesses. First, real estate agencies are a more dependent upon
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 Evidence continues to mount that Sydney’s housing boom is cooked. CoreLogic’s dwelling values index has registered its tenth consecutive weekly decline in Sydney dwelling values, with values down a cumulative 1.0% over that 10-week period, and dwelling values also down 0.9% over the past 15-weeks: Sydney’s quarterly growth rate continues to
By Leith van Onselen As part of its June State Budget, South Australia announced that it would levy an additional 4% stamp duty on foreign property buyers and temporary residents, starting from 1 January 2018. In the wake of its back down over the bank levy, the South Australian Government has decided to lift the
By Leith van Onselen In the week ended 16 November 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.04%: Values fell in Sydney, Adelaide and Perth, but rose in Melbourne and Brisbane: So far in November, home values have fallen by 0.06%, again driven Sydney:
Via S&P: Mortgage arrears across Australian prime residential mortgage-backed securities (RMBS) fell to 1.08% in September from 1.10% in August, according to a recent report by S&P Global Ratings. Arrears typically have fallen from August to September during the past five years. The arrears average for the past decade is 1.25%, and the average for
By Leith van Onselen The May Budget included the below measure to tax foreign owners that leave their properties vacant: The Budget also included measures aimed at limiting the deductions that can be claimed by property investors: Yesterday, these measures passed the Senate with Labor support: Summary Introduced with the Foreign Acquisitions and Takeovers Fees
By Leith van Onselen Credit Suisse has released its 2017 Global Wealth Report, which reveals that Australian households are the second wealthiest in the world when measured by median wealth: Household wealth in Australia grew at a fast pace between 2000 and 2012 in US dollar terms, except for a short interruption in 2008. The
By Leith van Onselen The May Budget included the below measure aimed at encouraging seniors to downsize from their large homes to free-up housing for Australian families: Now, The AFR has run an article on the financial pitfalls involved with seniors downsizing: Australia’s property market could get an unexpected volume boost from the middle of
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 0.2% decline over the year: Over the year, decreases in vacancies were recorded in Melbourne (-0.1%), Perth (-0.8%), Adelaide (-0.6%), Hobart (-0.2%), Darwin (-0.7%), and Canberra (-0.2%), whereas increases were
By Leith van Onselen The bubble in Australian (read Sydney and Melbourne) housing values has driven a surge in household wealth as well as inequality, according to a new 50,000 strong survey by Roy Morgan Research (RMR): Australian households’ have increased their net wealth over the last four years from $5.7 trillion to $8.1 trillion,
Via Domainfax: The amount of cash flowing out of China into property has halved within a year but Australia is still the preferred destination for Chinese investors able to get their money out. In its latest report, real estate firm Cushman & Wakefield and Real Capital Analytics (RCA) says mainland China’s third quarter total outbound real estate
By Leith van Onselen With the ABS yesterday releasing its total housing finance statistics for September at the jurisdictional level, it’s an opportune time to once again see how these are tracking against dwelling values, as measured by the CoreLogic index (current to end-October 2017). First, below is the national picture, which shows finance approvals
By Leith van Onselen Australia’s speculator frenzy has continued to moderate, according to today’s Lending Finance data for September, released by the ABS. As shown below, the annual value of investor loans in New South Wales (read Sydney) has begun to fall, whereas Victoria (read Melbourne) – the second hottest market – continues to rise slowly.
By Leith van Onselen The Age has released a somewhat disturbing report on the large number of homes being left vacant across inner-Melbourne: The Melbourne areas with the most number of unoccupied properties have been revealed, as the Andrews government sets to reap in tens of millions of dollars from its new vacant property tax.
Via Domainfax: McGrath could soon be back in private hands with founder John McGrath and former Sydney franchise boss Shane Smollen understood to be working on a deal to take back control of the listed real estate flop. …At face value, Mr McGrath and Mr Smollen would only need to raise about $50 million to buy
Via CoreLogic comes the still weak leading mortgage index: Listing are powering higher in Sydney: The auction clearance breakdown is fascinating. As expected, Sydney’s outer mortgage belt is leading the market lower. This weakness makes its way inwards over time as the “move up” ladder stalls. But Melbourne clearance rates are the opposite. They’re weakening
By Leith van Onselen Industry Super has released a discussion paper entitled Assisting Housing Affordability, which examines the drivers of, and solutions to, Australia’s housing affordability crisis. Below are the key points from the Executive Summary: The key findings of the paper are as follows: Australia’s housing afford ability problem has developed over several decades
Via Domainfax: McGrath agent Gareth Richards was surprised his listing, the three-bedroom Federation residence in Neutral Bay, one of Sydney’s most popular suburbs on the lower north shore, passed at $1.75 million in September. He expected six keen buyers to turn up, but only two did, with one saying she had to bail because her own home she was selling that morning passed
CoreLogic released its auction report yesterday, which reported another fall in the preliminary national auction clearance rate to 66.5% from 66.8% last weekend, and remained well below the 75.8% recorded in the same weekend last year: Auction volumes nationally were 2,894 – about the same as the 2,897 recorded in the same weekend last year:
Here’s Jess Irvine today: No less than three former senior Reserve Bank officials have in the past month penned thought pieces countenancing the need – at some point – for higher rates to stave off debt risks. In a piece for Ellerston Capital, where he has taken on an adviser role, in addition to his new
Via the AFR: A recent correction in Australia’s housing market could turn into a full-blown crash if the Reserve Bank hikes rates too soon or too fast, a global investment bank has warned. The end of the nation’s world record housing boom and the drawing down of household savings has caught the RBA in an interest rate trap, says George
By Martin North, cross-posted from the Digital Finance Analytics Blog: One of the most powerful tools to assess risk in a mortgage portfolio is dynamic loan to income ratios (LTI). Whilst Loan to Value (LVR) has traditionally been seen as a simple lead indicator of risk, in a rising priced market, risks are hidden, while
By Leith van Onselen I’ve read some dumb headlines in my time, but this one yesterday from Domainfax – “Government restrictions bite as first home buyers shut out investors” – is up there. Sadly, the article isn’t much better: Investors are being pushed out of Australia’s housing market with government regulations generating a 6 per
By Leith van Onselen More evidence has emerged that Sydney’s housing boom is cooked. CoreLogic’s dwelling values index has registered its ninth consecutive weekly decline in Sydney dwelling values, with values down a cumulative 0.9% over that 9-week period, and dwelling values also down 0.8% over the past 14-weeks: Sydney’s quarterly growth rate continues to