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 Yesterday, it was revealed that the Australian Treasury had sounded the property alarm, warning the federal government that negatively geared investors could start dumping properties, exacerbating the bust: “Where around two-thirds of housing investors are negatively geared, these investments are implicitly predicated on expectations of capital gain in the future”… “Should
By Leith van Onselen As house prices fall, and the economy begins grinding to a halt, we are witnessing the start of the housing bust blame game. In recent weeks, we’ve witnessed L-Plate Treasurer, Josh Frydenberg, urge the banks to lend: “My message to the banks is still very clear – keep the books open.
By Leith van Onselen CoreLogic has released its Quarterly Auction Report, which documents the great 2018 auction smash: A newly released report focusing on Australia’s property auction market performance found that combined capital city clearance rates dropped to just 43.6 per cent in the 3 months to December 2018, down from 53.6 per cent over
By Leith van Onselen With the release yesterday of the ABS’ lending finance data for November, it’s an opportune time to once again chart how capital city house prices are tracking against both investor and total housing finance. As MB readers know, housing finance has historically been strongly correlated with values. Therefore, it remains one
By Leith van Onselen Australia’s speculator frenzy continues to unwind abruptly, according to today’s Lending Finance data for November, released by the ABS. As shown below, the annual value of investor loans in New South Wales (read Sydney) is falling fast, as is Victoria (read Melbourne). Investor loans in the other major jurisdictions are also in
By Leith van Onselen The Australian has stepped-up its scare campaign against Labor’s negative gearing and capital gains tax (CGT) reforms, arguing that Labor risks alienating its voter base and losing crucial votes in the upcoming federal election. Here’s Adam Creighton and Michael Roddan: More than a quarter of all Australians who own an investment property
By Leith van Onselen Construction expert David Chandler says he was not surprised about the structural problems that have afflicted Sydney’s Opal Tower. Chandler, who is a former CEO of Fletcher Construction Group and who chaired the inquiry into the flawed $16.2 billion school halls national building project, says little seems to have been done
By Leith van Onselen Morgan Stanley has joined the conga-line of analysts downgrading their outlook for the Australian housing market, revising its forecast peak-to-trough property decline from 10%-15% to 15%-20%. From The AFR: House price falls are steeper than thought as key indicators, ranging from rental conditions to credit supply, weaken… The research says credit
By Leith van Onselen The 15th Annual Demographia International Housing Affordability Survey has been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed even though affordability has improved over the past year on the back of heavy house price falls. This year’s report
By Leith van Onselen After spending years telling us that Australian housing was not a bubble and Australia’s world-beating housing debt was “not a situation for concern”, Australian Treasury officials have warned the Morrison Government that Australia’s household debt will become unmanageable if unemployment rises. From The AFR: “A large increase in unemployment would quickly see
By Leith van Onselen The Howard Government’s decision to allow self-managed super funds (SMSFs) to leverage into property and other investments was a mistake. Specifically, it allowed SMSFs to be turned into speculative vehicles rather than savings vehicles, in turn dramatically increasing the riskiness of Australia’s retirement savings and financial system, further inflating Australian house
Great to see from Australia’s next Prime Minister: The federal government’s campaign against Labor’s proposed changes to the negative gearing tax break is aimed at distracting Australians from its own shortcomings, Opposition Leader Bill Shorten says. Mr Shorten says the government is trying to hide that the economy is not working in the interests of
More housing weakness, from the HIA: “HIA New Home Sales continued the declining trend that we saw throughout most of 2018,” said Geordan Murray, HIA Senior Economist. “The HIA New Home Sales Report shows detached house sales fell by 6.7 per cent in the final month of 2018. “Sales during the final quarter of 2018
By Leith van Onselen Earlier this week, the Coalition announced plans to target 270,000 young renters in Australia’s 25 most marginal seats in the lead-up to the next election, believing that Labor’s plans to curb negative gearing could prove a vote winner for the federal government. In No surprise then to read that Capricornia MP,
By Leith van Onselen BIS Oxford Economics expects residential construction activity to decline by 1% in 2018-19, followed by a 14% decline in 2019-20. Construction activity is tipped to fall by 19% in New South Wales over the next two years and by 17% in Victoria. From The AFR: According to a report from BIS
By Leith van Onselen Earlier this week, SQM Research released its December rental vacancy and asking rent series, which showed Sydney’s rental vacancy rate had rocketed to a series high 3.6%, with nearly 8,000 more rental properties on offer (25,177) than at the same time in 2017 (17,404): At the same time, Sydney asking rents
By Leith van Onselen The handwringing and panic about the build quality of Australia’s high-rise buildings continues with the men behind the company BlockAid claiming that building faults are widespread and at risk of cracking or collapsing in a scenario manner to Sydney’s 34-storey Opal Tower. From The Newcastle Herald: Craig Thorley and Chris Rafferty believe
Cross-posted from Prosper Australia: Real estate cycle expert Bryan Kavanagh says turnover and price declines in Sydney and Melbourne during 2018 indicate an economic recession in the 2019-20 financial year. The 2018 “Kavanagh-Putland Index”, released today, shows the total value of Australian real estate sales to GDP. Mr Kavanagh said the $50 billion pumped into
By Leith van Onselen Global ratings agency Fitch yesterday released a report on the Australian housing market predicting a further 5% fall in 2019 and a peak-to-trough decline of 12%: According to Fitch: “We expect a national peak-to-trough home price drop of 12 per cent in Australia with Sydney and Melbourne posting larger declines in
By Leith van Onselen In the week ended 17 January 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, tanked another 0.35%: Values fell across all major markets: The quarterly decline has steepened to 3.13%, with Sydney, Melbourne and Perth suffering heavy losses: Over the past 12 months, home
By Leith van Onselen Today’s housing finance data for November posted a 0.4% fall in the number of new home finance commitments (both construction and new), with commitments down by 12.3% over the year: The annual number of new home commitments is also falling fast: Looking at the state-by-state breakdown, which is presented below on
By Leith van Onselen Today’s housing finance data for November, released by the Australian Bureau of Statistics (ABS), posted more falls in both owner-occupied and investor finance commitments. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) fell by 0.6% in November in seasonally adjusted terms and has fallen 10.0% over
By Martin North, Principal Analyst at Digital Finance Analytics: The latest data from our surveys indicates that around 40% of loan applications for mortgages were rejected in December 2018, compared with 8% a year prior, though on significantly lower absolute volumes. Households often made multiple applications when seeking a loan. The volume of applications across
By Leith van Onselen CoreLogic’s daily house price index for 16 January, released yesterday, revealed that Melbourne dwelling value declines have hit 8%: The below chart shows how Melbourne’s price decline compares against prior price corrections: As you can see, Melbourne’s current downturn is fast approaching the 2008-09, 2010-12, and 1989-92 episodes. In fact, if
By Leith van Onselen Things have gone from bad to worse for Australia’s apartment market, with firefighters identifying 10,000 buildings along Australia’s east coast with suspected flammable cladding. From The Australian: Firefighters have drawn up a hit list of up to 10,000 buildings across the eastern states with suspected highly flammable cladding… Combustible aluminium polyethelene,
By Leith van Onselen With yesterday’s release of Australia’s dwelling construction data for the September 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 September 2018; Dwelling commencements to September
By Leith van Onselen Citi has dialled-up the bearishness, predicting 10% house price falls in 2019 – the biggest losses anywhere in the world. From The Australian: Australia was the only country that might experience year-on-year declines exceeding 10 per cent. The analysts warned that given Australia’s particularly high share of residential investment relative to
By Leith van Onselen The ABS has released dwelling construction data for the September quarter, which recorded a sharp fall in commencements but an increase in completions. According to the ABS, the number of dwelling commencements fell by a seasonally-adjusted 5.7% over the September quarter and were down by 2.2% over the year. Detached house
By Leith van Onselen The Coalition’s incessant lies that Labor’s signature negative gearing and capital gains tax (CGT) reforms would primarily impact ordinary working Australians has been debunked again, this time by a Fairfax investigation showing that the nation’s wealthiest and largely Liberal-held electorates will be hit the hardest, whereas Labor electorates are among those
By Leith van Onselen For years, ‘Big Australia’ booster, the Grattan Institute, has called for Australia’s supposedly underutilised middle-ring suburbs to be bulldozed for apartments and townhouses in order to house the many millions of extra migrants projected to inundate our cities over coming decades. This transformation into a dense urban form is to be
