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

Has record dwelling construction kept pace with population growth?

By Leith van Onselen On Tuesday, the ABS has released the September quarter property data showing the total number of dwellings in each state. Although this series only dates back to September 2011, it is arguably the best data to use when assessing actual dwelling supply, since unlike the ABS’ various quarterly housing construction data

4

Suddenly, auction clearances no longer matter

By Leith van Onselen As auction clearance rates have crashed to 2011 lows: We are now starting to see apologists claim that auction clearances no longer matter and are now an unreliable indicator for dwelling prices. Here’s Domain’s Kate Burke: About one third of Sydney properties that fail to sell under the hammer at auction are snapped

13

AFR goes full blown negative gearing reform fake news

Jeez John Kehoe, give it a rest, mate: Bill Shorten government would face a revenue shortfall of up to $19 billion over the four-year budget period if a hostile Senate blocked several major tax increases should Labor win next year’s federal election. Senate crossbenchers who currently control the balance of power oppose Labor’s plans to

11

A healthy dose of fear is precsiely what is needed, Gotti

More Gotti rent seeking today: Fear is suddenly driving the actions of a large rump of Australians. It is seen most clearly in the housing and apartment markets of Sydney and Melbourne. To a lesser degree, that housing fear infects most other mainland capitals. …For years people thought lower dwelling prices would attract first home

3

Frank Gelber launches new ‘worst ever’ negative gearing attack

By Leith van Onselen Back in 2016, BIS Shrapnel (now BIS Oxford Economics) released possibly the worst ever piece of economic “modelling” for a “confidential client” forecasting impending doom if negative gearing is limited to new dwellings, as proposed by Labor. This farcical modelling was lambasted by numerous economists and Media Watch, and led to calls

128

7.30 Report’s “House of Cards” (Part 2) does the credit crackdown

By Leith van Onselen ABC 7.30 Report last night aired the second of a three part special on Australia’s budding housing bust, which is well worth watching. The episode focussed on how the credit crackdown is putting heat on buyers and developers. The episode first features several quotes about systemic mortgage fraud and loose lending:

47

Master Builders Association demands bail-out as builders sink

By Leith van Onselen The Master Rent-Seekers Builders Association (MBA) is in full panic mode after a few builder collapses and has demanded governments take immediate policy action to bail-out the industry, including stamp duty exemptions for first home buyers and first home buyers grants. From The ABC: OAS Group, based in Beverley in Adelaide’s

36

When will falling house prices choke the banks?

To understand this question we first need some bank capital 101 from MB’s banking insider, Deep T: There are two ways an Australian Deposit taking Institution (“ADI”) calculates capital to be allocated against a residential mortgage. Either in accordance with APRA’s APS 112 Attachment C or under Advanced Basel II methodology. Let’s address the rather simple APRA

5

Aussie housing valuations continue to deflate

By Leith van Onselen The ABS yesterday released its property price data for the September quarter, which valued Australia’s dwelling stock owned by households at $6.58 trillion, whereas the total housing stock was valued at a record $6.85 trillion. As shown below, the total value of Australia’s dwelling stock owned by households was 7.48 times

24

Goldman, Merrill pile into housing bust

Via Goldman first: The changes make property investing less attractive from a cash flow perspective, but negatively geared rental properties are already an unattractive asset from a cash flow perspective. The impact of the lower capital gains discount is somewhat more important, but we note this only binds when price growth is positive. This means

34

It’s the recession you have to have, Gotti

Via Gotti today: I have described previously how at the dramatic FINSIA regulators’ lunch in Melbourne it was clear that the Reserve Bank, APRA and ASIC, in their desire to quickly improve bank balance sheets, had little understanding of the downturn they would create and its implications. But the share market now fully understands the

5

ABS: Property prices fell 1.5% in Q3

By Leith van Onselen The ABS has released its property price index – incorporating both detached houses and units – which registered another 1.5% decline in home values nationally over the September quarter and a 1.9% decline over the year: Sydney (-1.9%), Melbourne (-2.6%), Perth (-0.6%), and Darwin (-0.9%) recorded quarterly declines in values, whereas

5

Avalanche of high-rise apartments bear down on Sydney’s West

By Leith van Onselen Western Sydney is the epicentre of the city’s working class. It is a prime dumping ground for the federal government’s mass immigration ‘Big Australia’ program. And it has become a virtual “special economic zone” where wages can be shredded with impunity by the wealthy owners of capital living in the East.

33

CoreLogic: Unsold properties surge 20% in Sydney/Melbourne

CoreLogic’s weekly housing indicators continue to show broad weakness. Dwelling values have fallen heavily, led by Sydney and Melbourne: Auction clearances have crashed, again led by Sydney and Melbourne: Whereas mortgage credit remains stillborn: At the same time, listings have exploded upwards to 2012 highs as unsold ‘stale’ stock accumulates across Sydney and Melbourne; albeit

5

Dick Wakelin capitulates

Dick Wakelin capitulates today: Sydney and Melbourne prices are likely to drift downwards in the first three to six months. That forecast is based on continued lending tightness by the banks until the dust settles after the publication of the final royal commission report in February and a general skittishness of participants. The downward trajectory

35

Mortgage broker parasites redouble attack on Hayne reforms

By Leith van Onselen The banking royal commission interim report was scathing of mortgage broker commissions and the fact that loans written through mortgage brokers have tended to have higher leverage, more interest-only loans, higher debt-to-income and loan-to-value ratios, higher interest costs and an increased likelihood that borrowers will fall into arrears. Now, Australia’s mortgage broking

1

Housing finance records dead cat bounce

By Leith van Onselen Today’s housing finance data for October, released by the Australian Bureau of Statistics (ABS), posted a rebound in finance commitments, with both investor and owner-occupied demand lifting. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) rose by 2.3% in October in seasonally adjusted terms but has

7

Off the plan Sydney buyers sink underwater

By Leith van Onselen With Sydney unit values down 6.5% since the June 2017 peak, according to CoreLogic: Buyers that purchased off-the-plan apartments near the peak of the boom are now sinking into negative equity and settlement risk is rising: Sydneysiders who snapped up off-the-plan apartments at the peak of the property boom are now

11

The ATO fails dismally in policing illegal foreign home buyers

By Leith van Onselen A parliamentary committee into Managing Compliance with Foreign Investment Obligations for Residential Real Estate has uncovered more details about how Victoria (read Melbourne) is the nation’s hotbed for illegal foreign purchases of Australian property and how the Australian Tax Office (ATO) has failed miserably to enforce the rules precluding foreign nationals

47

OECD: Australia must prepare for house price “hard landing”

From the OECD today: The latest OECD Economic Survey of Australia, to be released on Monday 10 December, assesses the continuing robust growth of the Australian economy, as well as the challenges to ensuring sustainable and more inclusive growth against a backdrop of globalization and technological change. The Survey discusses how Australian can limit financial sector risks,

84

Politico-housing complex implodes

It is a laugh a minute now for the politico-housing complex. First up the RBA, which “economists” say was actually bullish last week: Economists believe the market misinterpreted comments by Reserve Bank of Australia deputy governor Guy Debelle, whose speech on Thursday was received as dovish but in fact was “frank” and consistent in substance

39

Sydney property losses crash through 10%

By Leith van Onselen Yesterday, the Sydney housing market hit an important milestone, recording a peak-to-trough decline of 10% after falling for 17 consecutive months: Already, this is the second worst housing correction experienced in Sydney over the past 40 years: It is also happening at a much faster rate than Perth’s housing correction, which

6

Auction clearances sink deeper into the abyss

CoreLogic released its auction report yesterday, which reported another pathetically weak round of auctions, with auction clearances remaining near 2011 lows. The preliminary national auction clearance rate was just 45.3% versus 47.0% last weekend (later revised down to 41.3%). The preliminary clearance rate was also way below the 59.5% recorded in the same weekend of

51

Property locusts swarm FHBs towards falling knife!

There’s a locust plague at News: Buyer’s agent Nick Viner believes now is the time to buy in Sydney and Melbourne, with many discounted premium properties available with minimal competition. “This environment is the absolute perfect time to buy because you’ve got more time to consider your options and there’s more choice in terms of