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.

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BIS: Apartment construction to halve by 2020

By Leith van Onselen BIS Oxford Economics has forecast that the number of apartment commencements across Australia will fall below 60,000 by mid-2020, compared with around 119,000 in the March 2016 quarter. BIS expects demand for apartments to fall sharply in coming years due to an oversupply, with Brisbane expected to bear the brunt of

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Owner-occupied and investor finance rises in June

By Leith van Onselen Today’s housing finance data for June, released by the Australian Bureau of Statistics (ABS), posted a rise in both owner-occupied and investor finance. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) rose by a seasonally adjusted 1.9% over the month to be up 3.4% over the

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Western Sydney residents: population ponzi destroying housing affordability

By Leith van Onselen Fairfax yesterday published its latest Fairfax-Ipsos focus group findings, which saw Western Sydney voters fuming over the deplorable state of housing affordability, driven to a large extent by the federal government’s mass immigration program: Unaffordable housing has surged to the top of the list of undecided voters’ concerns in western Sydney…

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Affordable housing shortfall leaves 1.3m households in need

Cross-posted from The Conversation: A new report by the Australian Housing and Urban Research Institute (AHURI) reveals, for the first time, the extent of housing need in Australia. An estimated 1.3 million households are in a state of housing need, whether unable to access market housing or in a position of rental stress. This figure

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Household finance confidence continues to fall

By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released the July results from our Household Finance Confidence Index, which shows a further fall, with momentum decaying. The average score was 99.3, down from 99.8 last month and below the neutral setting. However, the average score masks significant differences across

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Auction clearances firm

CoreLogic released its auction report yesterday, which reported a slight firming in the national auction clearance rate to 71.5% from 70.7% last weekend, but was just below the 72.2% recorded in the same weekend last year: Auction volumes nationally were 1,846 – above the 1,540 recorded in the same weekend last year. As shown above,

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The shocking decline in Sydney/Melbourne affordable housing

By Leith van Onselen CoreLogic has released its June 2017 Mapping the Market Report, which examines how the cost of housing has shifted across Australia’s capital cities by suburbs over the past five years to June 2017. The report reveals a shocking decline in affordable housing across the migrant hot spots of Sydney and Melbourne:

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Boost apartment supply? How about cutting immigration demand

By Leith van Onselen REA chief economist, Nerida Conisbee, has penned another self-serving article calling on governments to encourage the building of more apartment blocks to help ‘solve’ Australia’s housing affordability crisis. From The Australian: Apartments are under attack, but they’re no longer housing’s poor cousin. Our future cities need apartments in the right areas,

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The epic dwelling construction boom is about to peak

By Leith van Onselen With the ABS yesterday releasing its dwelling approvals data for the June quarter, it’s an opportune time to once again examine how dwelling construction is tracking against population growth at the national and state and territory levels. The below charts track the following, which are based on the latest available quarterly

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Australia’s vanishing back yards a health risk

Cross-posted from The Conversation: The traditional Australian suburban backyard is being lost to higher-density housing and massive project homes on small lots. City planning is focused on making cities more compact, which in some ways is desirable, and the large backyard is seen as unsustainable and undesirable because of the space it consumes. But its loss

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Apartments drive dwelling approvals rebound in June

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of June. At the national level, the number of dwelling approvals rose by a seasonally adjusted 10.9% to 18,453. The overall jump was driven by the volatile unit & apartment market (+20.0%), whereas house approvals rose more

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Most young families renting or living with parents

By Leith van Onselen The 2017 Household Income and Labour Dynamics in Australia (HILDA) survey reveals that the majority of young families are now renting or living with their parents. From The Australian: While home ownership dropped substantially across all age groups between 2002 and 2014, the sharpest decline was among couples with dependent children.

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Falling home ownership. Rising debts. Things are looking grim for under-40s.

Cross-posted from The Conversation: Home ownership among young people is declining, as mortgage debt almost doubles for the same age group, results from the Household Income and Labour Dynamics in Australia (HILDA) survey show. It also shows young people are living with their parents longer. The Melbourne Institute of Applied Economic and Social Research undertakes

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What does the average property investor look like?

Cross-posted from The Conversation: Contrary to the image a property investor might conjure up – a wealthy full-time property speculator – most residential investors in Australia don’t actually rely on it as their primary source of income. In reality, Australia’s residential investment market is dominated by people who, having bought their own home, have moved

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CoreLogic: Rental yields hit another record low in July

By Leith van Onselen Following on from yesterday’s post on CoreLogic’s daily dwelling values index results for July, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table). As shown above, the smaller capitals and the regions had a mostly positive month, with Canberra (+2.4%), Hobart (+0.9%),

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820,000 Aussie households in “mortgage stress”

By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released mortgage stress and default modelling for Australian mortgage borrowers, to end July 2017.  Across the nation, more than 820,000 households are estimated to be now in mortgage stress (last month 810,000) with 20,000 of these in severe stress. This equates