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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Perth housing bust rolls on

By Leith van Onselen Several pieces of data have come to light illustrating just how bad Perth’s housing market is traveling at present. First, CoreLogic’s latest dwelling value results revealed that Perth dwelling values registered their 13th consecutive quarterly decline: Whereas values were also down by 2.9% in the year to September: The fall in

12

ASIC puts sub-prime interest-only lending on notice

By Leith van Onselen ASIC’s has released its review of interest-only lending, which has put both banks and mortgage brokers on notice to tighten up their selling of interest-only loans or risk regulatory intervention: ASIC has concluded the first stage of its targeted review, which involved data collection from 16 home loan providers (including large

6

Australia’s dwelling construction boom looks cooked

By Leith van Onselen The ABS has released dwelling construction data for the June quarter of 2017, which recorded falls in both annual dwelling commencements and completions. According to the ABS, the number of dwelling commencements rebounded by a seasonally-adjusted 1.2% over the June quarter but were down by 8.0% over the year. Detached house

11

More evidence of a slowing Chinese property bid

Via Domain: It’s the important week in every real estate agent’s calendar when the red carpet is rolled out for Chinese visitors touring Sydney for its real estate. But as China’s Golden Week national holiday celebrations come to an end, there are signs that foreign buyers have started to turn off the city’s property market. Even before the state

12

Will housing demand switch from Sydney to Brisbane?

By Leith van Onselen In our recent members-only Brisbane housing special report, we argued that the relative valuation between Brisbane and Sydney houses was the lowest in more than 40 years, suggesting now might be an ideal time to ‘sell’ Sydney and ‘buy’ Brisbane, provided one steers clear of the oversupplied apartment segment: Yesterday, CoreLogic’s

10

Apartment holders in mining strongholds hemorrhage losses

By Leith van Onselen From CoreLogic’s latest Pain & Gain report comes news that apartment owners in Australia’s mining strongholds hemorrhaged losses over the June quarter of 2017: As shown above, just over one quarter of apartment holders in Brisbane sold at a loss in the June quarter, whereas the figure was around 40% in

22

Government rental reforms fiddle while Melbourne tenants burn

By Leith van Onselen With a growing share of Melbournians now in insecure rented accommodation: The Victorian Government has released new residential tenancy laws to improve renters’ rights and increase their security of tenure. From The ABC: The reforms announced by the Andrews Government, give tenants more rights, will allow them to stay on longer

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Are Chinese pushing-up house prices? You decide

By Leith van Onselen The ABC ran an article over the weekend challenging the view that Chinese non-resident buyers are inflating Australian housing values: It’s a common perception that Chinese buyers are descending upon Australia and driving up housing prices to unaffordable levels. However, Chinese buyers had almost no impact on property prices, according to

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Jess Irvine wants a home but you can go to Hell

It’s a truly ridiculous editorial tightrope that Jess Irvine has decided to walk. Recently she declared: Somewhere deep inside me, a switch has flicked. I feel different; changed somehow. I never thought it would happen to me. And, diary, I’m embarrassed by this new feeling. But I’m ready to confess. First, a little background. As

23

Sydney drives auction clearances further below 70%

CoreLogic released its auction report yesterday, which reported a further weakening in the preliminary national auction clearance rate to 68.1% from 69.4% last weekend, and was well below the 76.4% recorded in the same weekend last year: Auction volumes nationally were 2,286 – slightly below the 2,290 recorded in the same weekend last year: As

8

Sydney exodus to inflate Brisbane property?

Via Bloomie: Sydneysiders are cashing out of their million-dollar homes in favor of cheaper houses in the tropical north, says Macquarie Bank Ltd. The emerging exodus is part of Australia’s latest wave of interstate migration to Queensland, where house prices are half Sydney’s and job creation is on the rise. When similar factors were at play in the mid-1980s and mid-2000s, an average 134,000 people

30

Big Sleazy: Fix wages and house prices!

Via Big Sleazy today:  Commonwealth Bank chief executive Ian Narev called on policymakers to do something about housing affordability and stagnant wage growth. Mr Narev said while the economic data suggested all was well, it didn’t match the “qualitative view of the economy, which feels like households are doing it tough and feel stretched. “The absolute

29

Population ponzi tramples Chris Kohler

We like Chris Kohler’s attempts to bring rationality to the housing bubble. Except on one point. Recall this: Now, today, get this: UBS analysts, meanwhile, note Australian people growth is strengthening despite a recently rising Australian dollar, which would usually make Australia a less attractive destination, and sees upside for housing demand. “This continued people boom is likely to

36

US expert slams Australia’s non-existent realty money laundering laws

By Leith van Onselen John Cassara, a former US Treasury official and undercover intelligence agent, is the latest to shame Australia for failing to enact global anti-money laundering (AML) rules for real estate gatekeepers. From The ABC: Allegations that the Commonwealth Bank breached anti-money laundering laws on almost 54,000 occasions have raised concerns that Australia’s

21

Sydney’s stamp duty boom enters final days

By Leith van Onselen The NSW Office of State Revenue has updated its stamp duty data for August 2017, which showed that stamp duty receipts may have peaked after a monumental five-year boom that has lined the State Government’s pockets. As shown above, annual NSW stamp duty receipts retraced slightly from last month’s all-time high

7

CoreLogic: Sydney property prices to see “further pullback from here”

By Leith van Onselen We noted on yesterday how Sydney’s property boom appeared ‘cooked’ based on a surge in property listings combined with the cratering of quarterly price growth: CoreLogic’s head of research, Cameron Kusher, gave an interesting interview on ABC’s The Business this week where he warned that a bigger “pullback” is likely for

31

Is Perth’s housing market seeing “green shoots”?

By Leith van Onselen From The AFR comes the eternal question about whether Perth’s housing market is finally recovering: The volume of Perth home sales has risen 1.4 per cent in the past year, as green shoots continue to appear in the beleaguered WA housing market. …the Perth market has been quietly churning owner-occupier sales, particularly

54

Bloomberg redoubles Crapstralia assault

Today it’s the bubble: Home ownership among young Australians has fallen to the lowest level on record, as an explosive property boom squeezes out all but the wealthiest. Supercharged by record low interest rates, a lack of supply and a tax system that favors property investors, home prices have surged more than 140 percent in