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.
The insurance premium for Sydney’s Opal Tower – which was evacuated on Christmas Eve 2018 amid severe structural cracking – has been increased by $1.1 million after 12 experts found more than 500 additional defects. The find has prompted the owners’ corporation to sue the New South Wales government. Owners’ corporation chairman Shady Eskander said
The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of May. At the national level, the number of dwelling approvals collapsed by a seasonally adjusted 16.4% to 12,736. The overall decline in approvals was driven by units & apartments, which fell by 34.9%, whereas house approvals fell by 4.4%. Over
10,000 more Australians will be able to buy their first home from today with a deposit as little as 5% thanks to our First Home Loan Deposit Scheme. We’re proud to have already helped 10,000 Australians into their first home in the first year of the new scheme. https://t.co/QjDMGJyvLJ — Scott Morrison (@ScottMorrisonMP) July 1,
SQM Research has released its weekly auction survey, which reported clearance rates for Sydney and Melbourne in the 40s: Last week, Sydney recorded a final auction clearance rate of 49.6% with Saturday auctions breaking through the 50% barrier (50.3%). While the mid-week results disappointed at 45.7%. Sydney auction volumes rose again to 621 properties. Melbourne
CoreLogic has released its full dwelling value results for May, which reveals a 0.7% decline in values nationally and a 0.8% fall across the combined capitals – the second consecutive monthly decline: As shown below, the five major capitals all recorded value falls in May, whereas the smaller capitals recorded rises: Value declines have been
The Reserve Bank of Australia (RBA) yesterday released its household debt data for the March quarter, which revealed that the ratio of household debt-t0-disposable income rose to 186.9%, whereas mortgage-debt-to-disposable income retraced slightly to 142.0%: As you can see, both are a fraction below record highs. However, due to the cratering of mortgage rates to
Via Moody’s Summary » The 30+ days delinquency rate for prime Australian residential mortgage-backed securities (RMBS) increased to 1.79% in March 2020 from 1.55% in December 2019 and 1.57% in March 2019. » Delinquencies will continue to increase in 2020 because of the economic disruptions caused by the coronavirus outbreak. Delinquencies will continue increasing over
As Leith noted yesterday, Australia is well into a specufestor mortgage credit rout: If we dig into APRA’s monthly banking stats for May today we can see who’s behind it. Basically the majors are all pulling their heads in, though ANZ flopped into the positive for one month at least: But one big eight bank
With Australia’s official cash rate crashing to just 0.25%, mortgage rates have also cratered to all-time lows: Some smaller lenders have even lowered mortgage rates below 2% for the first time ever as competition intensifies: Mortgage loan interest rates have plunged below the two per cent mark for the first time ever in Australia. Experts
Research undertaken by the Australian National University (ANU) in May showed that the COVID-19 pandemic had led to a sharp rise in housing stress. The survey found that 15% of households were not able to pay their regular housing costs during the previous three months, compared with just 7% in April. Matthew Gray from the
The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of May 2020: A chart plotting the long-run time series is shown below: Overall mortgage growth was 3.1% in the year to May, a fraction above all time lows (3.0%). A breakdown of owner-occupied credit (0.5% MoM; 1.5%
CoreLogic’s dwelling value results for June are out at the 5-city level, with values falling 0.85% over the month amid universal declines: It was the second consecutive monthly decline: Over the June quarter, dwelling values fell by 0.4% across the major capitals: Melbourne has suffered the biggest quarterly falls: The next chart plots quarterly price
Unless you want to lose money. For investors, there is simply no reason to buy and plenty of reasons to sell. Even for first home buyers, there’s no reason to buy and plenty of reasons to rent. First, there is huge unemployment that is going to be very sticky with unprecedented wage pressures, via Credit
In the 1950s and 60s Australia had a policy of supporting manufacturing development in Australia, and its capacity to absorb large numbers migrants largely reflected its industry protection. Given the operation of the then Industrial Relations Commission, those industries tended to have remuneration outcomes which enabled both the migrants coming to Australia, and the pre
This site has argued that banks tightening mortgage standards is one of the major headwinds facing the Australian housing market. Last month it was revealed that several lenders began tightening financial requirements on mortgages over concerns surrounding borrowers’ ability to repay amid massive job losses and falling household incomes. Yesterday, The AFR reported that financial
SQM Research’s managing director, Louis Christopher, reported on Twitter that rental vacancies have hit an apparent “trend reversal” and are now falling: Total rental listings update through to 26 June 2020. Looks like a trend reversal here. Numbers have been checked. It means we will likely record a fall in rental vacancy rates for June
Sydney taxpayers are being called upon to fund the removal of dangerous flammable cladding from apartment towers: The owners of 130 buildings in inner Sydney have been told to replace flammable cladding… The breadth of the cladding crisis in just one part of the city has led to fresh calls for the NSW government to
Earlier this year, the NSW Planning, Industry and Environment department upgraded its housing targets, which lumped even more development on Sydney’s migrant-stuffed west while reducing the development load on the wealthy east and northern beaches: Planning Minister Rob Stokes said development was taking place at different rates in response to planning, infrastructure and market activity…
Earlier this month the Western Australian Government piled in behind Scott Morrison’s HomeBuilder program, offering a $20,000 non-means tested subsidy to all purchasers of a newly constructed dwellings. Along with other available subsidies, this meant that first home buyers in Western Australia could ‘save’ around $60,000 on the cost of a new home, broken down
By Cameron Murray published as Time is money: How landbanking constrains housing supply. Abstract Many housing policies aim to increase supply and reduce prices through rezoning, relying on the assumption that increasing allowable densities automatically accelerates the rate of housing supply. However, the existence of landbanking (land hoarding), where land able to be profitably developed
Australia’s banks have pledged to continue to defer mortgage repayments for customers struggling financially during the COVID-19 crisis. Prime Minister Scott Morrison and Treasurer Josh Frydenberg met with bank CEOs and the RBA Governor on Friday and confirmed that additional support will be provided to those that need it. According to the Australian Bankers
CoreLogic’s preliminary auction report reported a slight retracement in the preliminary clearance rate (from 66.1% to 64.5%) off solid volumes: Once final results are received later this week, we are likely to see the weighted average clearance rate fall to around 60%. According to CoreLogic: This was the highest number of auctions held in nine
Via CoreLogic:
Via Westpac: Westpac Banking Corp has won a significant victory in the Federal Court, where two judges to one have found in favour of the bank on its interpretation of responsible lending duties, dealing another blow to the corporate regulator in the prolonged dispute. The Australian Securities and Investments Commission had appealed the original ‘shiraz
You can see the desperation in Domain’s eyes, running articles like the one below urging first home buyers (FHB) to jump into the market before they miss out: Similar guff is being published at sister Domainfax publication The AFR: COVID-19 has opened up a six-month window for Sydney buyers to get into 139 middle-ring suburbs
Via the excellent Damien Boey at Credit Suisse: The need to triangulate sparse housing data. Following the recent Freedom of Information Act (FoIA) release of internal Reserve Bank of Australia (RBA) files, we now know that Bank officials are quite concerned about house price measurement distortions in a low turnover environment. Indeed, property data vendors like CoreLogic share
In the week ended 25 June 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.31%: It was the seventh consecutive weekly decline. The falls were broad-based: Quarterly dwelling value growth is negative, driven by Melbourne: Annual price growth remains strong, but is fading: The next
While 5,000 Brisbane households languish on the social housing wait list, the Queensland Government’s $70 million ‘Build-to-Rent’ scheme, which partners with the private sector to deliver low-rental homes, has failed to deliver a single affordable home: The multi-million-dollar ‘Build-to-Rent’ scheme was revealed by the Queensland Government in December 2018… Developers were asked to build properties
CoreLogic’s head of research, Eliza Owen, believes that high unemployment and falling incomes presents clear downside risks for the Australian property market. And unlike previous episodes, the market will not be saved by falling interest rates this time around: Comprehensive coverage of labour markets from the ABS highlights sobering headwinds for the property market. Job
In September 2019, the Australian Securities & Investments Commission (ASIC) reported that one in 10 consumers who took out a home loan via a mortgage broker were finding it hard to meet their repayments within 12 months. ASIC’s research also found that although consumers generally expect a mortgage broker to secure the most suitable home
