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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Fasco-housing complex welcomes Hobart to the nightmare

The 2019 National Shelter Rental Affordability Index has been released, which shows that rental affordability across Hobart has crashed and is now the worst in the nation: Greater Hobart continues to be the least affordable capital city in Australia. Rental affordability in Hobart has dropped considerably over recent quarters and it is now the only

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Property locusts swarm WA Government

Last month, property lobbies met with the Western Australian Government to demand a housing stimulus package: Major property industry players met senior McGowan Government ministers yesterday to plead their case for a sweeping stimulus package aimed at breathing life into the WA’s stagnant housing market. Removing stamp duty on the purchase of apartments, raising the

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Everything you ever wanted to know about Australian property

In one city-by-city document. Courtesy of Westpac: The pick-up foreshadowed in our last report is now coming through clearly with recent months showing more convincing evidence that Australia’s housing market is into a self-sustaining recovery. Prices have lifted and are set to fi nish up slightly for the 2019 calendar year. Turnover has been slower

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The density dilemma

By Ross Elliott, cross-posted from The Pulse: A recent decision by Brisbane City Council to restrict townhouse and similar ‘missing middle’ housing product to areas actually zoned for it has been met with hostility from some parts of the urban planning community. It has been exaggerated as a “total ban” and labelled variously as “terrible

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Melbourne property gets “rattled”

So says the AFR: Property experts say Melbourne property prices could be stalling after four multimillion-dollar properties failed to attract a bid in the past week. Middle markets in Sydney and Melbourne, where properties range from between $1 million and $3 million, continue to be pushed along by investors, first home buyers and downsizers, particularly

3

Choice demands mortgage broker best interest duty

The mortgage broking industry successfully fought off the Hayne Royal Commission’s recommendation that trailing commissions be abolished and that banks stop paying upfront commissions to brokers. It is also trying to leverage its influence within the Coalition to overturn common-sense rules requiring the industry to act in the best interests of its clients, as applies

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Auction clearances retrace

Auction clearance rates retraced slightly over the weekend, with the preliminary rate nationally coming in at 72.9%, down from 74.1% last weekend: Auction clearances were also way above the 41.9% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 82.3%, up from 77.2% last weekend, but way above the 44.8% recorded in

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Sydney, Melbourne housing affordability worsens over decade

CoreLogic has released an interesting report showing that despite cratering mortgage rates and the recent steep housing correction, Sydney and Melbourne housing affordability is still worse than a decade ago: The decade ending in June 2019 has seen the national median dwelling value rise from $382,650 to $516,710, an annual increase of 3.0%. At the

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CoreLogic weekly house price update: Booming

In the week ended 21 November 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.48%: The rise in values was broad-based, but again driven by Sydney followed by Melbourne: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are rocketing:

4

Final auction clearance rate holds at 70%

Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 4.0% decline in the final national auction clearance rate to 70.1% – well above the same weekend last year (42.0%) and above last week’s 72.0%: As you can see, Sydney’s

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What if Australian property prices are still falling?

Martin North and John Adams have challenged the notion that Australian dwelling values are rising strongly, claiming that dwelling values across three quarters of suburbs fell in value over July to October, according to Realestate.com.au data: This, they claim, challenges the narrative of a strong property rebound and represents a “pattern of unusual and fishy

14

Australia given free rein to launder money into property

The latest scheduled review of Australia’s anti-money laundering (AML) laws by the global Financial Action Taskforce (FATF) has been cancelled, with Australia given free rein to continue laundering money through property. Via Michael West: Most of the major international money laundering schemes that have been uncovered rely on lawyers, accountants or real estate agents. After

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Why housing construction will fall into 2021

SQM Research’s latest newsletter provides commentary on Australia’s pending dwelling construction bust, which SQM believes will run into 2021 and could cause a significant increase in unemployment: Today we have run with three charts – Australian dwelling completions, commencements and approvals. The point of this exercise is to illustrate that the current rate cuts are

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Deflation hits Australia’s residential land markets

Late last month, the Australian Bureau of Statistics (ABS) released its 2018-19 Australian System of National Accounts (ASNA) release, which provided a detailed presentation of annual national accounts data. Locked away on Table 61 was my favourite section of the release: data on aggregate land values at the state and national levels. This year’s release

8

Property parasites screetch FHB subsidy not generous enough

It’s amazing watching the sense of entitlement on display from Australia’s property sector. Rather than being grateful to the Morrison Government and Australia’s policy agencies for throwing the kitchen sink at the housing market, Zippy Financial director and principal broker, Louisa Sanghera, has instead attacked the Government’s first home buyer (FHB) deposit scheme for not

29

Pure bubble: Households intend to buy houses and nothing else

Via CBA’s dubious household spending interntions series: Home Buying Spending Intentions The sharp uptrend in home buying intentions continues Home buying intentions rose further in October and are now close to the record highs seen in H1 2017 Current HSI readings are consistent with an ongoing pick up in dwelling prices Retail Spending Intentions Retail spending intentions

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High-rise Harry demands faulty towers bail-out

With Australia’s East Coast littered with flammable and faulty towers, Meriton Apartments founder, “high-rise” Harry Triguboff, has demanded banks rescue the sector: “If the cladding is a problem the banks will suffer a lot because of the value of the apartments dropping,” Mr Triguboff told The Australian. “For a few thousand dollars each they can

2

Auction clearances strengthen

Auction clearance rates lifted slightly over the weekend, with the preliminary rate nationally coming in at 74.1%, up from 72.0% last weekend: Auction clearances were also way above the 42.0% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 77.2%, down from 81.0% last weekend, but way above the 42.8% recorded in

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CBA: House prices to the moon!

Via the excellent Garth Aird at CBA: Overview Australian capital city dwelling prices, led by Sydney and Melbourne, have risen sharply since mid-2019. RBA rate cuts, coupled with extra borrowing capacity from the APRA induced changes to loan serviceabilityassessment anda surprise election outcome that removed some taxation risksaround housing causedhome buyer interest return in force.

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CoreLogic weekly house price update: Super Surge

In the week ended 14 November 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.34%: The rise in values was broad-based, but driven by Sydney followed by Melbourne: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are rocketing: The

5

Insolvent developers forced into fire sales

Earlier this week, we learned that construction insolvencies are booming, according to ASIC: Insolvencies in the $150bn residential and non-residential construction industry remain at a high level… insolvencies in the three months to September jumped 78 per cent in Victoria, 41 per cent in Queensland and 7 per cent in NSW. This was a significant

0

Final auction clearance rate holds at 70%

Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 1.4% decline in the final national auction clearance rate to 72.0% – well above the same weekend last year (43.3%) and above last week’s 68.0%: As you can see, Sydney’s

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SQM: Housing to boom into bull trap

SQM Research MD Louis Christopher expects growth in housing prices in Australia’s capital cities to average 11% in 2020. The latest edition of Christopher’s Housing Boom and Bust Report forecasts that dwelling prices in Melbourne will rise by up to 15%, while Sydney’s housing market will record growth of 10%-14%. However, Christopher says the housing