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

Joye furiously defends his bank debt

From Chris Joye today: One of the most enduring legacies left by the royal commission will be more conservative and risk-averse banks. This process was already underway after the Australian Prudential Regulation Authority (APRA) embraced the 2014 financial system inquiry recommendation that the banks deleverage. Since then the four majors have raised more than $50

21

Sydney dwelling values fall for 8 consecutive months

By Leith van Onselen The deflation of Sydney’s housing market rolls on, with values falling another 0.10% in the week ended 17 May, according to CoreLogic: Sydney home values have now declined by a cumulative 4.7% over the past 36-weeks, with values also down 4.6% over the past 41 weeks. Sydney’s quarterly growth rate remains firmly

20

CBA banks tighten mortgage standards again

Via the AFR: …Bankwest…is overhauling credit policy and treatment of residential apartments. Units equal to, or greater than 40 square metres, will be subject to an 80 per cent loan to value ratio (LVR), or up to 95 per cent for borrowers with lenders’ mortgage insurance. Units between 30 square metres and 40 square metres

21

How much will it cost to fix Australia’s combustible homes?

By Leith van Onselen In the wake of June’s Grenfell tower disaster in London, which claimed the lives of around 80 people, the Queensland Government is preparing to spend “tens-of-millions of dollars” to make dozens of government buildings safer. From The ABC: A year-long inquiry has found about 880 buildings need further investigation but at

22

Planning chaos engulfs Queen Lucy’s dystopian Sydney

By Leith van Onselen Over the past year or so, we have witnessed a growing backlash against Sydney’s break-neck population growth and the deleterious impact it is having on infrastructure, housing and liveability. To date, this backlash has encompassed the Labor Opposition, Government backbench MPs, former senior public servants, local councils, and residents. Now it

3

Sydney’s rental market weakens

By Leith van Onselen SQM Research has released its rental vacancy series for April, which revealed a steady national vacancy rate over the month but a 0.3% decline over the year: Over the year, decreases in vacancies were recorded in Adelaide (-0.5%), Perth (-1.1%), Melbourne (-0.2%), Brisbane (-0.7%), Canberra (-0.2%), and Darwin (-0.1%), whereas a

64

Australia exposed again on property money laundering

By Leith van Onselen For years, MB has called on the federal government to implement the second tranche of anti-money laundering (AML) legislation covering real estate gate keepers, which was promised more than a decade ago and has undergone stakeholder consultations in 2008, 2010, 2012, 2014, and 2017, but has been shelved each time. MB’s incessant

22

Rent-seekers accuse Scott Morrison of blocking rental housing

By Leith van Onselen Treasurer Scott Morrison has been accused by major property developers of trying to stifle the development of a “build-to-rent” sector in Australia. Morrison has reportedly published a draft law that would ban managed investment trusts from acquiring residential property unless the property is targeted at low-income consumers. This law, in turn,

9

State Budgets face billion dollar hits from falling stamp duties

By Leith van Onselen The AFR reports that the VIC and NSW Governments are facing multi-billion dollar slowdowns in stamp duty receipts as lower sales and falling prices hits revenue: Both states’ Treasuries are warning their governments they might have to tighten their belts after nearly seven years of tax windfalls filled their coffers, the analysis

44

Highrise Harry slashes prices as property demand “a complete disaster”

Via The Australian: Billionaire apartment developer Harry Triguboff has brought in a raft of measures to halt weakening sales in a market he says is “getting worse”, while other developers including Stockland CEO Mark Steinert are also feeling the squeeze. Mr Triguboff, founder of Meriton, has increased commissions to real estate agents, is covering buyers’ stamp

62

What is the next save for house prices?

Basically, at this stage, an ongoing house price bust has moved to the base case for Australia. Macroprudential has worked well. The Hayne Royal Commission has reset credit. Housing supply is flowing. Affordability is disastrous. And the immigration economy has destroyed income growth. The question now is is there another save? The obvious place to

16

Auction clearances tank into the 50s

CoreLogic released its auction report yesterday, which reported a small fall in the preliminary national auction clearance rate to 61.0% from 63.5% last weekend (later revised down to 62.1%). The preliminary clearance rate was also way below the 72.8% recorded in the same weekend of last year: Auction volumes nationally were 2,245 – below the

60

UBS plots the Australian housing bust

Via UBS this afternoon: Budget significantly better than expected, but only modest fiscal stimulus… The Commonwealth Budget this week was a ‘positive’ for the Australian economy, showing a significant cumulative (5-year) improvement since MYEFO of $25.6bn, or an average upgrade of ¼% of GDP p.a. However, this is not a ‘game changer’ for our moderate

29

AHURI: Reduce home owners’ access to Aged Pension

By Leith van Onselen Following on the heels of MB’s detailed report on Tuesday arguing (yet again) for one’s principal place of residence to be included in the assets test for the Aged Pension, the Australian Housing & Urban Research Institute (AHURI) has released a report similarly arguing for reforms to make the Aged Pension

15

‘Sea change/tree change’ locations dominate internal migration

CoreLogic’s Cameron Kusher has produced an interesting report examining internal migration, which is based on recent annual population data released by the ABS. Interestingly, this data shows that the majority of migration out of the major cities is to adjacent ‘sea change/tree change’ locations: Regional population and migration data for 2016-17 recently released by the

18

Mortgages rejected with “unprecedented strictness”

Via the AFR: ANZ has increased rates on its fixed interest in advance loans by eight basis points, or about $800 a year in extra annual interest on a $1 million loan…The bank, which is the most dependent of the major banks on brokers for distributing mortgages, is circulating “policy updates” about minimum evidence of

22

Sydney dwelling value losses approach 5%

By Leith van Onselen The deflation of Sydney’s housing market rolls on, with values falling another 0.06% in the week ended 10 May, according to CoreLogic: Sydney home values have now declined by a cumulative 4.6% over the past 35-weeks, with values also down 4.5% over the past 40 weeks. Sydney’s quarterly growth rate remains firmly