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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ScoMo-prime mortgage bust will wipe out government

Welcome to Australia’s ScoMo-prime housing bust. Here’s the blowoff: Inspired by the Realty PM, who promised rising house prices forever and, to ensure it, guaranteed the deposits of sub-prime FHBs. Needless to say, he got them very excited, driving up auction clearances: Sending house prices back to the moon: And driving the average new loan

6

HIA parasite demands housing stimulus

The Housing Industry Association (HIA) is the latest vested interest to put its hands out for economic stimulus: “As the Australian government looks to respond to the current global financial uncertainty and identify appropriate policies and stimulus measures to enact, the residential building industry should be one of the most supported,” said HIA Chief Executive

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Property industry: Virus no threat to house prices

Australia’s property industry is playing down the threat of a coronavirus pandemic on Australia’s housing market, claiming it may only slow price growth: An economic recession would not automatically drag the housing market into another downturn and a property bubble remains highly unlikely, property experts claim… Realestate.com.au chief economist Nerida Consibee said a recession would

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Owner-occupier mortgages bubble

Today’s new mortgage data for January from the Australian Bureau of Statistics (ABS) recorded another month of strong growth: Total new mortgage commitments (excluding refinancings) surged by 4.6% in January, with owner-occupied mortgages rising 5.0% and investor mortgages rising 3.6%. Year-on-year, total new mortgage commitments (excluding refinancings) rose by 23.3%, with owner-occupier mortgages rising by

10

Insurers pull pin after flammable cladding fiasco

Last year, the Australian Institute of Building Surveyors (AIBS) released a member communique warning that “the situation around Professional Indemnity (PI) Insurance has reached crisis point” with “a real possibility that without government intervention… private building surveyors may be forced out of work and the construction industry across Australia will be significantly impacted”. The situation

4

Virus to exacerbate building construction bust

2020 was already shaping as a tough year for Australia’s construction industry. According to the ABS, dwelling approvals collapsed in the 2019 calendar year, down 28% from peak, with commencements following close behind: Now, picture has worsened with Australian Shop & Office Fitting Industry Association CEO, Gerard Ryan, claiming its members are looking at delays

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Westpac: Housing market “to skid to a halt” on virus

Westpac New Zealand has released analysis on the economic impacts of the coronavirus, which forecasts that New Zealand’s “currently rampant” housing market will “skid to a halt” over the second quarter. However, it will rebound from 2021 as monetary stimulus bites: The currently rampant housing market is likely to skid to a halt, with price

15

Liberal MP: Cap negative gearing

Treasurer Josh Frydenberg has ruled out any changes to the negative gearing regime, but Liberal MP John Alexander has called for restrictions on the tax-deductibility of investment properties. He argues that an “economic lever” is needed to address the growing dominance of investors in the housing market, given the low interest rate environment. Alexander has

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IMF warns of renewed Aussie housing bubble

With Sydney’s and Melbourne’s dwelling values rebounding by a whopping 13.2% and 12.7% since bottoming mid last year: The International Monetary Fund (IMF) has released its latest Article IV report on Australia, which warns of a renewed property bubble in these two markets: After a prolonged downturn, housing markets in Australia have begun to recover.

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Australia enters one hundred year shock

Amid the inane squawking of the Australian political economy pet shop there was one moment worth mentioning from the weekend. That gong goes to Gladys Berejiklian who inadervently described the unfolding calamity, at Domain: “There is no doubt that we are not anywhere near the worst of this,” she said. “We haven’t even hit the

8

Sydney’s auction market booming

The preliminary auction clearance rate stayed strong over the weekend, driven by booming results in Sydney. At the national level, the preliminary rate was 74.8%, down from 77.1% last weekend, but way above the 47.8% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 82.6%, above the 81.4% last weekend and way

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Let’s arrest a vice-chancellor…

To stop this, at Domain: Virgin Australia has put plans in place to operate three charter flights for stranded Chinese students if the Australian government relaxes its coronavirus travel ban. …The University of Queensland, Queensland University of Technology, University of Sydney and Monash University said they had not chartered any student flights. A spokesman for

3

CoreLogic: Real rents continue to fall

CoreLogic has released its quarterly rental report which shows that annual rental growth nationally (1.3%) remains below inflation (1.8%), with national capital city rental growth (0.8%) even weaker: The below graphic shows the breakdown by houses and units: As shown above, Sydney rental growth (0.5% QoQ; -0.6% YoY) remains especially weak, which has pulled down

6

High-rise approvals collapse into black hole

The Australian Bureau of Statistics (ABS) released its dwelling approvals data for January, which recorded a modest trend rebound in apartment approvals: However, apartment approvals remained 46% below their June 2016 peak. Today, I want to focus on the high-rise apartment segment, which has driving the apartment bust. The next chart shows the picture at

6

NSW Government lets dodgy builders off the hook

Geoff Hanmer, Adjunct Lecturer in Architecture at UNSW, claims that proposed NSW Government reforms to building certification will let dodgy developers off the hook: The News South Wales government is struggling to implement building industry reforms recommended by the Shergold-Weir report over two years ago. Developers are home free in its proposed legislation; the Design

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Darwin’s extraordinary 5.5 year housing crash

CoreLogic’s Tim Lawless has tweeted the below fascinating chart showing the boom and bust of Australia’s various property markets: While most markets have staged strong rebounds, Darwin’s has fallen for 68 months and is 32.7% below its May 2014 peak. In inflation-adjusted terms, Darwin’s dwelling values have declined by around 36% from peak. Perth is

5

“Super Saturday” delivers strong final auction results

Earlier this week, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 3.2% decline in the final national auction clearance rate to 73.9% – well above the same weekend last year (50.4%): As you can see, Sydney’s final auction clearance rate

8

Urban planner infill dystopia bakes us under concrete

For years, the development industry and urban planners have called for Australia’s supposedly underutilised middle-ring suburbs to be bulldozed for apartments and townhouses in order to house the many millions of extra migrants projected to inundate our cities over coming decades: This transformation into a dense urban form is to be most stark in Sydney,

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NSW Government hands reins to High-rise Harry

In 2017, NSW Planning Minister, Rob Stokes, pushed-back against the federal government’s blind march towards a ‘Big Australia’, claiming it is leaving Sydney forever struggling to keep pace: Rob Stokes said the state government was left trying to retrofit the NSW’s infrastructure and services to an expanding population, without a clear, transparent trajectory of NSW’s

19

Melbourne and Sydney for sale listings surge

SQM Research has released its Stock on Market report for February, which revealed that property listings rose by 0.2% over the month but were still down 13.8% year-on-year: However, as shown above, listings in Sydney and Melbourne bounced, jumping by 9.9% and 10.0% respectively in February. According to SQM Managing Director, Louis Christopher: “The month

11

Apartment approvals collapse

The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of January. At the national level, the number of dwelling approvals collapsed by a seasonally adjusted 15.3% to 13,016. The overall slump in approvals was driven by units & apartments , which collapsed 35.5%. Over the year, dwelling approvals fell 11.3%,

15

Melbourne property prices soar to record high

It’s official. After rebounding by 12.7% over eight months, Melbourne’s dwelling values have hit record heights, surpassing their former November 2017 peak: The below chart shows the month-by-month changes more closely: Sydney, too, has experienced a strong rebound, with dwelling values up 13.2% over nine months. Indeed, according to CoreLogic, the median house price in

8

Flammable cladding class actions escalate

Apartment owners involved in two combustible cladding class actions have been given permission by the Federal Court to expand their claims under Australian Consumer Law. Vitrabond supplier Fairview Architectural is the subject of one of the class actions, while Alucobond manufacturer 3A Composites and supplier Halifax Vogel Group are the subject of the other class