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.
By Leith van Onselen ABC 7.30 Report last night aired the second of a three part special on Australia’s budding housing bust, which is well worth watching. The episode focussed on how the credit crackdown is putting heat on buyers and developers. The episode first features several quotes about systemic mortgage fraud and loose lending:
By Leith van Onselen The Master Rent-Seekers Builders Association (MBA) is in full panic mode after a few builder collapses and has demanded governments take immediate policy action to bail-out the industry, including stamp duty exemptions for first home buyers and first home buyers grants. From The ABC: OAS Group, based in Beverley in Adelaide’s
To understand this question we first need some bank capital 101 from MB’s banking insider, Deep T: There are two ways an Australian Deposit taking Institution (“ADI”) calculates capital to be allocated against a residential mortgage. Either in accordance with APRA’s APS 112 Attachment C or under Advanced Basel II methodology. Let’s address the rather simple APRA
By Leith van Onselen The ABS yesterday released its property price data for the September quarter, which valued Australia’s dwelling stock owned by households at $6.58 trillion, whereas the total housing stock was valued at a record $6.85 trillion. As shown below, the total value of Australia’s dwelling stock owned by households was 7.48 times
Via Goldman first: The changes make property investing less attractive from a cash flow perspective, but negatively geared rental properties are already an unattractive asset from a cash flow perspective. The impact of the lower capital gains discount is somewhat more important, but we note this only binds when price growth is positive. This means
Via Gotti today: I have described previously how at the dramatic FINSIA regulators’ lunch in Melbourne it was clear that the Reserve Bank, APRA and ASIC, in their desire to quickly improve bank balance sheets, had little understanding of the downturn they would create and its implications. But the share market now fully understands the
By Leith van Onselen The ABS has released its property price index – incorporating both detached houses and units – which registered another 1.5% decline in home values nationally over the September quarter and a 1.9% decline over the year: Sydney (-1.9%), Melbourne (-2.6%), Perth (-0.6%), and Darwin (-0.9%) recorded quarterly declines in values, whereas
By Leith van Onselen ABC 7.30 Report last night aired the first of a three part special on Australia’s budding housing bust, which is well worth watching. The episode first features auctioneer, Damien Cooley, who has seen buyer interest evaporate: DAMIEN COOLEY: The market is challenging for me. An auctioneer is only as good as
By Leith van Onselen Western Sydney is the epicentre of the city’s working class. It is a prime dumping ground for the federal government’s mass immigration ‘Big Australia’ program. And it has become a virtual “special economic zone” where wages can be shredded with impunity by the wealthy owners of capital living in the East.
CoreLogic’s weekly housing indicators continue to show broad weakness. Dwelling values have fallen heavily, led by Sydney and Melbourne: Auction clearances have crashed, again led by Sydney and Melbourne: Whereas mortgage credit remains stillborn: At the same time, listings have exploded upwards to 2012 highs as unsold ‘stale’ stock accumulates across Sydney and Melbourne; albeit
Dick Wakelin capitulates today: Sydney and Melbourne prices are likely to drift downwards in the first three to six months. That forecast is based on continued lending tightness by the banks until the dust settles after the publication of the final royal commission report in February and a general skittishness of participants. The downward trajectory
By Leith van Onselen The banking royal commission interim report was scathing of mortgage broker commissions and the fact that loans written through mortgage brokers have tended to have higher leverage, more interest-only loans, higher debt-to-income and loan-to-value ratios, higher interest costs and an increased likelihood that borrowers will fall into arrears. Now, Australia’s mortgage broking
By Leith van Onselen Today’s housing finance data for October, released by the Australian Bureau of Statistics (ABS), posted a rebound in finance commitments, with both investor and owner-occupied demand lifting. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) rose by 2.3% in October in seasonally adjusted terms but has
By Leith van Onselen With Sydney unit values down 6.5% since the June 2017 peak, according to CoreLogic: Buyers that purchased off-the-plan apartments near the peak of the boom are now sinking into negative equity and settlement risk is rising: Sydneysiders who snapped up off-the-plan apartments at the peak of the property boom are now
By Leith van Onselen A parliamentary committee into Managing Compliance with Foreign Investment Obligations for Residential Real Estate has uncovered more details about how Victoria (read Melbourne) is the nation’s hotbed for illegal foreign purchases of Australian property and how the Australian Tax Office (ATO) has failed miserably to enforce the rules precluding foreign nationals
It’s the Scummo wipe out now, via Newspoll: The results of the final Newspoll of the year show the Coalition’s primary vote at 35 per cent, Labor’s at 41 per cent and a two-party-preferred split of 45-55, which would equate on a uniform basis to the loss of 21 seats for the government. Alas for
From the OECD today: The latest OECD Economic Survey of Australia, to be released on Monday 10 December, assesses the continuing robust growth of the Australian economy, as well as the challenges to ensuring sustainable and more inclusive growth against a backdrop of globalization and technological change. The Survey discusses how Australian can limit financial sector risks,
It is a laugh a minute now for the politico-housing complex. First up the RBA, which “economists” say was actually bullish last week: Economists believe the market misinterpreted comments by Reserve Bank of Australia deputy governor Guy Debelle, whose speech on Thursday was received as dovish but in fact was “frank” and consistent in substance
By Leith van Onselen Yesterday, the Sydney housing market hit an important milestone, recording a peak-to-trough decline of 10% after falling for 17 consecutive months: Already, this is the second worst housing correction experienced in Sydney over the past 40 years: It is also happening at a much faster rate than Perth’s housing correction, which
I put it to you that this is one major reason why Sydney property is crashing and Melbourne trailing it down. From Domain: Foreigners are again making an impression on Sydney’s trophy home market but it isn’t the purchase of high-end mansions and penthouses keeping agents busy. It’s all about selling the Sydney home. Experts
CoreLogic released its auction report yesterday, which reported another pathetically weak round of auctions, with auction clearances remaining near 2011 lows. The preliminary national auction clearance rate was just 45.3% versus 47.0% last weekend (later revised down to 41.3%). The preliminary clearance rate was also way below the 59.5% recorded in the same weekend of
There’s a locust plague at News: Buyer’s agent Nick Viner believes now is the time to buy in Sydney and Melbourne, with many discounted premium properties available with minimal competition. “This environment is the absolute perfect time to buy because you’ve got more time to consider your options and there’s more choice in terms of
From our Chris today: To APRA’s immense credit, it has managed to pull off a minor miracle: bursting the bubble during the boom. Debelle has previously noted that there was no evidence of a wealth effect, or positive feedback loop into consumption, during the upswing when Melbourne and Sydney house prices surged 50 per cent
Via the AFR: As Sydney and Melbourne house prices continue to fall, Mr Shorten signalled that an originally planned July 1, 2019 start date could be deferred until 2020. He said Labor remained committed to its three-year policy of reforming negative gearing to make the system fairer for first-home buyers against investors who now receive
Via ASX: That’s now CSR, FBU, BKW and ABC all warning on the dwelling construction pipeline: It’s only the beginning and they’ve already gone and lost their minds…
By Leith van Onselen The Foreign Investment Review Board’s 2016-17 annual report, released in May, revealed a sharp contraction in residential real estate applications from foreign buyers, driven by a halving in applications from China: This was followed in October by NAB’s quarterly property industry survey, which revealed a sharp contraction in demand from foreign buyers: Especially
By Leith van Onselen Earlier this year, leading real estate rent-seeker, the Property Council of Australia (PCA), pushed another idiotic policy “solution” to fix Australia’s housing affordability woes: offering a government-backed low deposit home loan scheme: A government-backed low-deposit home loan scheme could help address housing affordability by getting more buyers into the market and
From Guy Debelle, deputy governor of the RBA: It is now just over 10 years since the date that people most associate with the Global Financial Crisis (GFC), namely 15 September, the day that Lehman Brothers filed for bankruptcy.[1]There have been quite a number of articles written in recent months looking back at that time
By Leith van Onselen CoreLogic’s latest dwelling sales data was more bad news for those groups heavily reliant on property transactions, such as real estate agents and state governments (via stamp duty). It also points straight down for house prices. The next chart plots annual sales volumes across the five major markets to August 2018,
By Leith van Onselen In the week ended 6 December 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, tanked another 0.36% – the biggest weekly decline of the past year: Values fell across all major markets except Adelaide: The quarterly decline has steepened to 2.3%, with Sydney,
