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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Australia’s mortgage boom is unstoppable!

December’s housing finance data from the Australian Bureau of Statistics (ABS) revealed that mortgage demand has rocketed to unprecedented levels after experiencing 31% growth year-on-year: CBA’s economics team has released new internal mortgage data showing that the strong momentum continued in January, with new lending for housing soaring to new highs: New lending for housing

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HomeBuilder to drive record construction boom

It is fair to say that the Morrison Government’s HomeBuilder subsidy has been incredibly successful in juicing new home construction and supporting the economy. Detached house approvals surged to their highest level in the series’ 38-year history in December: Construction finance has also soared to unprecedented highs: Today, the Housing Industry Association (HIA) has issued

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Pilbara rents go boom, bust, boom

The Pilbara mining region of Western Australia is arguably the most volatile property market in Australia, experiencing massive booms and busts as the iron ore market rises and falls. After commodity prices collapsed in 2012: Asking rents for houses in Karratha fell by around 70% peak-to-trough, from around $1500 a week in late 2012 to

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Coalition MPs dump superannuation fuel on housing bonfire

Victorian Coalition MP, Tim Wilson, has launched a “Home First Super Second” campaign, which is calling for first home buyers (FHBs) to be permitted to access their funds for a housing deposit before being required to save it as superannuation: Young Australians are struggling to save enough for a first home deposit. They have savings

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CBA: Housing boom “not particularly helpful for economy”

CBA’s head of Australian economics, Gareth Aird, has given a terrific interview (below) on Radio 2GB discussing the Australian property market. The discussion is centered around a report released earlier this week where Gareth Aird tipped strong house price growth over the next two years on the back of rock bottom interest rates. For mine,

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Adam Creighton is right!

Last year I created a bit of a stir when I declared that The Australian’s Adam Creighton was “pyscho“: It was clear that Victoria did NOT have the wherewithal to succeed with contract tracing and testing when the second wave hit. That’s why there was a second wave! The only mistake VIC made in that

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Leading property indicators still strong

CoreLogic provides a series of leading indexes for property. They include mortgage demand and supply dynamics. On the supply side, the market has loosened marginally in Dictator Dan’s Ghost City but everywhere else is still tightening fast: Owner-occupier mortgages are also rebounding post-Xmas: This index does not include investors who are also beginning to warm

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SMSFs are leveraging into Aussie property

Back in 2016, David Murray –  the chairman of the Financial System Inquiry (FSI) – recommended self-managed superannuation funds (SMSFs) be banned from borrowing to invest because of risks to the financial system: “Superannuation funds should not be leveraged, including SMSFs, because leverage magnifies risk. If the system is unleveraged, then if asset prices rise,

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Dead international student trade haunts Melbourne ghost city

Dr Peter Hurley from the Mitchell Institute estimates the number of international students in Melbourne’s CBD has fallen by 8,900 because of the pandemic. With thousands of student apartments already sitting empty, and occupancy rates falling by around 80%, Hurley says that 2021 will probably be worse for the student accommodation sector than 2020. Meanwhile,

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Final auction clearance rate surges to 6-year high

CoreLogic has released its final auction clearance results for last weekend, which reveals that the nation’s clearance rate hit a 6-year high of 79.3%: Sydney’s final clearance rate was a red hot 84.4%, whereas Melbourne’s was also strong at 76.0%. Even the smaller capitals, which don’t run many auctions, reported strong results: The number of

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China bans BBC

The Anglosphere is at war with the CCP: In an apparent tit for tat move, BBC World News has been banned from airing in China, according to a statement from China’s National Radio and Television Administration (NRTA) on Thursday. The announcement comes one week after Ofcom, the British media regulator, said it had withdrawn a

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Aussies reject apartment ‘battery chook’ living

One of the biggest side effects of the COVID-19 pandemic on the Australian property market is that it has reversed the trend towards apartment living. There are several drivers behind this trend. First, the collapse in immigration and international student numbers has dampened apartment demand in inner-cities. This is reflected by the sharp fall in

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As the property bubble is nationalised, it only gets worse

In Australia’s scab grab political economy, history (even recent history ) plays no role. It’s a shame because there are, in fact, three distinct phases of the development in the great Australian property bubble. If we understood each then we might end it. So ignorance must be manufactured such that vested interests can continue their

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Rental market red hot outside of Melbourne and Sydney

CoreLogic’s Housing Market Update Report for February includes interesting data on Australia’s rental market, which is rebounding strongly from the soft conditions evident between 2018 and 2020. As illustrated in the next chart, rental growth nationally rebounded to 2.5% in the year to January 2021: Rental markets are tightening across most areas of Australia –

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Mortgage stress hits one-in-five borrowers

Roy Morgan Research has released a new survey measuring mortgage stress across Australia. Roy Morgan measures mortgage stress in two ways: Borrowers are considered ‘At Risk’ if their mortgage repayments are greater than a certain percentage of net household income. Borrowers are considered ‘Extremely at Risk’ if the ‘interest only’ component of repayments are over

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Gottiboff: Will nobody think of the landlords!?

Robert Gottliebsen claims that Australia faces a “landlord crisis” and escalating rents once the moratoriums that allowed residential tenants to defer their rent obligations for most of 2020 expire in late March. According to Gottliebsen, many landlords will either decide to sell their rental property or leave it vacant, and this will make the current

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Don’t buy a Sydney or Melbourne apartment

While the Australian property market as whole is on a tear, reporting strong growth across all major markets and regional areas, there are pockets where rents are going backwards and present great risks to budding property investors. In particular, high-rise apartments across Sydney and Melbourne are suffering from a strong supply response that has run

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Auction market turns white hot

CoreLogic released its preliminary report for the weekend’s auctions, which reported more strong results. In particular, both Sydney and Melbourne reported preliminary clearance rates above 80%, which portends further price rises for both cities: This was off auction volumes that were slightly above the same weekend in 2019. As shown in the next chart, Australia’s