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.


AFG shows huge drop in interest-only mortgages

By Leith van Onselen Australian Finance Group (AFG) has released its housing finance data for the December quarter, which registered a seasonal fall in mortgage applications, as well as a decline year-on-year. The number of mortgage applications fell by 2.3% over the December quarter and was down by 3.0% over the year, whereas the value


Another idiotic housing affordability “solution” emerges

By Leith van Onselen Leading real estate rent-seeker, the Property Council of Australia (PCA), is pushing for another idiotic policy “solution” to fix Australia’s housing affordability woes: offering a government-backed low deposit home loan scheme. From The Australian: A government-backed low-­deposit home loan scheme could help address housing affordability by getting more buyers into the


Foreign buyers try to skirt new stamp duty hikes

By Leith van Onselen In the wake of yesterday’s data from ANZ showing a sharp drop in foreign residential property sales (see chart above), as well as the hissy fit from “Highrise” Harry Triguboff, The AFR has reported that foreign buyers are attempting to skirt recent stamp duty increases by purchasing “nominated” off-the-plan apartments whose


Sydney home prices fall for 18th consecutive week

By Leith van Onselen The deflation of Sydney’s housing market has continued for the 18th consecutive week, with CoreLogic’s dwelling values index registering another 0.13% decline, and values down a cumulative 2.6% over that 18-week period, and dwelling values also down 2.5% over the past 23 weeks: Sydney’s quarterly growth rate continues to turn negative,


NSW Premier ignored warnings negative gearing was inflating Sydney home values

By Leith van Onselen In late 2016, the Coalition erupted into civil war when NSW Planning Minister, Rob Stokes, threw a hand grenade at the Turnbull Government’s housing policy, arguing that changes to negative gearing are necessary to make housing more affordable: “We should not be content to live in a society where it’s easy


Highrise Harry bawls as foreign property demand falls

The ANZ-Property Council Survey for the March quarter has been released, which revealed a sharp reduction in residential property sales to foreign (non-Australian resident) buyers, with everywhere but South Australia posting declines: As shown above, foreign buyers accounted for 16% of residential property sales nationally, with sales highest in VIC (21%) and NSW (18%). The


Real estate lobby calls for dedicated “property minister”

By Leith van Onselen MB often refers to Treasurer Scott Morrison as “Australia’s real estate treasurer” because of his close links with the Property Council of Australia (PCA), where he served as National Manager of Policy and Research between 1989 and 1995. We also frequently deride the Turnbull Government for its staunch defence of negative


Ray White still fighting the last war on negative gearing

By Leith van Onselen The chairman of Australasia’s largest property group, Ray White’s Brian White, has hit out at Treasury’s analysis of Labor’s proposed negative gearing and capital gains tax (CGT) reforms, which claimed that Labor’s policy would have a “relatively modest downward impact on property prices”, would shift the “composition of ownership… away from


Morgan Stanley: Housing market to slow further in 2018

From The ABC: Australia’s housing market is set to weaken further this year, with both prices and building activity to fall, according to Morgan Stanley. The global investment banking giant has constructed a leading index to try and predict the future direction of residential building and home prices in Australia. The MSHAUS index is designed


Did the Turnbull Government mislead parliament on negative gearing?

Cross-posted from Independent Australia: The Turnbull Government deliberately misled Parliament on Labor’s negative gearing policy, but few in the Press Gallery asked the hard questions, writes Professor Jane Goodall. “MISLEADING THE HOUSE” is one of the most serious allegations a politician can face. But given that misleading statements are routine fare in Parliament, it’s not a charge


Real Estate Institute: let first home buyers raid their super

By Leith van Onselen With Australian home prices now falling, led by Sydney: One of Australia’s biggest real estate lobbies – the Real Estate Institute of Australia (REIA) – is demanding an expansion of the First Home Super Saver Scheme (FHSSS) under the guise of improving housing affordability: The FHSSS will, from 1 July 2018,


Chinese pull-back partly behind Sydney property falls

By Leith van Onselen The most recent NAB residential property survey suggested that foreign buyers have pulled back sharply from the Sydney housing market: Today, The AFR reports that Chinese buyers are shunning Sydney’s property market in favour of more affordable locations like Bangkok: Chinese property investors are choosing Bangkok over Sydney and London as


Melbourne drives temporary high-rise approvals bounce

By Leith van Onselen Yesterday’s dwelling approvals data for November from the ABS reported a continued rebound in annual unit & apartment approvals after a prolonged period of falls: To add more colour to this series, I have once again plotted the breakdown of approvals by type for each of the states and territories, which


Victoria drives surge in dwelling approvals

By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released dwelling approvals data for the month of November. At the national level, the number of dwelling approvals surged by a seasonally adjusted 11.7% to 21,055. The overall rise was driven by the volatile units & apartments segment (+30.6%), whereas house approvals fell by


Head of NSW young Liberals scalds party over housing affordability

By Leith van Onselen A stoush has developed within the Liberal Party after the head of the NSW Young Liberals, Harry Stutchbury, ripped into the party over its failure to address housing affordability. Below are key extracts from Stutchbury’s article published in The SMH: The Liberal Party is terrified of taking serious steps to tackle


Labor to stick with negative gearing policy

By Leith van Onselen In the wake of yesterday’s Freedom of Information (FOI) release from the Australian Treasury, which claimed that Labor’s policy to restrict negative gearing to new builds and halve the capital gains tax (CGT) discount would have a “relatively modest downward impact on property prices”, would shift the “composition of ownership… away


The rise and rise of dodgy ‘liar loans’

By Leith van Onselen Late last year, investment bank UBS released a series of reports (here and here) claiming that of the 1,228 Australians surveyed who had recently taken out a mortgage, 28% stated their application was not factually accurate, with broker-originated mortgages the most dodgy. Now, The AFR is reporting new analysis of loan


Screw tightens on specufestors as interest-only mortgages re-set

By Leith van Onselen Last month, UBS released stunning analysis showing the volume of interest-only mortgages due to expire will rise to $105 billion in 2018, then $133 billion in 2019, and $159 billion in 2020: Borrowers switching from interest-only to principle and interest mortgages are facing a 35% to 50% increase in mortgage repayments,


Household mortgage stress continues to build

By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released the December mortgage stress and default analysis update. Across Australia, more than 921,000 households are estimated to be now in mortgage stress (last month 913,000). This equates to 29.7% of households. In addition, more than 24,000 of these in severe


Australian Treasury: Labor’s negative gearing policy won’t “smash” housing market

By Leith van Onselen Over the past few years, Scott Morrison and Malcolm Turnbull have claimed repeatedly that Labor’s negative gearing policy would destroy both the housing market and economy. For example, in February last year, Turnbull claimed Labor’s negative gearing changes would “smash the residential housing market” and warned that “every homeowner in Australia


Listings fall as Melbourne’s asking house price surpasses $1 million

By Leith van Onselen From SQM Research comes stock on market figures for the month of December, which reported a (mostly) seasonal 4.6% decline in total for sale listings over the month but also a 4.4% decline over the year: Listings fell across all jurisdictions in December. Over the year, the decline in listings nationally


Bank of Mum and Dad deposit free home loans

Cross posted from Digital Finance Analytics by Martin North Hopping on the “Bank of Mum and Dad” bandwagon, Bluebay Home Loan, a  WA-based mortgage manager has launched a “new” loan offering designed to help first time buyers access the market without a deposit. Our research shows that many first time buyers are getting help from


Aussie Home Loans: they’ll sue ya!

Corporate bullying or a case of mistaken identity? The Commonwealth Bank – owner of Aussie Home Loans – has gone full Disney on the Affordable Housing Party, threatening legal action against the fledgling political entity over its logo and branding. Nice one Aussie! No affordable housing for you! Here’s the email circulated to members of


Mr IQ sued by lender for default

Mr IQ again, via AFR: Cracks are appearing in the residential investment market, with well-known Sydney investor Nathan Birch sued by his lender after his company defaulted on a $535,000 high-interest mortgage for a Gold Coast investment property. Mr Birch, who claims to have a net worth of $30 million and earn $500,000 a year after expenses


Mr IQ runs into a liquidity problem

Remember Mr IQ A.K.A Nathan Birch? Then mid last year a few cracks appeared: For a long time now, I’ve been collecting properties like kids collect action figurines in a happy meal. I never like to see one go. But recently, the finance environment has changed… It’s a bitter pill to swallow for a buy


Sydney home prices fall for 15th consecutive week, losses accelerate

By Leith van Onselen The deflation of Sydney’s housing market has continued for the 15th consecutive week, with CoreLogic’s dwelling values index registering another 0.40% decline, with values down a cumulative 2.3% over that 15-week period, and dwelling values also down 2.2% over the past 20 weeks: Sydney’s quarterly growth rate continues to turn negative,