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.
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
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
Dr Cameron Murray is a good friend of the site and one of the few commentators in the country to tip a property boom mid last year during the height of the COVID-19 pandemic. This week Dr Murray was interviewed by The Guardian where he tipped that smaller markets will lead this property cycle: Our
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
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
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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SQM Research has released rental vacancy data for the month of January, which reveals a tightening market outside of Sydney and Melbourne. As shown in the table below, the vacancy rate nationally fell to 2.0% in January, down 0.1% from the same time last year: However, rental vacancies were higher than a year ago across
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
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,
By Gareth Aird, head of Australian economics at CBA: Key Points Momentum in the Australian property market has surged and leading indicators point to strong price rises. We expect national dwelling prices to rise by 8% in 2021 and 6% in 2022 – the risks are tilted towards stronger outcomes. Price rises are expected to
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,
The single most crucial reform in the Australian economy, cutting fiscal support for house price speculation, is now dead. Labor took it to the last two elections but the rise of small target Anthony Albanese has killed it. What does this mean for the future? Domain: Shadow cabinet is expected to dump the policies. Albo
CoreLogic’s preliminary auction results reveal a red hot market with the nation’s clearance rate hitting a new high of 86.1%, up from last week’s clearance rate of 83.8%: Sydney and Melbourne drove the result, both recording clearance rates above 87%: The strong clearance rate for Melbourne was curious given the city was forced into a
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
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
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
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
CoreLogic has released its 5-city dwelling values index for the week ended 11 February 2021, which shows that the property price boom is gathering pace, with dwelling values surging another 0.42%: It was the 17th consecutive weekly increase and also the strongest pace of growth since the week ended 28 November 2019. While all major
Late last year, the NSW Government announced brave changes to the state’s tax system that would offer owner-occupiers an alternative to stamp duty via a fixed $500 up-front fee plus an annual tax of 0.3% on unimproved land value. Under these changes, the buyer of an average Sydney house would have the choice to pay
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 –
CoreLogic has released its Housing Market Update Report for February, which provides a bunch of key data pertaining to Australia’s property market. What sticks out most in this month’s report is the lack of homes listed for sale, which is tracking around 28% below the five year average: As shown above, there were only 131,657
The RBA has never directly acknowledged a single asset bubble that I can recall. So it’s not going to start now. The regime of Phil Lowe did spend the better part of five years keeping monetary policy too tight worrying about bubbles but all that achieved was structural lowflation. It is no surprise, therefore, today,
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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
The federal government’s HomeBuilder subsidy had a tight 31 December deadline to qualify for $25,000 grants to underwrite the construction of new homes or major renovations. For all intents and purposes, it was a stonking success, resulting in an unprecedented 92% rise in new home sales in December as buyers rushed to meet the deadline.
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
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
New data from the NSW Valuer-General shows that land values across NSW has risen to a record $1.8 trillion. The increase was fueled by regional NSW, where demand is red hot in the wake of COVID-19 shutdowns and the ‘work-from-home’ phenomenon. By contrast, some land values in Sydney’s CBD fell sharply over the year as
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
