This reeks of desperation: It is the sort of deal that would have any real estate investor salivating: Interest-free loans, and the ability to walk walk away from any losses if the price falls. This is the share offer that real estate guru, John McGrath, is using to retain the top talent at his embattled
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 The Australian property bubble has grown so absurdly large, and is so connected from the sad little economy beneath it, that it is consuming everything in its path. The latest example comes from economist Saul Eslake, who will address the Conference of Major Super Funds today, whereby he will warn that
By Leith van Onselen Over the past year, I have presented data showing that the historical relationship between dwelling prices and the value of housing finance commitments (excluding refinancings) has broken down somewhat over the latest housing cycle: I have also offered two potential explanations for this breakdown: falling transaction volumes, whereby falling finance commitments are
Via the AFR: Lenders and developers are offering property investors lucrative incentives ranging from annual commission payments of $100,000, loan discounts of more than 100 basis points and cash incentives, a review of top deals reveals. Developers are also encouraging investors with promises of deluxe fixtures, rental guarantees, price discounts and ‘special deals’ before state-based
By Leith van Onselen I never thought I’d see the day that Australia’s real estate lobby – the Real Estate Institute of Australia (REIA) – supports Australia’s anti-money laundering (AML) regime being extended to real estate gatekeepers, provided offshore sales offices and websites are also captured. From The AFR: Real estate agents with offshore sales offices
Via the AFR: It should not be surprising then that, when media started reporting Melbourne apartments being resold at substantial losses in early 2016, this was a cause for alarm among offshore buyers of “off the plan” Melbourne apartments. What developers may not have appreciated when signing “off the plan” contracts with offshore buyers from
From S&P today: Arrears Trends: The Big Picture The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages rose to 1.15% at the end of fourth quarter (Q4) 2016 from 1.14% in Q3. The SPIN measures the weighted-average arrears more than 30 days past due on residential mortgage loans in publicly and privately rated
By Leith van Onselen ABC Lateline last night aired a segment on housing affordability, which involved a panel discussion involving: Former federal leader of the Liberal Party John Hewson; Director of research at Essential Media Rebecca Huntley; Managing Director of Market Economics Stephen Koukoulas; and Victorian CEO of the Urban Development Institute of Australia Danni
By Leith van Onselen The ABS yesterday released its property price data for the December quarter, which valued Australia’s dwelling stock owned by households at a record $6.11 trillion dollars. As shown below, the total value of Australia’s dwelling stock was an all-time high 7.5 times incomes as at December 2016, up from 7.1 times
By Leith van Onselen Remember this chart? It shows that Victoria’s population growth surged by an all-time high 123,100 people in the year to June 2016: Suggesting Melbourne’s population grew by circa 105,000 over the same period, given historical population shares. According to SQM Research, the population surge in Melbourne has pushed the city’s rental
By Martin North, cross-posted from the Digital Finance Analytics blog: We have updated our core market model with household survey data this week. One interesting dynamic is the LTI metrics across the portfolio. We calculate the dynamic LTI, based on current income and loan outstanding. This is not the same a Debt Servicing Ratio (DSR),
By Leith van Onselen Yesterday, the NSW Government launched a new housing ponzi scheme where everyone’s a winner. From The SMH [my emphasis]: The NSW government will ramp up a program of encouraging major housing development near rail stations in Sydney, as well as pushing for new schemes that make it easier for renters to
By Leith van Onselen The ABS has today released its property price index – incorporating both detached houses and units – which registered a 4.1% rise in home values nationally over the December quarter and a 7.7% gain over the year, an acceleration from the 3.5% annual growth recorded in the year to September 2016:
Specufestors. They’re just everywhere: Tumut real estate agent Lorraine Wysman has sold nearly as many properties in Talbingo since Thursday as she normally does in a year. Speculators began targeting the tiny southern NSW town after Prime Minister Malcolm Turnbull announced a potential $2 billion expansion of the Snowy Hydro scheme. Ms Wysman, who is
From the always excellent Jonathon Mott at UBS: Sydney and Melbourne House prices accelerate House prices in Australia have been on a steady upward course over the last five years since the RBA cut rates from a peak of 4.75% down to current levels of 1.5%. Since this time house prices in Sydney have risen
By Leith van Onselen The Real Estate Institute of Australia (REIA) has called on the federal government to allow first home buyers (FHBs) to access their superannuation to purchase a home. releasing the following press release: “One of the biggest hurdles young people have in buying their first home is saving enough money for a
It had to happen, via the AFR: Regulators are preparing to impose a fresh wave of constraints on the banks to slow investor lending growth, crack down on interest-only loans, and force buyers to stump up more equity on purchases as they scramble to manage a rampant property boom. Warning that financial and economic risks
Via Domain: Treasurer Scott Morrison insists the federal government has no proposal to allow first-home buyers to tap their superannuation for a deposit. …Mr Morrison told parliament the government had no proposal along those lines in its housing affordability package, which will be delivered in the budget. “The only party that has put that forward
By Leith van Onselen MB’s own Dr Cameron Murray gave a speech on Sunday at the Sustainable Australia party’s community forum, “Housing Affordability: An Honest Debate”, which was held in Sydney. Murray’s speech immediately followed former Labor leader, Mark Latham’s (posted yesterday). Below are Dr Murray’s notes on the speech: Imagine explaining 2017 to someone
By Martin North, cross-posted from the Digital Finance Analytics blog: In past years we have been highlighting the misaligned policy settings which have allowed home prices to balloon, household debt to soar, interest rates to slide and investors to gain more than a third of the market, higher than UK or USA. As banks have
Here it comes, via the AFR: “There remain pressures that have built up again over the last few months,” Mr Morrison said in Canberra on Monday. Speaking after returning from the Group of 20 finance minister’s meetings in Germany on Friday and Saturday, Mr Morrison said it was up to regulators – which are led
By Leith van Onselen The proliferation of high-rise ‘shoe box’ apartments across Melbourne have long been denigrated for their poor design. Back in 2014, Melbourne City Council released a report claiming that 40% of Melbourne’s newest apartments are smaller than 40 square metres and would breach the minimum size requirements of many other international cities.
By Leith van Onselen Various experts have emerged to slam the Coalition’s proposal to allow first home buyers (FHBs) to access their superannuation to purchase a home. From The Canberra Times: Paul Keating has dramatically added his voice to those of industry and finance experts warning the Turnbull government against allowing superannuation savings to be used for house purchases, branding the
Specufestor spirits are certainly under assault, as the AFR noted over the weekend: Property investors could be forgiven for thinking this week that the universe, particularly the financial universe, is out to get them. And they would be right. Runaway property prices in Melbourne and Sydney and a spike in lending to investors have regulators concerned about financial stability, the
By Leith van Onselen The Parliamentary Budget Office (PBO) has costed a theoretical proposal by The Greens to abolish property stamp duties and replace them with a broad-based land tax, finding a short-term cost to Budgets but a more neutral outcome over the longer-term. From The ABC: Under the proposal put forward by the Greens,