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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Four months on, Opal Tower faults remain unresolved

By Leith van Onselen Four months after cracks in Sydney’s Opal apartment tower led to residents being evacuated on Christmas Eve, around half of the complex remains unoccupied. From The ABC: Almost half of the apartments in Sydney’s troubled Opal Tower are still vacant, nearly four months after the building was first evacuated on Christmas

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Dick Wakelin: Mass immigration will keep housing unaffordable

By Leith van Onselen Investor buyer’s agent, Richard Wakelin, has hosed concerns about Labor’s negative gearing policy, instead claiming that ongoing strong population growth will continue to push house prices higher. From The AFR: Put together, the overall impact on the property market of Labor’s policies is likely to be modest at worst… However, the

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Australian personal wealth smashed by crashing house prices

From Roy Morgan Research: In the December quarter 2018, the gross personal wealth (assets) of Australians including owner occupied homes, stood at $9,784 billion. This represents a drop of $512 billion or 5.0% from the September quarter when it was $10,296 billion and is now at the lowest level recorded throughout 2018. Net wealth (after

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Shane Oliver: Labor’s negative gearing policy will boost supply

By Leith van Onselen While the property lobby and the Coalition continue to argue that Labor’s negative gearing policy will magically push up rents, AMP Capital’s chief economist, Shane Oliver, has argued the opposite: that Labor’s policy will lead to “investors piling into new buildings as opposed to old buildings”. From The Saturday Paper: The

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More AFR negative gearing fake news

By Leith van Onselen The AFR’s shameless lobbying against Labor’s negative gearing policy hit another low over the weekend with another attack on the estimated savings from Labor’s policy: More evidence has emerged that Labor has seriously underestimated the extent of investment in newly-built housing and therefore overstated the revenue that might be raised by

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Auction market shows tentative signs of life

CoreLogic released its preliminary auction report yesterday, which reported a small bounce on rising volumes. The preliminary national auction clearance rate was 58.2%, slightly above last week’s 57.2% but still below the 61.7% final clearance rate recorded in the same weekend of last year: Auction volumes nationally were 2,268, above last year’s 1,915 auctions: Once

15

RBA confirms Chris Joye’s big short

The new RBA Financial Stability Review is out and brimming with anxiety: Risks to the household sector have increased over the past six months given weak housing market conditions. Housing prices have fallen significantly in Sydney and Melbourne after the earlier large run-up in prices, while in Perth and other miningexposed regions, prices have been

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Collapsing home ownership to smash retirement system

By Leith van Onselen The Grattan Institute warns that collapsing rates of home ownership endangers Australia’s retirement system and could send government spending on housing assistance soaring. From The Conversation: …new Grattan Institute modelling shows the share of over 65s who own their home will fall from 76% today to 57% by 2056 – and

23

Property parasites swarm election

After nine years of debunking their lies, it seems MB is going to have its work cut out over the next five weeks. Form the AFR: More evidence has emerged that the level of negative gearing for new property is already much higher than Labor assumed when predicting how much extra revenue it will collect

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CoreLogic weekly Australian house price update: more universal falls

By Leith van Onselen In the week ended 11 April 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.15%: Values fell across all major markets: So far in April, home values have fallen by 0.28% at the 5-city level, again with all major capitals falling:

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Canberra: the nation’s capital for dodgy construction

By Leith van Onselen It seems poetic that the nation’s capital of corrupt policy making also appears to be the capital of shonky building practices. From The Canberra Times: The ACT government has temporarily shut down 32 construction sites in the past three months, as part of a renewed crackdown on dodgy building work. Access

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BIS Oxford: Residential building boom turning bust

By Leith van Onselen BIS Oxford Economics is bearish about the near-term outlook for Australia’s housing construction market. The firm has forecast that the sector will be hit by a two-year correction, with the number of new dwelling starts tipped to fall to 161,000 a year. This compares with between 220,000 and 230,000 annually over

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HIA: Housing supply falling, bring in more migrants!

By Leith van Onselen From The Housing Industry Association (HIA) comes another huge dose of hypocrisy (my emphasis): “Home ownership remains one of the most important aspiration for all Australians. It is critical that an incoming federal government recognises that many Australians move into home ownership through the private rental market,” said HIA Managing Director,

4

Final auction clearances still stuck in gutter

By Leith van Onselen Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 4.6% decline in the final national auction clearance rate to 52.6% – slightly above last week’s final clearance rate of 52.6%: As you can see, Sydney’s final

16

Desperate developers rain “massive” incentives to clear stock

By Leith van Onselen As stalled developments spread over the east coast amid the surge in completions: Desperate developers are throwing incentives at buyers: Free mortgage payments are among the latest incentives on offer as developers try to lock in buyers in Sydney’s cooling market. In addition to the stamp duty rebates, rental guarantees, frequent flyer

4

Chris Bowen wrongly blames states for poor housing affordability

By Leith van Onselen Labor’s shadow treasurer, Chris Bowen, has showed that he is not serious about housing affordability, effectively blaming the states. From News.com.au: Labor today is warning its controversial proposal for a negative gearing overhaul will not make housing more affordable… Chris Bowen today made clear the main purpose would be as a

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Here comes the dwelling construction bust

By Leith van Onselen With yesterday’s release of dwelling construction data for the December quarter, it’s once again time to examine how Australia’s dwelling supply is tracking against population growth. The below charts track the following, which are based on the latest available quarterly data: Dwelling approvals to December 2018; Dwelling commencements to December 2018;

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Josh Frydenberg joins negative gearing budget farce

By Leith van Onselen As expected, Treasurer Josh Frydenberg has jumped on the faux rage over Chris Bowen’s understatement of the share of negatively geared investment into newly constructed dwellings: Josh Frydenberg has accused Labor of “lying” about inaccurate figures behind its negative gearing reforms, and warns there could be “a big black hole” in

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Dwelling commencements collapse

By Leith van Onselen The ABS has released dwelling construction data for the December quarter, which recorded a sharp quarterly fall in commencements and a smaller decline in completions. According to the ABS, the number of dwelling commencements fell by a seasonally-adjusted 16.3% over the December quarter and were down by 16% over the year.

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Negative gearing debate enters post-truth zone

By Leith van Onselen Yesterday evening, The Australian’s and The AFR’s lobbying against Labor’s negative gearing policy went into overdrive, attacking shadow Treasurer Chris Bowen for understating the share of negatively geared investment into newly constructed dwellings, and claiming that Labor has therefore overstated its Budget savings. Here’s The Australian: Opposition Treasury spokesman Chris Bowen

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Housing finance crash signals more property pain

By Leith van Onselen Yesterday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) recovered slightly in February, but still tanked by 19% over the year in trend terms, driven by an epic 27% crash in investor commitments, whereas owner-occupied commitments also fell by 15%: As shown above,

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Melbourne’s hidden ghost city revealed

By Leith van Onselen Prosper Australia has released its 2018 Speculative Vacancies Report, which estimates up to 16% of investor-owned residential properties in Melbourne are vacant, based on water usage data. The Chinese mecca Box Hill in Melbourne’s East is estimated to have the highest percentage of vacant investment properties. Prosper Australia recommends Victoria implement