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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CoreLogic weekly Australian house price update

By Leith van Onselen In the week ended 9 November 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.03%: Values fell in Sydney, Brisbane and Perth, but rose in Melbourne and Adelaide: So far in 2017, values have risen by 4.9% driven overwhelmingly by Melbourne

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New home finance down again in September

By Leith van Onselen Today’s housing finance data for September posted another 1.1% fall in the number of new home finance commitments (both construction and new), although commitments were up by 14.2% over the year: Looking at the state-by-state breakdown, which is presented below on a rolling annual basis since it is not seasonally adjusted,

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Housing finance falls heavily in September despite first home buyer bribes

By Leith van Onselen Today’s housing finance data for September, released by the Australian Bureau of Statistics (ABS), posted large falls in lending to owner-occupiers as well as investors. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) fell by 2.9% in September in seasonally adjusted terms but was up 11.8%

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Capital Economics: housing correction already hitting Australian growth

Via Capital Economics: The stagnation in house prices in Australia in recent months is a big deal as it means housing won’t support the economy by as much as in recent years. The plunge in the number of home sales will continue to restrain spending on items like fridges and furniture. And the weaker price trend will

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Coalition’s FHB super bribe to be shot down by Senate

By Leith van Onselen The Turnbull Government’s desperate attempt to keep the East Coast property bubble going has hit a snag with the Senate looking as if it will vote down the Government’s legislation to allow first-home buyers (FHBs) to use up to $30,000 of voluntary super contributions for a housing deposit. From The Canberra

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East coast land prices crash 30%

Via the AFR: Metropolitan development sites values, which have surged in recent years on a wave of Chinese money, are showing the first signs of correcting after developer Nicholas Smedley secured two sites at discounts of 30 per cent or more after vendors rejected his original off-market offers, thinking they would get more through a

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Aussie housing stock doubles in value in just 8.5 years!

By Leith van Onselen CoreLogic’s Cameron Kusher posted an interesting Tweet yesterday showing the dramatic rise in value of Australia’s housing stock, which has doubled in value since April 2009 (including stock additions): When compared against the size of Australia’s economy, Australia’s housing stick has increased from around 2.9 times GDP in April 2009 to

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Nine News does Western Sydney mortgage stress

By Leith van Onselen Nine News last night ran an interesting segment (above) on the growing mortgage stress across Greater Western Sydney, based on research by Digital Finance Analytics’ (DFA): With Sydney dwelling values now falling: It looks like a re-run of the post-2003 Sydney housing correction, which began in the West and South Western

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Chinese flee Australian property

The drumbeat for the developing east coast apartment bust is growing louder, via The Australian: One in five foreign apartment buyers in Brisbane are failing to settle due to tighter restrictions on moving money out of China, according to investment bank UBS, which is also watching the prospects for foreign purchases of off-the-plan units in

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CoreLogic: Sydney for-sale listings highest in four years

From CoreLogic’s Cameron Kusher comes an interesting report on for-sale listings, which are the highest in four years in Sydney (on a like-for-like basis), but remain low in Melbourne, which helps to explain their recent divergence in price growth: Across the nation CoreLogic is currently tracking 226,007 properties advertised for sale which is -5.3% lower

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Following NZ, housing becoming dominant political issue in Australia

By Leith van Onselen In the lead-up to the New Zealand General Election on 23 September, which delivered a change of government, opinion poll after opinion poll ranked housing as the key issue that would decide the election. With Sydney and Melbourne housing costs at extreme levels: And home ownership rates collapsing across the two

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An east coast property bust is upon us

It’s awwn. Last week was the pivot. It began with Gottiboff: Significant parts of the Sydney apartment market and the associated apartment land markets have cracked and are now suffering serious falls. The level of decline is much greater than most were predicting three to six months ago. The repercussions of what has happened in

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Auction clearances continue to fall

CoreLogic released its auction report yesterday, which reported another fall in the preliminary national auction clearance rate to 66.8% from 67.8% last weekend, and remained well below the 73.6% recorded in the same weekend last year: Auction volumes nationally were 2,019 – below the 2,517 recorded in the same weekend last year, with volumes affected

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71-story Melbourne apartment project refunds investors as Chinese flee

Hello: More than 550 apartment buyers will have their sale contracts cancelled after a Singapore-based developer scrapped plans for a residential skyscraper in Melbourne amid a legal stoush. Developer Chip Eng Seng bought a commercial tower at 150 Queen Street in the Melbourne CBD in September 2011 and planned to redevelop it into an apartment

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As construction boom unwinds, dwelling shortage to worsen

By Leith van Onselen With the ABS yesterday releasing its dwelling approvals data for September yesterday, it’s an opportune time to once again examine how dwelling construction is tracking against population growth at the national and state and territory levels. The below charts track the following, which are based on the latest available quarterly data:

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Sydney dwelling prices fall for eighth consecutive week

By Leith van Onselen More evidence has emerged that Sydney’s housing boom looked cooked. CoreLogic’s dwelling values index has registered its eighth consecutive weekly decline in Sydney dwelling values, with values down a cumulative 0.7% over that 8-week period, with dwelling values also down 0.7% over the past 13-weeks: Sydney’s quarterly growth rate continues to

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Mortgage stress continues to rise

By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released the October 2017 Mortgage Stress and Default Analysis update. Across Australia, more than 910,000 households are estimated to be now in mortgage stress (last month 905,000) and more than 21,000 of these in severe stress, up by 3,000 from last

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Sydney drives dwelling approvals rebound

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of September. At the national level, the number of dwelling approvals rose by a seasonally adjusted 1.5% to 18,849. The overall rise was driven by the volatile unit & apartment market (+2.6%), whereas house approvals rose by