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.

7

Auctions deluge continues to flood property market

Australia’s auction market continued to fatigue after a record week of listings: Last weekend’s final auction clearance rate was 68.5%, down from 70.3% the prior weekend off 4,251 auctions (up from 3,720 the prior weekend): As noted by CoreLogic: This week saw Canberra, Adelaide and the combined capital cities all recording their busiest auction weeks

6

Sydney’s housing market is truly bananas

Previously I have published data showing that Sydney house prices are trading at close to all-time highs relative to the other capital cities: Now Cameron Kusher has posted similar data on Twitter showing how Sydney house prices are tracking against the other major capitals. According to Kusher, “in 2007 median house prices in Sydney and

4

CoreLogic weekly house price update: Two-speed

In the week ended 2 December, the CoreLogic daily dwelling values index increased another 0.20%: All major markets except Perth recorded rising values, again led by Brisbane and Adelaide: Quarterly price growth remains strong but slowing at 3.91% across the five major capitals. Brisbane (7.43%) and Adelaide (6.53) lead the way, followed Sydney (4.31%), Melbourne

4

HomeBuilder lines land developers’ pockets

When the Morrison Government’s HomeBuilder subsidy was announced last year, I argued that land developers would be the major beneficiaries since they would be able to inflate the cost of their house-and-land packages, while also clearing their inventory. Shortly afterwards, we witnessed developers mark-up the cost of house-and-land packages by the amount of the grant,

2

Investor mortgage boom crowds out first home buyers

The Australian mortgage market fell again in October, according to new data released today by the Australian Bureau of Statistics (ABS). The total value of new mortgage commitments fell by a seasonally adjusted 2.5% in October 2021 to be up 32.2% year-on-year: As shown above, owner-occupiers had driven mortgage demand this cycle, whereas investor demand

4

Highrise Harry chokes supply to drive up profits

If you want bonafide evidence that property developers manipulate the market to ration supply and maximise their profits, look no further than ‘Highrise’ Harry Triguboff’s testimony today in The Australian: Harry Triguboff, Australia’s richest property developer, will make $400m from building and keeping apartments for investment this year… The documents showed a 15 per cent

7

Melbourne @9 million is a Bladerunner set

The Herald-Sun has published a spruik piece on how Melbourne’s suburbs will enjoy a “jobs and high-rise population boom” following the construction of the Suburban Rail Loop: The Suburban Rail Loop project linking middle-ring suburbs will spark a jobs and high-rise population boom, helping to ease Melbourne’s “unsustainable” urban sprawl. Suburbs such as Cheltenham, Glen

1

Rental growth strong again in November

CoreLogic has released rental data for November, with rental growth continuing at its strongest pace since 2008: The trend in rental growth has held reasonably firm since April, with the monthly change in national rents holding between 0.6% and 0.7%, well above the decade average monthly movement of 0.2%. Every capital city and rest-of-state region

3

CoreLogic: Regions lead Aussie property growth in November

CoreLogic has released its full dwelling value results for November, with values nationally rising 1.3% over the month and 22.2% year-on-year: Australia’s regions led the way, recording 2.2% growth in November versus 1.1% growth across the capital cities. Over the year, the regions recorded 25.2% growth versus 21.3% growth across the capital cities. Commenting on

2

Australia’s high-rise apartment market still stuck in doldrums

The Australian Bureau of Statistics (ABS) yesterday released its dwelling approvals data for October, which revealed that apartment approvals have fallen 62% below their November 2017 peak, while detached approvals are falling from their April HomeBuilder record highs: Below are a series of charts that track approvals by housing segment in rolling annual terms nationally

3

Aussie mortgage growth hits the brakes

The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of October. Quarterly mortgage credit growth decelerated further to 1.8% after recently recording the highest rate of growth since 2015: Owner-occupiers continue to drive mortgage growth, rising by 2.3% over the quarter versus 0.8% growth for investors: Meanwhile,

3

Australian property prices rise 1.1% in November

CoreLogic has released its daily dwelling values index for 30 November, which shows that values across the five major markets rose by 1.1% over the month – a significant deceleration from earlier this year: Brisbane (2.8%) and Adelaide (2.5%) led growth, with Sydney (0.9%), Melbourne (0.6%) and Perth (0.2%) trailing: Quarterly growth across the five

14

APRA drops hammer on interest-only mortgages

The Australian Prudential Regulatory Authority (APRA) yesterday afternoon released its new “more risk-sensitive” bank capital framework, which incentivises banks to lend to lower-risk owner occupiers rather than higher risk investors: The framework, developed over four years of consultation, will help to ensure Australian banks continue to have the financial strength to withstand future adverse economic

19

Fake housing affordability inquiry shifts blame to states

As expected, the Coalition’s fake housing affordability inquiry is set to shift blame the states by accusing them of restrictive planning and profiteering from rising property taxes: The inquiry chairman, northern beaches federal Liberal MP Jason Falinski, said ­affordability could be improved over the long-term if the states boosted supply and slashed property charges. Mr

8

Auctions deluge drowns clearance rates

This weekend marked the biggest weekend of auctions since CoreLogic began tracking the market in 2008, with a whopping 4261 homes going under the hammer: Accordingly, Australia’s preliminary auction clearance rate fell to 71.4% – a figure that will likely fall into the high 60s once all results are counted: According to CoreLogic: This week

10

Record auction deluge to flood property market

Australia’s auction market continues to fatigue after weeks of high listings: Last weekend’s final auction clearance rate was 70.3%, down heavily from 73.2% the prior weekend off 3720 auctions (up from 3,539 the prior weekend): As noted by CoreLogic: Maintaining volumes in excess of 3,000 for the fifth consecutive week, last week overtook three weeks

13

Why developers ‘talk their book’ on land supply and planning

Last week, Dr Cameron Murray – author of the Book Game of Mates – gave testimony to the parliamentary inquiry into housing affordability whereby he completely demolished the Coalition’s supply-side thesis. Dr Murray was asked via a question on notice to provide evidence to the inquiry that developers manipulate the land market to ration supply

1

CoreLogic weekly house price update: Brisbane still booming

In the week ended 25 November, the CoreLogic daily dwelling values index increased another 0.25%: All major markets except Perth recorded rising values, again led by Brisbane and Adelaide: So far in November, dwelling values have risen by 0.97%, led by Brisbane (2.31%) and Adelaide (1.99%): Quarterly price growth remains turbo-charged but slowing at 4.09%