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.

15

ABS: Property prices fall from coast-to-coast

By Leith van Onselen The ABS has released its property price index – incorporating both detached houses and units – which registered another 3.0% decline in home values nationally over the March quarter and a 7.4% decline over the year: Sydney (-3.9%), Melbourne (-3.8%), Brisbane (-1.5%), Perth (-1.8%), Darwin (-0.6%), Adelaide (-0.2%), Canberra (-0.9%), Hobart

29

Desperate developers throw mothers in with dud apartments

Via the ABC: Developers are offering special deals like paying 12 months of a buyer’s mortgage, $50,000 “bonuses” and even furniture vouchers in a bid to help clear Sydney’s apartment glut. An oversupply of apartments, falling property prices and restrictions on foreign investors mean developers have turned to targeted social media campaigns in a bid

24

Bank of Mum and Dad shut down

Via the AFR: From Monday, NAB said it was introducing new guidelines for Bank of Mum and Dad that “complements the law and, in some areas, sets higher standards”. …Under NAB’s new controls, loan guarantors will face improved scrutiny of their suitability by providing more information about how it will impact their finances and awareness

53

Australia set for a granny flat boom

From CoreLogic comes a spruik about granny flats as a solution to Australia’s housing affordability woes: More than half a million home owners across Australia’s eastern seaboard have enough space on their property to build a granny flat, which could boost home values by 30 per cent and add around 27% to rental income. Combined

30

Australia needs a royal commission into high-rise ‘death towers’

MB’s call for a royal commission into Australian construction standards and practices has received support from Martin North, John Adams and Edwin Almeida, who discussed the issue in detail last night. Interestingly, Edwin Almeida claims that there are also widespread problems with low-rise construction, and points the figure at all levels of government. He also

32

Westpac: Auction market “solid”

From Westpac’s Matthew Hassan: Given the intense focus on Australia’s housing markets at the moment and in light of our recent commentary around the best way to interpret auction market results (see here) we are now putting out short previews each Friday and summary updates the following Monday setting out how results should be viewed. Preliminary assessment

24

Huge cracks develop in Sydney’s apartment market

By Leith van Onselen Amid growing concerns over flammable cladding and build quality, alongside fears of an oversupply, developers are hitting the breaks on new apartment projects: According to Steve Mann, the Urban Institute of Australia chief executive, the number of “deferred and abandoned” apartment projects in Sydney has increased 110 per cent in the

82

ScoMo takes huge dump with “tiny homes” push

Nothing makes my blood boil more than “tiny homes”. Whether it is the buyers or sellers of the sardine cans, acceptance of their existence represents a gigantic failure of the Australian political economy. Those Millennials that Domain so loves to quote as they gasp out a few words from diaphragms crushed between kitchen cabinet and bed,

26

Another vertical slum evacuated amid severe cracking

By Leith van Onselen On Christmas Eve, all residents at Sydney’s 392-apartment Opal Tower were evacuated after serious cracking was discovered. And five months later, around half of the complex remains unoccupied with engineers still undertaking remediation works. Back in February, Bronwyn Weir – the construction lawyer who last year co-authored a key industry report

33

Auction clearances surge

CoreLogic has released its preliminary auction report, which reported a sharp rise in the national clearance rate driven by Sydney and Melbourne. The preliminary national auction clearance rate was 66.4%, well above last week’s preliminary clearance rate of 51.3% and also way above the 52.4% final clearance rate recorded in the same weekend of last

22

UBS: Tight HEM “material” for Sydney, Melbourne housing rebound

Via the excellent Jonathon Mott at UBS: We estimate the RBA rate cuts and APRA’s removal of its interest rate serviceability floor may improve maximum borrowing capacity by around 14%. However, these changes need to be considered in the context of ongoing tightening, in particular a new HEM methodology, the rollout of Comprehensive Credit Reporting

3

McGrathmageddon warns again, again, again, again, again etc…

McGrathmaggedon  not sounding too hot on housing bounce either: But McGrathmageddon himself was so bullish only two months ago: Firstly, I pointed out that in Sydney (and Melbourne), the 5–10% drop we’ve seen so far followed a growth cycle that added 60–100% to property values overall. Many Australians owned property for the entire duration of

34

Final auction clearance rate tumbles back into the 40s

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 3.0% decline in the final national auction clearance rate to 58.0% – well below the same weekend last year (53.8%) and below last week’s 58.0%: As

21

Crashing home ownership, mortgage debt to smash retirement system

By Leith van Onselen Academic researchers, Rachel Ong and Gavin Wood, warns that the number of mature age Australians carrying mortgage debt into retirement is soaring, endangering Australia’s retirement system. From The Conversation: Microdata from the Bureau of Statistics survey of income and housing shows an increase in the proportion of homeowners owing money on mortgages across every

6

Fidelity: ScoMo’s first home buyer bribe to make affordability worse

By Leith van Onselen Fidelity International investment specialist Anthony Doyle has taken direct aim at Scott Morrison’s first home buyer (FHB) deposit subsidy scheme, claiming that it will actually make housing affordability worse by pushing up prices. From The AFR: Mr Doyle said that introducing subsidies on the buy side doesn’t address housing affordability. He

7

Apartment bust gathers pace

Via New Daily: An apartment glut in Brisbane, Melbourne and Sydney will mean better deals for renters, but more pain for developers and investors for the next one to two years. Pete Wargent, co-founder of property investment advisory firm Allen Wargent, told The New Daily that the current oversupply of apartments in parts of Australia’s major cities had

9

Mortgage parasites fasten to another Hayne recommendation

By Leith van Onselen The final report of the Hayne Royal Commission called for a “best interest duty” on mortgage brokers that would require the industry to act in the best interests of their clients and mirrors obligations imposed on financial planners. However, Australia’s mortgage broking industry is fighting back against the reforms. From The