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.
“Tiny homes are an Orwellian rebranding of the systematic exclusion of younger generations from home ownership”. What a great quote that is. What smart cookie came up with that? Some bloke named David Llewellyn-Smith on ABC radio yesterday. Full interview here: They should get him on more often.
CoreLogic has released new data showing that annual rental growth across Australia is stuck at a historically low 0.4% nationally, with rents across the combined capitals actually falling by 0.1% in the year to May: As shown above, Sydney (-2.9%) and Darwin (-5.2%) were the main drivers of the falling growth across the combined capitals.
Via S&P: Australian prime home-loan arrears rose in April, according to a recently published report by S&P Global Ratings. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages, rose to 1.53% in April from 1.51% a month earlier. Arrears in April were up 17 basis points year on year. Arrears were mostly up
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
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
By Leith van Onselen Back in April, Alucobond supplier Halifax Vogel Group (HVG) and its manufacturer 3A Composites were targeted in a class action by apartment owners in a Sydney building. They are being represented by William Roberts Lawyers in the first combustible cladding class action in Australia. They claim that the cladding on their
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
Via CoreLogic comes the leading mortgage index: The post -election rebound still looks firm if not tearaway. Stock on market is still high by new listings are very weak: Full report.
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
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
In all the years following the CoreLogic daily dwelling values index, I can’t remember ever seeing wall-to-wall falls across all major markets on a daily, quarterly and annual basis: Certainly one to frame and put on display in the economic pool room.
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
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
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,
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
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
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
By Leith van Onselen New South Wales Planning Minister Rob Stokes says he hopes to ensure that all local councils in the state adopt the ‘missing middle’ scheme by the end of 2019. The scheme aims to speed up approvals for higher density developments in suburban developments. Stokes has told the Urban Development Institute of
Via Cameron Kusher at CoreLogic: In the lead-up to the recent Federal election the Coalition announced the First Home Loan Deposit Scheme. The scheme will provide up to 10,000 loans to first home buyers each year and will offer first home buyers better access to finance without having to save a 20% deposit. Additional details
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
By Leith van Onselen CoreLogic’s Cameron Kusher has released a new report examining price growth across the three broad market segments – bottom 25%, middle 50% and top 25% – and shows that the most expensive properties have shown the most improvement, in terms of annual price growth, and are likely to lead any recovery:
By Leith van Onselen In the week ended 13 June 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.09% – the first weekly rise since August 2018: Values rose across three major markets and fell across two: The quarterly decline is running at 1.48%, with
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
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for May, which registered a solid 42,300 increase in total employment but a flat headline unemployment rate (still 5.2%), driven by a 0.11% rise in labour force participation. However, the underemployment and underutilisation rates rose by
From the investor presentation today: Got to love the chart with no y-axis integers.
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
By Leith van Onselen Perth’s epic housing bust, where values have fallen for over 59 months with cumulative losses of 19.2%: Has seen values fall to the same level as April 2006, according to CoreLogic: “In Perth values were previously this low in April 2006 and values haven’t been this low across regional WA since July
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
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
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
