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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Sinking like Barnaby

Barnaby was all thumbs up until he hit that creek. NATIONALS Senate leader Barnaby Joyce has written off an $80,000 government Toyota LandCruiser wagon by driving it into a flooded creek on the way to his northern NSW grazing property. Not dissimilar to what the mainstream media is reporting about the Australian indebted. While the housing

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NZ’s Prime Minister on the Australian & Chinese Housing Bubbles

Good work today by Interest.co.nz’s Alex Tarrant, who extracted some nice information from New Zealand’s Prime Minister, John Key, at today’s weekly press conference. According to the article attached to the above video: Prime Minister John Key says he talked about high and rapidly increasing house prices in parts of Australia when he met with the

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FHBG III

It appears our Shadow Minister for Finance and Debt Reduction, Andrew Robb, is not going to restrict his tirade against debt to the public sector. No! After comments made yesterday about the “suckers” that took up the Labor government’s First Home Buyer Grant (FHBG), we can only assume that it is all forms of debt

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Suckered

Back in October last year I wondered if the RBA’s financial stability review showed that the government had “sub-primed” Australia. My final words on that post were. Call us paranoid, but it seems the government may have “sub-primed” the economy and the RBA is ignoring the risk based on the “faith” that housing will not

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Housing Debate: Keen vs Joye

  On 9 February 2011, Associate Professor Steve Keen and Rismark CEO Christopher Joye engaged in a debate on housing on Business Today. The debate went largely as expected, with Professor Keen arguing that Australia’s housing bubble had been caused by an explosion of debt levels and lax lending by the banks, as evident by

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Two speed everything

It was obvious from CBA’s 1H11 financial statement that Australians went on another debt fueled housing spree in December. Although I suspect Admiral Glenn from the good ship RBA would have already known what was happening, the latest housing finance figures would have had him grumbling “they’re still not listening” under his breath. The early

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Another troubling bargain

Recently I have been wondering how long it will be before another one of the second tier Queensland exposed banks comes out with a profit warning. Everyday there is a new story about property that has gone badly in Queensland, but the Gold Coast is definitely the worst. A couple of weeks ago I mentioned a “huge” auction event

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Trouble on the western front

The politics of housing in Australia is something that has fascinated me for a long time. I guess that it all started in the early 1980s with the introduction of negative gearing. Back then the politics was easy, there were literally millions of people with very limited amounts of superannuation who were very happy to have

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Disparate groups slam Australia’s housing affordability

In the wake of the 2011 Demographia International Housing Affordability Survey, which identified Australia as having the most unaffordable housing in the Anglosphere, it appears that pressure is building on the Australian Government to take corrective action. Over the past two weeks, concerns have been raised by three disparate groups: the Sacred Heart Mission, the Real Estate Institute of

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Has the debt tide turned ?

I have followed the AFG mortgage reports for some time. AFG claims to be the largest brokerage service in the country with about 20% of the market.  The figures they produce are only a guide to the overall mortgage market, but previously their reports have matched very closely with the more comprehensive figure from the ABS that have come later. The

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The Gold Coast’s other casino

As I have mentioned previously, the Gold Coast is the frontline of the credit driven correction occurring in Australia. I have previously expressed my concern about the flow-on effects to Queensland’s banks.  Today I note that the local spruikers are back trying to talk up the market. FOUR of 11 prestige properties were sold in an exclusive auction held by Ray White Surfers

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Capitulation contagion

This morning I reported that after many attempts to keep a stiff upper lip ANZ finally capitulated on house prices for 2011.  This afternoon I note that the rest of the Australia seems to have joined in. House prices in Australia are expected to fall moderately over the next year, with the biggest declines to be

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ANZ softens on house prices

In late July last year the ANZ bank released one of its reports on property investing called the Australian property outlook. Its summary for the Australian residential housing market was: With interest rates expected to rise, we expect house price growth will (temporarily) slow to low single digits in 2011. Nonetheless in the absence of

10

Flood moves to real estate

The real estate fallout from the Queensland floods has begun, and the re-pricing of flooded areas is underway. If you have $250,000 in cash you maybe able to get this little beauty , but given the pre-flood median in that area was $300,000 I am very doubtful it will sell for anything like that price, if it does at

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Detailed Report: The 2011 Demographia Housing Affordability Survey (By Leith van Onselen)

The 7th Annual Demographia International Housing Affordability Survey has just been released and, once again, it has delivered a stern condemnation of housing policy in Australia. This year, the Demographia survey has been expanded to 325 markets in seven countries: Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom, and the United States. The

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More Planning Madness

An interesting article appeared today in the Fairfax press about the extortionate cost of land on the fringe of Australia’s capital cities. The value of land sold…rose 5.2 per cent to a median lot price of $186,629 over the year to September, or 2.8 per cent in the quarter alone. “Land price appreciation is a key cause of

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Never Trust a Real Estate Economist

With the the 7th Annual Demograhia International Housing Affordability Survey due to be released on 24 January 2011, you can expect the banks and property spruikers to come out in force proclaiming that: Australia’s housing market is not overvalued; that there is no housing bubble; that house prices will continue to rise inexorably; and that somehow Australia

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Guest Post: Changing the Rules: Why our Property Boom is Over (Part 1)

Sam Birmingham runs a top quality networking site for young professionals called WeBe, which provides up-to-date information on financial matters, work-related issues, lifestyle news and reviews, and current affairs and opinion pieces. WeBe also provides a platform where members can have their voices heard, express opinions and share ideas with other like-minded Young Professionals. Yesterday, Sam published the first in

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Still can’t see the airport

As we have said previously in response to the “soft landing” rhetoric for Australian Property. Some may say this is a “soft landing”, we say it has only just begun , the landing gear is still up and we can’t even see the runway yet. And yet again today, we are completely unsurprised that housing

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Bubble Bubble on the Wall, Who’s the Biggest of them All?

Regular followers would remember the below chart from my Battle of the Bubbles article, measuring potential overvaluation of the housing market by reference to total residential housing value to GDP. Well now AusHousingCrash has provided an even better chart comparing the aggregate land values (residential + commercial + rural) to GDP/GSP from the Australian Bureau of Statistics State

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Australian Treasury Calls Housing Bubble

The Conga line of analysts and commentators calling Australia’s housing bubble has been growing longer recently. Now the Australian Treasury – the main custodian of Australia’s economic policy – appears to have joined the chorus. In what should ring alarm bells, and scare the heck out of anyone with a highly leveraged property position, this is

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Baby Boomers, Retirement and Asset Prices

In this week’s post, I’ve undertaken a detailed analysis of one of the key macro factors I believe will exert significant downward pressure on Australian asset values, in particular housing, over the next decade: the retirement of the Baby Boomer generation. But before I launch in, here’s an overview on what I have said previously about this issue on

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Australian Banks: Delusion Meets Desperation

The following article was posted on Seeking Alpha – a leading North American investment blog that provides free investment market analysis primarily from money managers, investment newsletter writers, and the general public. The great Australian housing bubble debate is gathering momentum. In recent weeks, several international observers have released warnings that Australia’s housing market is severely overvalued. For instance, in its latest survey of

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This is gonna hurt

Fellow econblogger, Delusional Economics, has posted an excellent, yet frightening summary of some of the key risks currently facing the Australian financial system, housing market and broader economy. It is captured in an email message from “Deep Throat” – an experienced financial industry participant whom wishes to remain anonymous. Deep Throat has delivered a worrying analysis of the Australian banks’