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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The great land price inflation

Cross-posted from David Collyer at Prosper Young academic Philip Soos has developed a unique Australian property database that allows us to inspect the entrails from many angles and in detail. Some data dates from as early as the mid-1800’s. We owe him thanks for this selfless public service. You can access his spreadsheets here. There

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What construction bounce?

By Leith van Onselen As noted by Houses & Holes earlier, UBS has today come out with a note upgrading its housing forecasts. It now expects 10% price growth this calendar year and 5% the next, as well as the following pick-up in dwelling construction: In this detailed note we reiterate our forecast for dwelling

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Building suppliers warn on housing recovery

By Leith van Onselen Australia’s building products manufacturers have come out today warning that the hoped-for recovery in housing construction required to fill the void left as the housing boom unwinds is proving patchy. From the AFR: Boral, Fletcher Building, CSR and Adelaide Brighton have been forced to cut thousands of jobs, close plants, write

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Gotti: Highrise Harry fights the bubble

Sometimes there are some pretty interesting interpretations of Australian business activity in our media. From Gotti: The efforts to stop “the mother of all housing booms” are intensifying. Australia’s biggest apartment builder and owner, Harry Triguboff, has seen a seven per cent rise in the price of Sydney apartments in recent months. He understands the

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New home buyers: the forgotten people

Cross-posted from Ross Elliott at The Pulse. Sir Robert Menzies wrote his speech ‘the forgotten people’ about middle class Australia in 1942. Much of it remains relevant today, especially for the generation of new housing buyers who seem increasingly disregarded in public policy debates. It occurred to me recently that with all the various lobby

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Auction clearances strong again

By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets were strong again over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 75% on 555 auctions reported to the REIV, although 75 auctions were listed as “no result”, which should result in some downward revision

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Rental vacancies steady

From SQM Research comes its rental vacancies statistics for July, which shows no change in the rental vacancy rate at the national capital city level, but a small reduction in the actual number of vacancies: According to the Media Release: …this figure still represents a 0.3% increase in vacancies since this month last year, with

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RP Data weekend market summary

Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 18 August 2013. This week’s report includes: Latest weekly dwelling value results; Auction results & clearance rates; Latest median house & unit prices; Average time on market & vendor discounts; Mortgage market activity; and

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Navigating the house price maze

Australia’s four main housing data providers – the Australian Bureau of Statistics (ABS), Australian Property Monitors (APM), RP Data-Rismark, and Residex – have provided their capital city house price indices results for the June quarter of 2013. The ABS, APM and Residex reported that national capital city house prices rose by 2.4%, 2.8% and 2.1%

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Weekly RP Data house price update

By Leith van Onselen In the week ended 15 August 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.10% increase. It was the tenth consecutive weekly rise in values (see next chart). Results were mixed, however, with three of the capitals experiencing value increases

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Will property investors turn to Brisbane & Adelaide?

RP Data’s Cameron Kusher has released a new report (below) examining whether buyers may soon turn their attention to more affordable housing markets, like Brisbane and Adelaide: Today’s Property Pulse looks at median house prices across Australia’s capital cities and uses the differences as a measure of affordability. Mr Kusher said that while median prices

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The Drum does housing affordability

ABC’s The Drum last night screened a short segment on housing affordability, featuring Joel Pringle from Australians for Affordable Housing. In the segment, Pringle argues: Houses across Australia are mostly unaffordable for young Australians and, despite very low interest rates, first home buyer (FHB) demand has tanked. A major reason why FHBs are missing out

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Cameron: Negative gearing a “huge issue”

By Leith van Onselen From JJJ’s Hack radio program comes the above extract of a segment aired yesterday on housing policy, which featured Labor Senator Doug Cameron and the Liberal’s Marise Payne. When asked why the Government won’t look at abolishing negative gearing, Senator Doug Cameron responded: “Negative gearing is a huge issue that is

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QLD housing activity takes a breather

By Leith van Onselen The Queensland Government has released data on housing transfers and mortgage lodgements for the month of July. According to the Government, the number of housing transfers fell by 4.4% in July, whereas the number of mortgage lodgements fell by 1.1% over the month. On a year-on-year basis, transfers fell by 4.1%

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HIA sees no sustainable construction recovery

By Leith van Onselen The Housing Industry Association (HIA) has today issued a media release arguing that a sustainable pick-up in dwelling construction is unlikely unless structural supply-side barriers are tackled: HIA’s latest National Outlook highlights a new home building recovery at risk of running out of steam and a gradual improvement in renovations investment

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Politico-housing complex discusses the bubble

At a conference yesterday, CEO of CBA Ian Narev has joined the chorus of commentary fingering a lack of “confidence” for Australia’s growth woes: ”I am absolutely confident that all direct and indirect consequences for the property market that may flow from a change in interest rates are absolutely thought through by the governor and

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Auction clearances strong

By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets were once again strong over the weekend. In Australia’s biggest auction market – Melbourne – clearances rose to 76% on 548 auctions reported to the REIV, although 42 auctions were listed as “no result”, which should lead to some downward revision once

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RPData weekend market summary

Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 11 August 2013. This week’s report includes: Latest weekly dwelling value results; Auction results & clearance rates Latest median house & unit prices; Average time on market & vendor discounts;; Mortgage market activity; and

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The steady decline in home ownership

By Leith van Onselen RP Data’s Cameron Kusher has published an interesting report (below) on the steady decline in home ownership rates across Australia, based on the biennial release of the Household Income and Distribution Survey by the Australian Bureau of Statistics: “Over recent years and evident in today’s accompanying graph, there has been a

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WA winds back FHB grant on pre-existing homes

By Leith van Onselen Late yesterday, the Western Australian Government released the State Budget. While it didn’t join the other states and territories in completely abolishing the $7,000 First Home Owners’ Grant (FHOG) on pre-existing dwellings, it did slash it to $3,000 whilst increasing the Grant on newly constructed homes to $10,000, effective from 15

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Weekly RP Data house price update

By Leith van Onselen In the week ended 8 August 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.35% increase. It was the ninth consecutive weekly rise in values (see next chart). Gains were recorded in all major capitals, except Adelaide (see next chart).

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Construction finance continues to improve

By Leith van Onselen Yesterday’s housing finance data for June, released by the Australian Bureau of Statistics (ABS), continued to point to an ongoing recovery in the new home market, with the total number of finance commitments for construction and new dwellings increasing by a seasonally adjusted 0.6% over June, 13.3% over the year and

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WA to axe First Home Buyers’ Grant?

By Leith van Onselen From The Western Australian today comes news that the West Australian Government is set to fall into line with the other states and territories and axe the First Home Buyers (FHB) Grant on pre-existing dwellings: WA’s peak real estate body believes the Barnett Government is poised to axe the $7000 first

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Charting the first home buyer retreat

By Leith van Onselen Today’s housing finance data, whilst strong overall, was concerning from the viewpoint that first home buyer (FHB) demand remains weak, despite mortgage rates falling to near multi-decade lows. As shown below, the lion’s share of mortgage demand in Australia is currently being driven by investors and upgraders (see below charts). Looking

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Housing finance rips

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of June, which registered a seasonally-adjusted 2.7% increase in the number of owner-occupied finance commitments over the month. It was the fifth consecutive increase in owner-occupied commitments, but missed analyst’s expectations of a 2.2% rise. The