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.


Weekly RP Data property wrap

By Leith van Onselen Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 28 April 2013. This week’s report includes: Latest weekly dwelling value results; Latest median house & unit prices; Average time on market & vendor discounts; Auction results & clearance rates;


Auction clearances firm

By Leith van Onselen The auction clearance rate in Australia’s biggest auction market – Melbourne – jumped over the weekend, with 71% of the 716 auctions reported to the REIV selling, with 52 auctions still listed as “no result”, which will likely lead to some minor downward revisions to the clearance rate as the missing


How mining saved housing

By Leith van Onselen Dr Nigel Stapledon, Associate Head of Economics at the University of New South Wales, gave the above interview on Friday afternoon on ABC News 24. In the interview, Dr Stapledon argues that Australia’s housing market was sparred a nasty correction in the mid-2000s by the once-in-a-century resources boom. It’s a view


Victoria slashes first home buyer grant

By Leith van Onselen Yesterday, it was revealed that the Victorian Government will follow the lead of both New South Wales and Queensland and remove the First Home Owners’ Grant (FHOG) on pre-existing dwellings, replacing it with an increased subsidy on newly built dwellings as well as expediting the phase-in of stamp duty cuts. From


Lend Lease super sizes homes as sales die

By Leith van Onselen Recent data has not been kind for developers is South East Queensland (SEQ). According to RP Data-Rismark, Brisbane and Gold Coast dwellings have fallen by around 10.5% since peak: First home buyer (FHB) mortgage demand has fallen off a cliff since the Queensland Government removed the FHB on pre-existing dwellings in


Weekly RP Data house price update

By Leith van Onselen In the week ended 25 April 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a -0.34% fall, which followed last week’s 0.20% decline (see next chart). All major capitals, except Adelaide, recorded declines (see next chart). Values are down -0.56% so


Canstar slams Aussie housing affordability

By Leith van Onselen Above is a video interview on Yahoo Finance with Canstar’s Steve Mickenbecker discussing Australian housing affordability. In the video, Mickenbecker argues that Australians are devoting a much larger proportion of their budget towards meeting their home loan repayments than they were 10 years ago. Over the past decade, wages nationally rose


RBA drops the ball on housing supply (again!)

By Leith van Onselen Last month, RBA Assistant Governor, Christopher Kent, gave a speech entitled Recent Developments in the Australian Housing Market, which contained a number of erroneous statements about land/housing supply (click to read my critique). Yesterday, the RBA’s Head of Financial Stability, Luci Ellis followed up with a speech entitled Housing and Mortgage Markets:


Residex sees multi-speed housing market

By Leith van Onselen Residex’s founder, John Edwards, has just released its quarterly housing market update, which paints a multi-speed picture of the Australian housing market. Let’s take a look. As housing markets grow in strength I am again drawn to the issues and problems associated with the Reserve Bank’s single tool of economic management


Is Australia’s apartment boom set to wane?

By Leith van Onselen Much has been written about Australia’s new found embrace of apartment living, whereby more and more Australians are supposedly “chosing” the convenience of inner-city apartment living over a traditional detached house in the suburbs. Certainly, recent construction data released by the Australian Bureau of Statistics seems to support this contention, with


Construction industry slams costs, ignores land

By Leith van Onselen The Herald-Sun has today run an article lamenting escalating construction costs, which is causing stagnation across Melbourne’s building industry: By most accounts, the state’s property and construction sectors are stagnating, with some analysts even declaring they are in turmoil. Melbourne’s strong suit – being a liveable metropolis with plentiful and relatively


Auction clearances mixed

By Leith van Onselen The auction clearance rate in Australia’s biggest auction market – Melbourne – fell over the weekend, with 66% of the 575 auctions reported to the REIV selling, with 29 auctions still listed as “no result”, which will likely lead to some minor downward revisions to the clearance rate as the missing


CBA pulls back mortgage LVRs (sort of)

By Leith van Onselen From Monday, the CBA, in conjunction with its Lenders Mortgage Insurer, Genworth Financial, will lower its maximum permissible loan-to-value ratio (LVR) on loan applications where an investment property has been used as a security to 95%, from 97% currently. From the CBA communication to third party brokers: From Monday 22 April


Louis Christopher talks housing

  By Leith van Onselen Please find above a short video interview between Peter Switzer and SQM Research’s Louis Christopher. In the interview, Louis tackles property spruikers, dodgy auction statistics, the current state of the housing market, and the outlook for the residential sector. Louis sees particularly strong housing market conditions in Sydney, but ongoing


Property industry confidence hits 18-month high

By Leith van Onselen The Property Council-ANZ Property Industry Confidence Survey was released yesterday and showed confidence amongst property industry professionals rising for the second consecutive quarter, with the index hitting an 18-month high of 124 (a score of 100 is considered ‘neutral’). According to ANZ Chief Economist Warren Hogan: “Notwithstanding renewed European concerns and rising


Mining town rental vacancies rising

By Leith van Onselen From SQM Research comes news that rental vacancy rates remained broadly steady in March across the capital cities but have increased slightly over the year: SQM notes that rental vacancies in Canberra have risen strongly since July 2012, which may be associated with the large increase in apartment developments, together with


Land sales signal weak housing recovery

By Leith van Onselen The HIA-RP Data Residential Land Report for the December quarter, released today, revealed a tepid recovery in land sales and provided further confirmation that the RBA’s plan for housing construction to fill the void left as the mining boom unwinds is looking shakier by the day. According to the Media Release:


Canberra unit glut hits landlords

By Leith van Onselen Back in February, the Canberra Times reported heavy discounting from landlords amid an influx of new developments that had reportedly pushed rental supply to 15-year highs: AN INFLUX of developments has pushed Canberra’s rental market to new levels of supply as anecdotal reports of discounted rents begin to emerge. The vacancy