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.
By Leith van Onselen The weekend’s announced changes to the Victorian First Home Owners Grant (FHOG), which will see the $7,000 grant on pre-existing dwellings abolished on 1 July 2013 in favour of an expanded $10,000 grant on new builds, has received a mixed reception from the Property Industry. As expected, the Real Estate Institute
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;
By Leith van Onselen Over the weekend, the Telegraph published an article questioning why more Australians aren’t engaging in property investment when the potential returns are so good? SERIOUS money is waiting to be made in property investment but most Australians don’t want to know about it… A Ray White Projects survey found 11 per
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
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
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
By Leith van Onselen Following the dramatic slump in New South Wales and Queensland first home buyer (FHB) mortgage commitments in January and February (see below chart), which came after both states removed the first home owners’ grant (FHOG) on pre-existing dwellings in October 2012, I noted to “expect housing industry calls for the FHB
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
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
Cross-posted from David Collyer at Prosper The Melbourne City Council has been urged to apply differential rates “to sites defined as vacant or derelict” by its Future of Melbourne committee. They name to shame the Savoy Tavern on Spencer Street, the Argus building on Latrobe Street and bare land at 567 Collins Street as examples
By Leith van Onselen The retreat of first home buyers (FHBs) following the recent reduction of FHB grants in New South Wales, Queensland, and Victoria has been well documented. While the number of FHB mortgage commitments rose by 2% in the month of February, they were down by -19% over the past year and were
By Leith van Onselen The March quarter consumer price index (CPI) data, released today by the Australian Bureau of Statistics (ABS), revealed a continued moderation of rental growth at the national capital city level. According to the ABS, rents nationally grew by 0.8% in the March quarter of 2013, which was the equal lowest rate
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
By Leith van Onselen Australian Property Monitors (APM) has released its March quarter house and unit price results (below), which recorded a 1.7% increase in house prices over the quarter at the national capital city level, but a -0.7% fall in national capital city unit prices. In the year to March 2013, APM recorded a
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:
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
By Leith van Onselen Much of Australia’s planning policies are based on the presumption that the bulk of the population commutes to the central core for employment. As such there is the desire by planners to limit urban sprawl, which is believed to reduce overall commuting times, resource use and pollution, and the need for
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 21 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;
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
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
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
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
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
By Leith van Onselen RP Data’s Cameron Kusher has this morning posted an interesting blog showcasing the banks’ increasing dominance of Australian mortgage lending, whose share has risen to nearly 96% from just under 94% a decade ago: …the total amount of outstanding mortgage debt to banks as at February 2013 was $1.147 trillion, to
By Leith van Onselen In the week ended 18 April 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a -0.20% fall, which followed last week’s 0.02% increase (see next chart). Results were mixed, with losses in Sydney, Brisbane and Perth partly offset by gains in
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
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
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:
By Leith van Onselen The recent housing recovery across Melbourne appears to be built on shaky foundations, with data released today by the Department of Sustainability & Environment (DSE) showing the number of housing transfers across Victoria in March falling to their lowest level in the series’ 11-year history (see next chart). Not only was
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
