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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Enough rope

Meet Paul Bloxham. He’s HSBC’s Chief Economist for Australia and New Zealand. This morning at Business Spectator, Bloxham damned the life boats and hoisted this petard: There has been much discussion over a number of years about whether Australia’s house prices are too high, and indeed whether there is a house price ‘bubble’. This notion is

10

Mutiny

After publishing my latest post I received the following e-mail from a reader. I suspect you may be interpreting this REIV move incorrectly. If history is any guide the Real Estate Agents are in the process of “switching sides” figuratively speaking (as they are really on their own “side” at all times and everywhere).   If the REA’s

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Has the REIV destroyed the evidence?

Earlier in the week, a reader sent me a link to a recent Real Estate Institute of Victoria’s (REIV) news release. The release contained the following quote [my emphasis]: Members report positive expectations for market activity in the March quarter at the same time as a drop of 3–5 per cent in the median house price is expected.

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Wow! – The MSM on FHBG

I am starting to think I have woken up in the twilight zone. Something very odd seems to be suddenly happening in the Australian mainstream media. Last week the Unconventional Economist posted about the MSM’s foray into anti-REIX journalism with a well researched opinion piece about the failings of negative gearing. Today I note that

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Spruiking as they exit

You’d seriously think that the Real Estate Industry sponsored media in Queensland would have given up by now. With north Queensland, the Gold and Sunshine coast going through well publicised correction you wonder why they would bother spending the money. But I guess old habits die hard. So once again we are subjected to the

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The property market is right

One of the best stockbrokers I have ever known once said to me, in characteristically gruff fashion” “Mate, the market is always right. Even when it is wrong, it is always bloody right.” He was a great broker because he understood crowd psychology and the limited utility of numerical analysis. A great lesson in humility.

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Glenn Stevens wags the dog

Today, Fairfax reported the following statements from RBA Governor Glenn Stevens at a question and answer session at the Australian Business in Europe lunch in London (my emphasis): Reserve Bank of Australia chief Glenn Stevens says he is not “terribly troubled” about the level of house prices in Australia. Mr Stevens said the ratio of

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Gold Coast leaps into abyss

The AFR carries a piece on the state of Gold Coast realty today that is a shocker: Gold Coast property investors have put more than 2000 apartments worth an estimates $2 billion up for sale, but there are few buyers, highlighting the dire oversupply the area is facing. Only 300 apartments were selling on average

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Bad day for tough words

Houses and Holes noted today that the RBA looks as if it is trying to talk tough on interest rates. I assume that was before 11:30am when the ABS figures for housing finance appeared. JANUARY KEY POINTS VALUE OF DWELLING COMMITMENTS January 2011 compared with December 2010: The trend estimate for the total value of dwelling finance

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Theories .. Anyone ?

The AFG monthly mortgage report is something I follow. AFG claim to represent between 10% to 20% of the mortgage market and release their raw data every month in a fairly consistent manner. They are a brokerage service so they are able to get their data out earlier than most. As they are not an actual

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The Economist: Bricks and Slaughter

The Economist has published an excellent article entitled Bricks and Slaughter (h/t Financial Insights for the link). It is part of a series by the Economist exploring the lessons to be learned from the global housing bubble. Below are some key extracts; although I recommend that you read the article in full for yourself. A

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Trouble spreading ?

As I have been commenting on recently the “edges” of the real estate market are showing sure signs of capitulation. I was going to begin my week with a bit of an inspection of first home buyer areas because I had heard some anecdotal evidence that housing stress is becoming very apparent. However I need not have concerned myself with

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Jumping the urban growth boundary

Australia’s state and local governments rely on a variety of regulatory devices to limit suburban growth. One measure that has been implemented in all of Australia’s major cities and some towns (many within the past decade) is the Urban Growth Boundary or UGB.  A UGB is a form of large-scale zoning whereby the government effectively draws a ring around a

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Fudge factor

As an avid watcher and commentator of all things ‘housing bubble’ there are a few things that I am aware of within the housing market that I just accept as ‘ a bit dodgy’. I have simply accepted the fact that I will probably never get access to the data to prove my case. One of those

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Guest Post: FHOG: Proudly Ripping Off Young Aussies since 2000

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. With the last week’s Mortgage Choice data indicating

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Productivity Commission on Planning/Zoning

Regular readers of this blog will know that I am critical of Australia’s urban planning structure and land-use regulations.  Through growth control policies such as exclusionary zoning and urban growth boundaries, Australia’s governments have effectively told the market where development can and cannot occur. In turn, they have restricted the level of contestability and competition in the land market and helped raise

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Spruikin’ to themselves

Once again today I note that the top end of the Gold Coast real estate market is failing badly.  TWO absolute beachfront villas on the Gold Coast’s Millionaires Row have sold to one local bidder for an undisclosed sum at a packed receiver’s auction today.  The buyer, who asked to remain anonymous, beat out 18 other

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The Economist on Australian Housing

Some readers might have seen it already, but the Economist has just released an article questioning the sustainability of Australia’s house price boom. Here are some key extracts (article available here): This week in The Economist we will publish our quarterly index of house prices around the world. Australia’s homes are the most overvalued in the index. The ratio of prices to

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Start the blame game

When the real estate market was in full swing they were best of friends.  A new client would approach the bank for a loan, the bank would ring the valuers. They would barely leave the office to come up with a number, they didn’t need to see the place, it was only going to go up in value anyway.

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Flood.. Really ?

The first round post-flood real estate news is out.  As expected the real estate industry and media are attempting to pin any bad news on the natural disaster. For  some reason the news that the flood had reached Canberra never got to me. City home prices – houses and units – dropped by more than a full

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Oh Dear

There is a general acceptance that any form of investment has its ups and downs. It is therefore imperative that people trading in these investment markets have a fair understanding of the market they are in and the associated risks . The housing market in Australia is somewhat different because many of the people joining the market

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CBA housing report gets the balance right

Today a reader emailed me a link to the CBA’s latest housing update. I almost didn’t bother opening the report as I assumed that it would be the same old ‘houses are affordable’ bullish clap-trap that we are used to hearing from the banks. To my surprise, it is actually a balanced, well-reasoned report. Although I don’t

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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

7

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

15

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