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.


HIA says house sales up, unit sales down

The Housing Industry Associations (HIA) released its November 2011 New Home Sales report today, a survey of Australia’s 100 largest builders. According to the HIA: Total seasonally adjusted sales increased by 6.8% October figures were revised down to 2.8% gain Detached house sales increased by 9.8%, mainly through NSW and Victoria Multi-unit sales dropped by


Westpac blindsides APRA

The politico-housing complex appears to have some infighting on its hands, with news that Westpac, the country’s second largest bank, has incorrectly classified nearly $30 billion in loans: Westpac has infuriated the peak banking regulator and the opposition has called for an explanation after the bank revealed that it had incorrectly classified $28.8 billion in


RP Data home price index for December

By Leith van Onselen Please find below the RP Data December home price index press release which, for some reason, is still not available on their website. Here are the key figures taken from the release. First, the change in dwelling values: Note the -0.2% fall in raw (non-seasonally adjusted) capital city dwelling values and the -0.1% fall


Home prices rise slightly in November

Just in, RP Data has released its home values index for November. Capital city home prices have risen by a seasonally adjusted 0.1% over the month and regional values by 0.3%. Here is the release on AAP via Business Spectator: Australia’s capital city home values rose by a seasonally-adjusted 0.1 per cent in November, according to the RP Data-Rismark Home


RP Data expects ‘slow melt’ to continue

Missed this one last week. RP Data has released its 2012 Outlook, which forecasts a continued thawing of Australian home values: 2012 2011 has certainly been a tough year for the residential property market with property values falling across most capital cities and regional markets and the number of transactions also decreasing in most regions.  According to the October


Melbourne rental vacancies continue to rise

From SQM Research’s weekly newsletter comes the news that Melbourne’s rental vacancy rates again rose in the month of November, climbing to 3.4%: According to SQM Research: It seems that overall, rental vacancies remained reasonably steady throughout the country with the exception of Melbourne, whose vacancies continue to increase from month to month. SQM Research would now


The housing agenda

The RBA yesterday published the papers and discussions from its conference in August this year on the theme – The Australian Economy in the 2000s.  The whole selection of papers makes for an interesting read, including the one clearly written for the benefit our resident troublemaker Houses and Holes, entitled Housing and the Mining Boom.


Debating Black Dragon on house prices

Last week I posted about Louis Christopher’s latest appearance on Channel 7’s breakfast show in which he appeared to take a bullish position on the house market. This may have come as a bit of a surprise to many housing market watchers given that he appeared on the same show just 9 days prior with a


Developer damage

It shouldn’t really be much of a surprise to MacroBusiness readers that I have been expecting to see more flow-on effects of disleveraging. The slow down in the rate of credit issuance for housing has had quite an obvious effect on the government budget and we have also seen a slow down in retail trade.


Auctions defy AFG data

As I mentioned early last week, AFG’s lending figures pointed to a surge in new finance activity. The problem was, as I said in the post, that there weren’t any other leading indicators that matched this trend. The housing stock on market continues to rise, albeit at a slower pace, and auction clearance rates certainly didn’t show


RP Data October housing market overview

Find below RP Data’s October housing market overview. Some key points from this update: October saw the 10th consecutive month of home price falls. That’s the same number of months that prices fell during the GFC, when prices fell just 2.7% peak-to-trough on a seasonally adjusted basis. So the current decline from peak – 4.0%


An affordable Rolls Royce

The SMH howled this morning that “Housing affordability improves as prices slip”: Weaker house prices and falling fixed interest rates have increased affordability in the housing market for the third straight quarter, according to a survey. The Housing Industry Association-Commonwealth Bank housing affordability index rose by 1.2 per cent in September quarter to a reading


More weak housing indicators

As I stated yesterday, when it comes to Australian housing market analysis nothing is ever easy. AFG’s latest data is showing the boom is back, yet there isn’t any other leading indicator supporting this. Previous auction results still point to a subdued market and continue to follow a long term downwards trend that has been running since


Housing bear turns bull

Last week I mentioned that Louis Christopher from SQM research was on Channel 7’s sunrise show giving the real estate market a jolly good mauling with discussions of flakey real estate auction rates, bearish talk about increasing LVR’s and the fact that there was precedent for property prices to fall by 20%. However, SQM research


Unsold housing stock mounts

Nothing is ever easy. On Monday I posted about AFG’s latest data that suggested we are about to see a new boom in mortgage issuance. Although the figures did look impressive I also noted: .. that there does not appear to be anything in any other leading indicator to suggest that AFG figures are flowing


Negative gearing price models

There is widespread acknowledgement that Australian tax rules, particularly negative gearing and capital gains tax (CGT) discounts for assets owned for more than a year, lead to higher home prices (and reduced tax revenue for government – in the order of $2.5billion pa).  Together, these tax rules tilt returns in favour of owning residential property


AFG: Investor mortgages surge following cut

I’ve stated a couple of times in the past that I felt many people were underestimating the government’s ability to re-stimulate the housing market. In a post in October, while analysing the flow-on effects from the Queensland government’s stamp duty changes,  I stated: With that in mind, I think we have seen is an uptick in


Labor to cap private rents?

There a few versions of a story floating around today about the Labor government considering price caps on private rents: The Real Estate Institute of Australia has slammed the Labor government’s proposal to cap rents in Australia REIA president Pamela Bennett said capping rents would be “disastrous” for rental affordability and the property market. Earlier


The full R.P. Data report

As H&H mentioned earlier today RP data release their latest home value index report (available below). RPData took a fairly bullish stance on the previous month’s data, but I did note at the time that I felt it was premature: RPData’s bullishness is premature given this is a single month’s data and we all know


Comparing house price declines

Back by popular demand, here is my chart on the respective rates of decline for Australian housing now versus the 2008 experience (which obviously reversed)  and the US experience in the GFC. Obviously this is a limited sample and is not intended to suggest that local housing is on the same path as the US.


House prices continue to melt in October

R.P.Data results for October are out and it’s an ongoing Spring thaw, 0.5% down for the month seasonally adjusted, with an adjusted figure for September doubling the fall to 0.4%. Here’s the chart: And raw: And the R.P. Data House Price Index over time: As well as, real house prices: And finally, state by state


House prices to rocket on frog

You know the Melbourne housing market is in trouble when (h/t LBS): Developers say property prices in Melbourne’s urban growth corridors may skyrocket because of an endangered frog. A draft report released under new Federal environment laws has recommended some growth areas be off-limits to developers to protect the growling grass frog. Developers say the plan,


Recourse mortgages don’t prevent housing busts

Yesterday, Delusional Economics linked a video from Sunday Sunrise showing SQM Research’s Louis Christopher and Sunrises David Koch (‘Koshie’) discussing the Australian housing market. While much of what both commentators said was reasonable, I found one point made by Koshie misleading: From 4.40 of the video, Koshie notes that a major difference between Australia and the


Debunking clearance rates

Back in May Louis Christopher from SQM Research appeared on Channel 7’s Sunrise to give the Australian real estate market a jolly good mauling. On the weekend he returned to the program to give the market yet another serve, including an amusing attack on vested interest reporting of real estate auction results. I’ll leave you to pass


R.P.Data’s quarterly newsletter

Find below R.P.Data’s quarterly newsletter which came with their latest update along with this tantalizing tid bit: The RP Data-Rismark Home Value Index results for October 2011 will be released on Wednesday of next week. The results, which will reflect market conditions pre-rate drop, are likely to see a continuation in the weak trend that


The Economist global housing comparison

The Economist has released its annual house price survey and on most measures Australia remains in the top category for most overvalued. I’ve extracted some charts from the interactive graphics to give you an idea of The Economist’s guide to relative merits. First, a straight comparison of house prices: Australia comes in second behind one


The ‘new normal’ in mortgage growth

There were two new mortgage industry reports released yesterday that painted a picture of an increasingly realistic industry. Genworth released its Home Grown Report, which surveys mortgage industry attitudes and expectations for the year ahead, and Deloitte released its Australian Mortgage Report, which seeks to define conditions for the year ahead. The Deloitte report is


The best way to help first home buyers

Property Observer has a piece today on an effort by the REIA to stimulate housing: The Real Estate Institute of Australia is urging the government to adopt a successful Canadian scheme that allows first-home buyers to tap into their superannuation to assist with making their first purchase. The Canadian Home Buyer’s Plan has been in