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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Residex sees no housing recovery in 2013

  By Leith van Onselen Residex CEO, John Edwards, on Monday gave an interesting video interview on Switzer where he discussed the outlook for the Australian housing market in 2013. In a nutshell, Edwards does not believe that the overall housing market will rebound next year (rather it will mirror 2012’s performance) because housing affordability

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Job vacancies decline continues

DEEWR’s job vacancy report is out for December and it makes some pretty doomy reading for those New Year job prospects. The Internet Vacancy Index (IVI) decreased by 3.5% in November 2012 in trend terms. Over the year, the IVI has fallen by 23.0% and is now at its lowest level since the series began

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The housing bull’s chartbook

Find below the ANZ Housing Chartbook. It’s full of fascinating data. I suggest taking the affordability and underlying demand data material with a grain of salt, given both are full of questionable hidden assumptions, but this is still well worth a read. Australian Housing Chartbook December 2012

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QLD mortgages retrace after FHOG boom

By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) has released data on housing transfers and mortgage lodgements for the month of November. According to DERM, the number of housing transfers and mortgage lodgements fell by -7.9% and -7.2% respectively in November 2012, but were up 9.9% and 4.9% respectively on

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A confidence hit to housing construction

By Leith van Onselen Yesterday’s unexpected fall in the Westpac-Melbourne Institute Consumer Sentiment Index, from 104.3 in November to 100.0 in December (see below chart), has dealt a potential blow to the RBA’s plans for housing construction to fill the void as the mining boom unwinds. As discussed by Houses & Holes yesterday, there is

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Consumers get bullish on housing (or do they?)

As the Unconventional Economist has previously described, there is a strong historical correlation between the headline rate of Consumer Confidence and mortgage as well as house price gains: So today’s falls in consumer confidence are not so good for property. But, although this morning’s confidence number retraced its November gains, in the area of savings and

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RP Data sees housing market recovery

By Leith van Onselen RP Data has released its December housing market update, which is always worth a watch for the significant amount of property-related data on offer. This month’s report includes the following collection of charts that track the health of the market at the national level. First, sales volumes have recovered somewhat, up

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RBA proves itself wrong on macroprudential

By Leith van Onselen Back in October, the Reserve Bank of Australia’s (RBA) Head of Financial Stability, Luci Ellis, gave a speech in which she played down the need for macroprudential policy tools in Australia, such as loan-to-valuation (LTV) ratio limits, loan serviceability limits, and the like. In the speech, Dr Ellis made the spurious

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Stock on market jumps in November

By Leith van Onselen SQM Research has today released Stock on Market data for the month of November, which registered a 4.9% monthly increase in overall for sale listings, but no movement in year-on-year terms: According to SQM: This month’s data is particularly interesting when compared to the corresponding period of the previous year (November

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NSW pulls down FHB finance approvals

By Leith van Onselen Following on from yesterday’s housing finance release from the ABS for the month of October, the below chart compares the growth of first home buyer (FHB) housing finance approvals following the latest round of interest rate cuts (-1.75% since November 2011) to the average of the four prior interest rate-cutting cycles

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Englobo: the shady world of land banking

Please find below an interesting article from David Collyer entitled Englobo, published yesterday on the Prosper website. The article discusses the practice of land banking and land speculation on Melbourne’s fringe. Enjoy! ______________________________________________________________________________________ Let me introduce you to a beautiful word that loops off the tongue, sweet soft and round. Englobo. It is “an undeveloped

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WBC cuts mortgage rates by 0.20%

By Leith van Onselen Westpac has just matched NAB’s and CBA’s decisions earlier today to cut mortgage rates by 0.20%, taking Westpac’s standard variable mortgage rate to 6.51%, well above the 6.38%/6.40% offered by NAB and CBA. From Property Observer: Westpac  will pass on 20 basis points of the RBA’s 25 basis point cash rate

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CBA cuts mortgage rates by 0.2%

By Leith van Onselen The CBA has just matched NAB’s decision earlier today to cut mortgage rates by 0.20%, taking CBA’s standard variable mortgage rate to 6.40%, just above the 6.38% rate offered by NAB. From Property Observer: The Commonwealth Bank has become the second of the big four banks to announce its interest rate

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NAB cuts mortgage rates by 0.20%

By Leith van Onselen The National Australia Bank (NAB) are the first major to cut mortgage rates in response to yesterday’s 0.25% cut to official interest rates by the RBA, lowering their standard variable mortgage rate by 0.20% to 6.38%. From Property Observer: NAB has announced that it will pass on 20 basis points out

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Victorian transfers & mortgages decelerate

By Leith van Onselen The Victorian Department of Sustainability & Environment (DSE) released transfer and mortgage data for the month of November, which shows continued weakness in the number of housing transfers and finance commitments. First, below is a chart showing the rolling annual number of housing transfers from November 2002 to November 2012: According

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The ‘housing shortage’ in historical context

The Department of Infrastructure and Transport released a fascinating report late yesterday looking at the last 150 years or so of population and housing stock development. The report is mostly quite balanced and is well worth your time. It begins with a long term view of current population versus housing stock ratios: Australia’s recent levels

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Dwelling approvals fall sharply in October

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of October. At the national level, the number of dwelling approvals fell by a seasonally adjusted -7.6% to 12,540, driven predominantly by a -18.0% decrease in approvals for private sector units and apartments. Consensus was

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Stockland warns again on new home sales

The RBA campaign to lift housing investment takes another blow this morning with Stockland warning again, especially about Victoria: Stockland today updated investors on the current state of the market at its first quarter investor briefing in Townsville, highlighting in particular that there has been no improvement in the challenging Victorian residential market since the