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.
The SMH is reporting that: In a note to investors analysts at investment bank Morgan Stanley said “without further interest rate cuts the current housing cycle is in danger of gradually fading”. A potential glut of apartments may undermine unit values in inner city areas, while galloping house prices will soon run out of puff unless
Cross-posted from Martin North’s DFA blog. Today we start a series on our updated household surveys, which will in due course feed into our next edition of the Property Imperative, due be released later in the year. The current edition, is still available, but there are some significant changes in household intentions since then. We run
by Chris Becker RP Data has just released its latest RP Data Pain & Gain Report for the 1st quarter of 2014, with some very interesting highlights on the Aussie property market. Here’s a quick smattering: almost 65,000 property resales nationally – nearly 10% recorded a gross loss from original purchase price, just under $400 million
The irony of the Australian property market never ceases to amaze. While prices are held aloft by guaranteed banks that pump credit to rort-supported investors who pile into supply bottlenecks and all lock out our youth, inner city apartments are going up hand over fist to stand empty. Gotti today: The inner city residential property
Click to view RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 8 June 2014. This week’s report includes: Latest weekly dwelling value results; Auction results & clearance rates; Latest median house & unit prices; Average time on market & vendor discounts; Mortgage market activity; and New
By Martin North, cross-posted from the Digital Finance Analytics Blog Continuing our analysis of the ABS April 2014 lending data, it is worth looking at the overall housing finance data. Total lent, including owner occupied and investment secured lending, refinance, and unsecured was $28.3 billion, a record. The previous highest was $28.0 billion in February
By Leith van Onselen Just when you thought the speculator frenzy that has engulfed Sydney’s housing market couldn’t get any worse, today’s Lending Finance data for April, released by the ABS, has smashed all records, with both the value and proportion of mortgages going to New South Wales investors surging to another all time high.
By Leith van Onselen Business Spectator’s Callam Pickering has posted a cracking article today lamenting Australia’s sky high house prices, which have been caused by and large by an epic failure of policy on both the demand and supply sides: The current predicament — high prices and elevated indebtedness — is completely intentional. The fault
By Leith van Onselen In the week ended 12 June 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.32%. It was the fifth consecutive week of falls (see next chart). Values fell in Sydney, Melbourne and Adelaide, but rose in the other major capitals
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released a great set of articles today examining the growing levels of household debt across Australia. Below are extracts from the first article examining the types of debts that Australian households have: Data from Australia’s national accounts at the end of 2013 showed that
By Leith van Onselen The Australian has continued its stellar reporting on the illegal purchasing of Australian homes by foreigners, uncovering that many pre-existing dwellings are bypassing Australian buyers and being sold directly to foreigners, in contravention of the Foreign Investment Review Board (FIRB) rules: More than 100 real estate firms have sprung up in
By Catherine Cashmore, a market analyst, journalist, and policy thinker, with extensive industry experience in all aspects relating to property. Follow Catherine on Twitter or via her Blog. Protests that continue to erupt across the country against the Federal budget consist of two sectors. Those who are disadvantaged through cuts to government expenditure – young
By Leith van Onselen The International Monetary Fund (IMF) last night published a blog post warning of the reemergence of frothiness in the world’s housing markets, where values are once again rising at an accelerating rate (see next chart). According to the IMF, “33 out of 52 countries in our Global House Price Index showed
By Leith van Onselen The Age has published a useful summary of a new report by the Melbourne City Council, which slams the increasing number of ‘shoe box’ apartments being constructed in Melbourne’s CBD, which would breach the minimum size requirements of many other international cities: A scathing report from Melbourne City Council shows some
By Leith van Onselen The Australian has published a great report today describing in detail how: foreign property buyers side-step the Foreign Investment Review Board (FIRB) rules precluding foreign non-residents from buying pre-existing dwellings; how FIRB has, since 2010, failed to prosecute any foreign buyer for breaching the foreign ownership rules; and how FIRB is
By Leith van Onselen SQM Research last night released its weekly newsletter, which contained some interesting commentary from managing director, Louis Christopher, on the recent omission of first home buyer statistics by the Reserve Bank of Australia (RBA), as well as the flagged culling of the Australian Bureau of Statistics’ (ABS) property price index due
By Leith van Onselen Today’s housing finance data for April suggested that buyer demand for newly constructed dwellings remains strong. Despite registering a 1.2% seasonally-adjusted fall in the number of finance commitments for new dwellings (i.e. construction plus new), buyer demand remains elevated, tracking some 14% above the 5-year moving average level (5YMA), with the
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released housing finance data for the month of April, which registered a 0.1% seasonally-adjusted rise in the number of owner-occupied finance commitments over the month: The result was roughly in line with analysts’ expectations, who had expected a 0.2% increase in finance commitments over
By Leith van Onselen The Wall Street Journal (WSJ) has produced an interesting video (above) on the bust taking place in Moranbah, Queensland – a former boom town, which has seen its fortunes slide on the back of the halving in coking coal prices since 2012: Two years ago, real-estate agent Bella Exposito said she
NSW is preparing to streamline laws to enable redevelopment of strata-title lots. These new laws give more power to developers attempting to amalgamate lots, which will enable them to force sales from owners if 90% of owners agree. Developers are pushing for that threshold to be brought down to 75%, since this would further increase
By Leith van Onselen The national auction clearance rate fell sharply over the weekend, although volumes were also very low owing to the Queen’s Birthday long weekend, which affected all jurisdictions except Western Australia. According to RP Data, the weighted average preliminary auction clearance rate fell to just 59.9% from 68.3% the week before, driven
Click to view RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 8 June 2014. This week’s report includes: Latest weekly dwelling value results; Auction results & clearance rates; Latest median house & unit prices; Average time on market & vendor discounts; Mortgage market activity; and New
By Martin North, cross-posted from the Digital Finance Analytics Blog We just updated our latest household survey responses, and today I update our findings on mortgage discounting. We last covered bank margins in May, and highlighted the selective discounting in play as funding costs ease. People who do not switch will not be enjoying the
By Leith van Onselen If you want a text book example of how Australia’s various state and territory governments manipulate urban land supply in order to force-up the cost of housing, look no further than the ACT Government. In January 2003, just days before bush fires hit the outlying suburbs, my girlfriend (now wife) and
By Leith van Onselen Australia, it seems, is a speculators paradise. While the manufacturing sector continues to gasp for air, with manufacturing employment and capital investment both in the gutter: This week’s national accounts release confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – continues to grow from
By Leith van Onselen In the week ended 5 June 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.17%. It was the fourth consecutive week of falls (see next chart). Values fell in Sydney and Melbourne, but rose in the other major capitals (see
From the SMH blog: While standard variable mortgage rates have not moved since August last year when the Reserve Bank cut official rates, some borrowers have been able to get a better deal by securing a discount off the headline rate. The discounts are typically offered by banks as part of a package deal, and the
By Leith van Onselen Australian Finance Group (AFG) has released its housing finance data for the month of May, which registered record high mortgage applications on the back of record investor demand. The number of mortgage applications rose by 15.2% in May and by 10.0% over the year to 9,815, whereas the value of applications
By Leith van Onselen The Adelaide Bank/Real Estate Institute of Australia (REIA) has today released its quarterly affordability report, which like the bogus CBA-HIA index released last week, revealed an improvement in home buyer affordability over the March quarter of 2014, with rental affordability worsening. According to the Adelaide Bank/REIA, the proportion of family income
By Leith van Onselen I have noted previously how Melbourne’s “build it and they will come” approach to construction has seen it rank high-up on the global skyscraper index, and appears to be creating a glut of vacant and unsold apartments, depressing inner-city apartment rents. Yesterday’s dwelling approvals data, released by the ABS, revealed that the
