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 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. Last week, Joe Hockey stood up in front of Parliament and on behalf of the Abbot administration, announced: ”The age of entitlement is over. It has to
Crikey’s Bernard Keane is well behind MB but still well ahead of the MSM and deserves praise: …focus on how the budget affects the young is misleading, because its measures are only the most recent, and relatively small, part of a much wider array of policies skewed against them but so embedded in our political
I don’t have any particular beef with the RPData daily house price index per se but I am going to note that removing seasonal adjustments does mean the data is likely to be misinterpreted on a more regular basis. More to the point, the daily index is not about recent days – it is analogous to
By Leith van Onselen The OECD has released a new report which estimates that Australia has the fifth most expensive housing market in the developed world, with our Kiwi cousins across the pond topping the list: According to the OECD, at the end of 2013 Australian housing was 45% over-valued relative the long-run average (from
By Leith van Onselen SQM Research has released its rental vacancies and asking rents data for the month of April, which revealed a slackening of rental demand across Australia. At the national level, rental vacancies jumped by 0.3% in April to 2.3%, with vacancies also tracking 0.3% above the same time last year. This is
By Leith van Onselen The auction clearance rate fell over the weekend, driven by a big fall in Sydney, which more than offset a small rise in clearances in Melbourne. According to RP Data, the weighted average preliminary auction clearance rate fell to 65.4% from 67.4% the week before, driven by a 5.2% decline in
Click to view RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 18 May 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
From the AFR: Chanos, one of the most prominent China bears, told The Australian Financial Review there was a “clear downturn” in the Chinese real estate market that would affect Australia as demand for iron ore fell. “The problem that iron ore centric-miners are going to have is new capacity is coming on as demand is falling,”
By Leith van Onselen Today’s Lending Finance data for March, released by the ABS, continues to show that investors are hog wild for Sydney housing. As shown below, the value of investor loans in New South Wales (read Sydney) continues to rocket, with Melbourne – the second hottest market – also experiencing strong growth: According
Cross-posted from Martin North’s DFA blog. In an address yesterday to the CITI Residential Housing Conference in Sydney, Luci Ellis, Head of Financial Stability Department at the Reserve Bank spoke about housing in the context of the financial system. Quite a bit of the speech covered aspects of relative population density, demand and supply. However, to towards
By Leith van Onselen In the week ended 15 May 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.68% (see next chart). Values fell in all major capitals (see next chart). Values are down 0.57% so far in May, with values falling in four
From the SMH blog: A senior Reserve Bank official has warned first-home buyers against taking on too much debt in order to buy property, saying the squeeze on this part of the market is probably temporary or ‘‘cyclical.’’ With first home buyers’ share of house sales near record lows, RBA head of financial stability Luci Ellis
By Leith van Onselen The RBA’s head of financial stability, Luci Ellis, has delivered a long-winded speech today, which is effectively another thinly veiled defence of Australia’s exorbitant housing costs. According to Ellis, Australia’s cities are low density and supposedly geographically constrained, which in part justifies our high housing values: If buildings are fixed in
By Leith van Onselen In June last year, then Shadow Treasurer, Joe Hockey, warned that now might be a good time to sell Canberra housing, noting that home prices could be pushed lower by a Coalition Government: Joe Hockey suggests house prices in Canberra could be pushed lower under a Coalition government. “There is a
The boys at Business Spectator are bearing-up something chronic on housing this morning. Callam Pickering sees the peak: …dwelling price growth appears to have hit a hurdle, with nominal prices down 0.5 per cent in May to date. Prices in Melbourne are now 2.5 per cent off their March peak. Perth prices haven’t grown since
Cross-posted from Martin North’s DFA Blog. Yesterday we reported that housing growth fell in March in seasonally adjusted terms, as revealed in the ABS data release. So, given the rise in house prices, why is there a divergence between credit and prices? We already know that some household segments do not need to borrow, because they are downsizing, and investors
Please find below analysis on the latest ABS house price results from Louis Christopher, managing director of SQM Research. Note that this report was issued just prior to the release of the Federal Budget, which unfortunately did not include reforms to negative gearing. Today, the ABS updated their official quarter dwelling price series for the March
By Leith van Onselen Today’s housing finance data for March contained some good news in the form of a 1.9% seasonally-adjusted lift in commitments for new dwellings (i.e. construction plus new), pointing to ongoing strength housing construction (see below charts). The news is equally good when measured on a rolling annual basis, with the number
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released housing finance data for the month of March, which registered a 0.9% seasonally-adjusted fall in the number of owner-occupied finance commitments over the month: The result disappointed analysts’ expectations, who had expected a 0.5% increase in finance commitments. The number of owner-occupied housing
By Leith van Onselen The ABS has today released its property price index – incorporating both detached houses and units – which registered a 1.7% rise in values nationally over the March quarter and a 10.9% gain over the year (expected was 3%). As expected, the growth in property values was driven by Sydney –
Here’s some prescient research from September 2010 that is worth revisiting. It is from a Goldman Sachs report on Australian housing by economists Tim Toohey, David Colosimo and Andrew Boak. On whether Australian house prices constitute a speculative bubble: No We think that the behaviour of house prices over the past year, and indeed the past
By Leith van Onselen Auction clearance rates rose slightly over the weekend, driven by gains in Sydney and Melbourne, although the trend in auctions is still pointing to softening buyer demand. According to RP Data, the weighted average auction clearance rate rose to slightly 67.4% from 66.3% the week before, driven by a 0.4% increase
Click to view RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 11 May 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 Leith van Onselen Another day, another spurious defence of negative gearing has arisen, this time by RP Data’s Cameron Kusher (via its weekly Property Pulse): “Negative gearing continues to be a contentious issue and feature of the tax system which is unique to Australia. “Another point worth noting is that the data in the
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. As we approach the Federal budget, once again we have to endure another round of economic nonsense, as the Treasurer tries to convince ‘ordinary’ Australian’s that the
By Leith van Onselen In the week ended 8 May 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.02%. It was the first weekly rise in values in three weeks (see next chart). Values rose in two major capitals and fell in three (see
By Leith van Onselen It seems self interest knows no bound. While the rest of the electorate is being asked to tighten its belts, the Real Estate Institute of Australia (REIA) has released its pre-Budget submission, demanding greater taxpayer assistance for home buyers along with access to their superannuation for a housing deposit, and has also
Find below a new post from Martin North’s DFA blog in which he lays out recent research showing a lot of concern among investors about the Budget. My own view of this is that there is a certain amount of “sticker shock” at work in these things and unless the Budget directly targets investors via
By Leith van Onselen Business Spectator’s Callam Pickering has launch another salvo at Australia’s housing market, warning that the Coalition’s deficit tax, combined with falling consumer confidence, could dampen investor appetite and stop the market in its tracks: …the biggest concern for the housing market comes in the form of the proposed deficit tax, which
By Leith van Onselen Above is an interesting debate on Australian housing aired last night on ABC’s The Business between John Symond, founder of Aussie Home Loans, and Dr Steve Keen. In the interview, John Symond takes several contradictory positions, on the one hand declaring a “healthy housing market” and basically applauding price growth, as
