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.


Mortgage arrears by postcode

Fitch has released its quarterly arrears figures for RMBS and the results are an unsurprising improvement generally, with holiday regions lagging significantly: Delinquencies Down: Delinquencies across Australia decreased to 1.20% at the end of September 2012, down 40bp from 1.60% at end-March 2012. The current rate of delinquencies is significantly below the five-year average of 1.56%. Monetary


Housing transfers still depressed

By Leith van Onselen Yesterday, I showed how the recent uptick in Australian house prices had been weak compared to previous interest rate-cutting cycles, with national capital city house/dwelling prices experiencing little to no growth in values since the RBA first cut official interest rates in November 2011, according to both Residex and RP Data-Rismark.


AFG mortgage data rips in January

AFG has released its January mortgage sales data and has posted another record month: AFG, Australia’s largest mortgage broker, processed more home loans last month than in any January before, according to new figures published today. AFG Mortgage Index shows that the company processed $2.2 billion of home loans, 24% more than in January 2012,


Building approvals fall sharply in December

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of December. At the national level, the number of dwelling approvals fell by a seasonally adjusted -4.4% to 12,767, with falls recorded in both the detached house (-3.3%) and apartment (-5.4%) segments. Consensus was for


Auction clearance rate solid but results go missing

By Leith van Onselen The auction reporting season started again over the weekend, with the Real Estate Institute of Victoria (REIV) reporting a ‘healthy’ preliminary clearance rate of 71% from 108 auctions reported to the REIV (see below table). While the reported auction clearance rate was solid, there were 24 auctions (around 20%) classified as


Don’t expect out-of-cycle rate cuts

By Leith van Onselen Yesterday, David Potts published an interesting article in the Money section of the Sunday Age questioning whether mortgage rates might soon fall outside of any future official interest rate cuts by the RBA: THERE’S more chance of the next rate cut coming from a bank than the Reserve Bank… The margin


NAB property insider survey eases up

Adding to today’s property melange, NAB’s quarterly property professionals survey is out today and shows a small rise in expectations for price growth: NAB’s Residential Property Index rose to +8 in Q4’12 (+4 in Q3’12). WA (+41) the stand-out state, with Victoria (-15) and SA/NT (-20) negative. National index to climb to +49 points by Q4’13


Housing credit growth weakened in December

By Leith van Onselen The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates, which registered an increase in total credit growth in the month of December, but the fourth lowest monthly housing credit growth in the series’ 35-year history and the lowest annual mortgage growth ever recorded: Total credit provided


HIA December New Home Sales bounce

At last we are seeing some effect from the considerable stimulus thrown at housing in the past year. New home sales had a strong bounce in December from suppressed levels, up 6.2%: Moreover, the internals are good for employment and growth, with detached houses participating for the first time: In the month of December 2012


RP Data: House prices rebound in January

By Leith van Onselen House price data rolls on, with RP Data-Rismark just releasing their daily hedonic indices for 31 January, which has allowed me to derive January’s dwelling price results for the five major capital city markets. According to RP Data-Rismark, the 5-city dwelling price index rose by 1.11% in January, which represented the


APM: House prices lifted in December quarter

By Leith van Onselen Australian Property Monitors (APM) today released their December 2012 home price results, which registered a solid 1.9%/1.6% (houses/units) rise in values over the quarter and 2.1%/2.4% growth over the year (see below tables). Hobart, Darwin and Perth recorded the highest house price growth over the quarter, with values jumping by 4.7%,


Comparing Australian and US housing

Please find below an interesting article by Philip Soos questioning the mainstream view that Australian housing values are built upon solid foundations. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University. As mainstream opinion would have it, Australia’s housing prices are solidly based upon fundamental valuations or intrinsic


RBNZ considers macroprudential tools

While Australia spends its time ringing its hands about over-valued house prices, the Kiwis are moving ahead with a number of debates on how to fix things. As the Unconventional Economist has reported, NZ is currently debating supply-side reforms and is also advanced in its discussion of demand management as well. From Banking Day: The


In defence of Demographia

By Leith van Onselen Today, fellow MacroBusiness blogger, Cameron Murray (Rumplestatskin) argues that the latest Demographia Housing Affordability Survey is wrong in its contention that high prices are the result of artificial land constraints. Regular readers will know that I disagree with Cameron’s analysis. Here’s why. First, Cameron argues that Australian housing supply has not been restricted


Demographia confusion

The 9th Demographia housing affordability report was released earlier in the week, and covered here at MacroBusiness in some detail. The NSW Department of Planning and Infrastructure was not impressed, offering their response here (pdf). The crux of Department’s letter to the SMH is: The latest Demographia International Housing Affordability Survey (Sydney house prices ‘severely


Mortgage Choice: buying cheaper than renting, not

By Leith van Onselen Mortgage Choice has released some highly questionable “research” claiming that it is now cheaper to buy than rent in all of Australia’s capital cities, except Melbourne. From the AFR: It’s cheaper to buy a home than rent in almost every Australian capital city… Thanks to cheaper loan repayments as interest rates


First home buyer price expectations collapse

Find below Westpac’s quarterly survey of consumer house price expectations, which seems to have surprised with a decent fall in January. Westpac puts on a brave face but if there is a first home buyer strike, it seems to have been entrenched by the death of FHOG: Westpac-Melbourne Institute Consumer House Price Expectations Index moderated in


2013 Demographia Housing Affordability Survey

By Leith van Onselen The 9th Annual Demographia International Housing Affordability Survey has just been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed. This year’s report assesses 337 markets in seven countries: Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom,