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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Weekly RP Data property wrap

By Leith van Onselen Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 19 May 2013. This week’s report includes: Latest weekly dwelling value results; Latest median house & unit prices; Average time on market & vendor discounts; Auction results & clearance rates;

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Property risk highest in a long time

MB contributor, Rumpletstatskin, wrote an interesting post on the Australia property cycle this morning. In it he mused that: The crucial lesson in all this is that Australian nominal asset prices have been supported by fiscal policy during the financial crisis, ongoing monetary policy adjustments, and foreign investment (including in mining infrastructure), which all supported

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Melting towards the bottom of the housing cycle

Recent data suggests that investors are happy to jump back into Australian residential property markets.  Maybe jump is too strong.  Hop might be better. Perhaps this is due to a search for yield.  Perhaps it is foreign cash seeking a safe harbour. Or perhaps it’s simply time for the Aussie love affair to be rekindled. 

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More negative gearing scaremongering

By Leith van Onselen In a post-Budget newsletter last week, the “Barefoot Investor”, Scott Pape, questioned why Australia’s cash-strapped Federal Government had not considered scrapping negative gearing. From Property Observer: “Our 1.25 million loss making landlords cost taxpayers $5 billion a year – a significant saving when the budget is in deficit of $18 billion,”

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Weekly RP Data house price update

By Leith van Onselen In the week ended 16 May 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a -0.45% decline, which followed last week’s 0.38% rise. It was the biggest weekly decline in more than year (see next chart). All capital cities recorded falls

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SQM: Property investor’s pile into falling yields

From SQM Research’s weekly newsletter, comes the following thoughtful analysis of Monday’s ABS housing finance figures from SQM’s managing director, Louis Christopher: On Monday, the Australian Bureau of Statistics (ABS) released its monthly update on national housing finance approvals. Over the years it has been a very reliable indicator as to the strength of buyer

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RP Data May housing market update

By Leith van Onselen Please find above the RP Data Housing Update for May, presented by Tim Lawless, which discusses the state-of-play of the Australian housing market as at end-April. This month’s video sees Lawless discussing the ongoing “measured” improvement in market conditions, despite the -0.5% seasonal decline in prices in April, with auction clearance

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FHB retreat rolls on

By Leith van Onselen As noted yesterday by ANZ (see next chart), the ABS’ housing finance figures for March 2013 revealed ongoing weak demand from first home buyers (FHBs). While the number of FHB mortgage commitments rose by 11% in March, they were down by -16% over the past year and were -32% below the

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Weekly RP Data property wrap

By Leith van Onselen Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 12 May 2013. This week’s report includes: Latest weekly dwelling value results; Latest median house & unit prices; Average time on market & vendor discounts; Auction results & clearance rates;

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New home finance confirms ongoing recovery

By Leith van Onselen Today’s strong housing finance data for March, released by the Australian Bureau of Statistics (ABS), contained some good news for the construction industry, with the number of finance commitments for new dwellings and construction increasing by a seasonally-adjusted 10.1% over the month and by 21.4% higher over the year, and is

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Housing finance launches but FHBs still MIA

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of March, which registered a seasonally-adjusted 5.2% increase in the number of owner-occupied finance commitments over the month. It was the second consecutive increase in owner-occupied commitments and beat analyst’s expectations of a 4.0% rise. January’s

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Auction clearance rates solid

By Leith van Onselen The auction clearance rate in Australia’s biggest auction market – Melbourne – rose over the weekend, with 72% of the 653 auctions reported to the REIV selling, with 58 auctions still listed as “no result”, which will likely lead to some minor downward revisions to the clearance rate as the missing

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HIA rejects RBA’s rebalancing plan

By Leith van Onselen In today’s Statement of Monetary Policy (SoMP), the Reserve Bank of Australia (RBA) said the following about the prospects of pick-up in dwelling construction, which the RBA is hoping will fill the void left as the mining investment boom unwinds: There are signs of an increasing appetite for borrowing in the

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QLD housing activity stalls

By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) yesterday released data on housing transfers and mortgage lodgements for the months of March and April. According to DERM, the number of housing transfers rose by 2.6% in March and by 10.6% in April. Similarly, the number of mortgage lodgements increased by

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HIA pleads for urgent action on housing policy

By Leith van Onselen Today, the Housing Industry Association (HIA) has issued a Media Release pleading for urgent action on housing policy: The Housing Industry Association (HIA) has today launched its 2013 federal election policy platform, titled Housing Australians. The compendium of 50 actions is directed towards reinvigorating the Australian residential building industry and addressing

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Mirvac: We paid too much for land

By Leith van Onselen Developer Mirvac today released its Q3 operational update and strategic review, which confessed that the company has been hurt by: paying too much for residential land; inappropriate deal structures; creating too much higher end product in shallow markets; and proceeding to build for reasons unrelated to market fundamentals. Mirvac also revealed

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REIA recycles negative gearing myths

By Leith van Onselen The Real Estate Institute of Australia (REIA) has today issued a media release (below) defending negative gearing and lobbying against any changes. Let’s examine the REIA’s arguments: The Real Estate Institute of Australia President, Mr Peter Bushby, says the Government should retain negative gearing for property investment in its current form.

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NAB passes on full 0.25% rate cut

  From Property Observer: National Australia Bank today announced it would cut its standard variable home loan rate by 0.25%p.a. to 6.13%p.a… The new rate is effective from Monday 13 May. NAB will also reduce its rate on standard variable business rate lending products by 0.25%p.a. UBank, backed by NAB, also announced it would cut

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Weekly RP Data property wrap

By Leith van Onselen Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 5 May 2013. This week’s report includes: Latest weekly dwelling value results; Latest median house & unit prices; Average time on market & vendor discounts; Auction results & clearance rates;

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Boral signals a forlorn hope for the RBA

By Leith van Onselen In February, the Australian Bureau of Statistics (ABS) released construction materials volumes data for the December quarter of 2012, which showed continued weakness in the production of concrete blocks, clay bricks, plasterboard, and roof tiles – materials typically used in housing construction. The Data released by the ABS is not seasonally-adjusted