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.


Melbourne’s ghost city sounds alarm bells

By Leith van Onselen Melbourne’s “build it and they will come” approach to construction, which has seen it rank high-up on the global skyscraper index, appears to be suffering more indigestion. Following recent reports that CBD and St Kilda Road vacancies have rocketed and rents plummeted, as apartment supply runs well above demand, The AFR


Highrise Harry to sell-out to Chinese?

By Leith van Onselen “Highrise Harry” Triguboff is reportedly considering selling Meriton Apartment’s development business to a Chinese developer, in a deal that would net him close to $3 billion. From The AFR: Triguboff told AFR Weekend he re­ceived an offer for his business on a trip to China two weeks ago from the owner


Melbourne’s rental market tightens

By Leith van Onselen SQM Research has released rental vacancies data for March, which revealed a 0.1% monthly fall in the national vacancy rate to 2.0%. Year on year, vacancies are also down 0.1%, bucking the trend for the first time in several months where we have witnessed a loosening of vacancies when compared to


Kohler laments Australia’s expensive land

By Leith van Onselen Alan Kohler has published a good post today at Business Spectator warning that increasing credit availability, brought about partly from the resurgence in securitisation, is combining with Australia’s constipated land use/planning system to raise house prices, to the detriment of younger Australians: We are seeing two quite different markets being mixed


Dwelling completions fell in Q4

By Leith van Onselen The ABS has just released dwelling completions data for the December quarter, which registered a 2.0% seasonally-adjusted fall in the total number of dwellings completed over the quarter, with the 3.3% rise in detached house construction more than offset by a 9.9% slump in unit & apartment construction (see next chart).


Housing sentiment lifts on record foreign demand

By Leith van Onselen NAB has released its Australian Residential Property Survey for the March quarter of 2014, which revealed a small rise in sentiment nationally amongst property professionals, with house price expectations also strengthening is all states except Victoria. Concerns about rising interest rates are starting to rise, whereas employment security continues to be


Modelling housing rents

I was motivated by this article in The Economist about housing costs in London to really dig down to how most economists think about housing supply and land markets.  Today I want to share a simple model I use to help understand compositional effects on measures of land and housing markets, and subsequently the reliability


How to ensure housing fills the mining void

By Leith van Onselen Following its dubious effort on first home buyers last week, the Housing Industry Association (HIA) has today released a decent research report assessing the role of housing as a leading indicator of the broader non-mining economy, as well as reforms that could be undertaken in order to help the economy transition


Why builders should split from the HIA

By Gavin R Putland, Research Officer at Prosper Australia Eight days after SBS reported that Treasury and the Parliamentary Budget Office are working on limiting negative gearing to new homes (while grandfathering past acquisitions), and two days after Louis Christopher of SQM Research backed the story, the Housing [sic] Industry Association has released a “research


RP Data weekend housing market update

Click to view RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 23 March 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


HIA pimps FHBs in new negative gearing defence

By Leith van Onselen The Housing Industry Association (HIA) has today released a research report, entitled First Home Buyers: The Big Picture, which appears to be yet another thinly veiled attempt to thwart reforms to negative gearing: Concerns about First Home Buyer (FHB) participation in the home purchase market have surfaced repeatedly in the media


HIA repeats negative gearing lies

By Leith van Onselen The AFR has published a detailed report today summarising the arguments for quarantining negative gearing. The article cites a number of commentators, including Saul Eslake and the Grattan Institute’s John Daley, who essentially argue that winding back negative gearing would: Save the Budget money: around $4 billion per annum initially and


New home finances retraces

By Leith van Onselen Today’s housing finance data for February contained a sting in the tail for home builders, with mortgage demand for new housing retracing by 1.0% in February, giving back some of last month’s big rise (see below charts). However, the news is much better when measured on a rolling annual basis, with


Investor mortgages hit new record in February

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of February, which registered a 2.3% seasonally-adjusted jump in the number of owner-occupied finance commitments over the month: The number of owner-occupied housing finance commitments excluding refinancings registered a smaller 0.6% seasonally-adjusted increase over the month


Interest rates are not the risk to house prices

Callam Pickering at Business Spectator continues the drum beat about falling house prices today: What has been interesting about this boom is how localised it has been. Outside Sydney and Melbourne growth has mostly tracked incomes. Speculative activity is the distinguishing factor between Sydney and Melbourne compared with the other capital cities. The strong growth


Negative gearing is being “looked at”

By Leith van Onselen SQM Research released its weekly newsletter last night, which provided more tentative confirmation that the Government is considering reforming Australia’s negative gearing rules: There was an SBS report in recent days suggested the Federal government is “looking at” this tax benefit. Macrobusiness were the first to republish it, and now so


Chris Joye on why house prices are set for a fall

By Christopher Joye, cross-posted with permission from The AFR: I welcome perma-bear Steve Keen’s commentary on my recent analysis of the asset-class, and his apparent comfort with my conclusions. It is, however, worthwhile clearing-up some misunderstandings as to how I arrived at them. It is doubtless frustrating for folks like Dr Keen, who claimed that


Keen on Joye’s bubble conversion

From BS today, Steve Keen argues that previous housing bull and long term interlocutor, Chris Joye, has capitulated to his bearish view: …though house prices have not done what I expected, one of the most prominent commentators asserting that there is a dangerous house price bubble in Australia is… Chris Joye. …Joye’s mantra all through


Australian property through foreign eyes

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. I had the good fortune to meet two investors from Dallas Texas last week – visiting in part, to survey the Australian real estate terrain and in


Credit Suisse: Macroprudential possible

From Credit Suisse via the AFR, perhaps I’ve been too hasty about regulator capitulation on macroprudential tools: The most effective and potentially palatable form of non-monetary intervention in the overheating housing market would be to force lenders to incorporate larger interest rate buffers when assessing the ability of a borrower to service a loan, say


Auction clearances fall again

By Leith van Onselen Auction clearance rates fell again over the weekend, driven down by falls in both Sydney and Melbourne. According to RP Data, the weighted average auction clearance rate dipped to 67.3% from 68.8% the week before, driven by a 2.5% fall in Melbourne (last weekend 65.9%) and a 4.1% decline in Sydney


Realty spruiker boom

It’s a recurrent theme at MB that property advice is an unlicensed area of wild west speculation. Now, according to the AFR, the area is booming: Financial advisers are being offered “no course, no examination, 100 per cent success rate” real estate qualifications that could provide big commissions from investors wanting to plunge into booming property


RP Data weekend property market update

Click to view RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 23 March 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


Dwelling construction about to break-out

The Business Day Markets Blog has posted analysis from RBS arguing that dwelling construction is about to pick-up sharply: We have been constructive on this sector and its increasing contribution to activity in the year ahead for some time. The most recent partials – lending, approvals – point to increasing momentum. While there are numerous