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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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

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Apartments join Melbourne’s discount war

By Leith van Onselen I have written previously how Melbourne’s developers have been offering extraordinary incentives in a bid to stimulate sales of house and land packages. Now it appears the madness has spread to inner city apartment developers, which are offering big incentives to clear rising inventories amid Melbourne’s burgeoning apartment construction boom (see

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Property price, yield irrelevant to Asian hot money?

By Leith van Onselen Hot Asian Money or HAM is commonly cited as a factor pushing-up house prices across Australia’s major cities, as well as in international markets like Auckland and Vancouver. The Weekend AFR ran an interesting article claiming that the Chinese are increasingly purchasing Australian housing not for potential capital growth or yields,

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Stock on market falls in April

By Leith van Onselen SQM Research today has released stock on market data for the Month of April, which revealed a -2.7% reduction in the number of homes for sale over the month and a -1.0% decrease over the year: SQM Research believes the recent Stock on Market data suggests the market might have achieved

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A focus on real house prices

By Leith van Onselen RP Data’s Cameron Kusher has today provided a nice overview of house prices across Australia, breaking down performance in both nominal and real terms. From Property Observer: …home value growth was significantly lower over the period of March 1996 to March 2013 when inflation is taken into consideration. …combined capital city

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Weekly RP Data house price update

By Leith van Onselen In the week ended 2 May 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.26% increase, which followed two consecutive weeks of falls (see next chart). All major capitals, except Adelaide, recorded gains (see next chart). While it’s early days,

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Dwelling approvals fall on units

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released dwelling approvals data for the month of March. At the national level, the number of dwelling approvals fell by a seasonally adjusted -5.5% to 12,599. While detached house approvals rose slightly, (+0.4%), this was more than offset by an -8.3% fall in

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Full RP Data April house price release

By Leith van Onselen RP Data today officially released its dwelling values results for April, which registered a -0.5% decline at the 8-city levels, with all capitals, except Adelaide and Darwin, recording monthly falls (see next table). It was the first monthly decline in values since December 2012. While the monthly results were weak, the

13

New home sales recover lost ground

HIA new home sales are out today and recovered some of the ground lost in February: New home sales bounced back in March to maintain the modest recovery underway from the record lows reached in 2012, said the Housing Industry Association, the voice of Australia’s home building industry. The HIA New Home Sales report, a

8

State & territory stamp duty receipts tank

By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released taxation statistics for the 2011-12 calendar year, which provided a key insight into why state budgets are coming under increasing pressure. According to the ABS, stamp duty receipts on housing transfers declined by -6% nationally in 2011-12 to $11,657 million, with receipts -18%

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Mortgage credit growth has bottomed

By Leith van Onselen The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates data for the month of March: Total credit provided to the private sector by financial intermediaries rose by 0.2 per cent over March 2013 after increasing by 0.2 per cent over February. Over the year to March,

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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 28 April 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;