By Leith van Onselen Please find below a PowerPoint presentation entitled Housing Supply & Price Volatility that I presented last Thursday to a mortgage risk roundtable in Melbourne. The presentation discusses how markets with unresponsive (inelastic) land/housing supply tend to suffer from higher house price volatility and bigger boom and bust cycles than markets where land/housing
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 Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered another solid result, with a preliminary clearance rate of 70% recorded on 437 auctions reported to the REIV. This compares to last week’s preliminary clearance rate of 69% from 204 auctions,
By Leith van Onselen Wednesday’s solid rise in the Westpac-Melbourne Institute Consumer Sentiment Index was a welcome sign for the housing market, which has struggled to gain momentum despite -1.35% of cuts to mortgage rates since November 2011. The Consumer Sentiment index jumped 7.7 points to 108.3, which was the highest reading since December 2010
By Leith van Onselen In the week ended 14 February 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.16% increase, which followed two consecutive week of falls (see next chart). Value gains were driven by Sydney, Melbourne and Adelaide, which more than offset falls
By Leith van Onselen In Monday’s auction results post, I noted that last weekend’s preliminary auction clearance rate, as reported by the Real Estate Institute of Victoria (REIV), was a solid 69% on 204 results, but that there were 48 results (19% of total auctions) missing, which would likely bring the final figure down once
Stockland announced a nasty profit warning today, following Mirvac the other day, with some very downbeat comments about new residential property: “We have also now conducted our regular residential portfolio review and have identified 13 residential projects that do not meet our hurdles and have impaired them for wholesale disposal rather than continuing to develop
Please find below an epic chart pack created by Philip Soos on 150 years of the Australian housing market. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University. For those interested in the Australian residential property market, below are a collection of figures illustrating long-term trends. Housing prices
By Leith van Onselen Yesterday, the Department of Sustainability and Environment (DSE) released housing transfers and mortgage data for the month of January, which recorded a decent bounce in the number of mortgages lodged and homes transferred. The number of housing transfers increased by 12% in January, partly due to seasonality, but were also up
By Leith van Onselen After the sub-prime mortgage crisis hit global capital markets in late-2007, causing bank funding costs to rise, the spread between the Australian banks’ discount variable mortgage rate and the Reserve Bank of Australia’s (RBA) official cash rate (OCR) increased sharply, reaching a post-GFC high of 2.7% as at January 2013 (see
By Leith van Onselen Yesterday’s housing finance data for December, released by the Australian Bureau of Statistics (ABS), contained a morsel of good news in that the number of finance commitments for new dwellings and construction increased by a seasonally-adjusted 1.5% over the month and was 8.1% higher over the year, to be tracking in
By Leith van Onselen From the Property Council comes news that office vacancy rates are on the rise nationally, led by weakening office demand in Perth and Brisbane: Demand for Australian office space fell dramatically in the second half of 2012 led by big slowdowns in Brisbane and Perth, according to the Property Council’s Australian
By Leith van Onselen Please find above RP Data’s February housing market update, which discusses the state of the Australian housing market as at the end of January, following the 1.2% monthly increase in capital city dwelling values. As expected, RP Data’s Tim Lawless is fairly upbeat this month arguing that a housing market recovery
Westpac has a quite useful way of carving up monthly housing finance figures into buyer cohorts and states that offers a glimpse of who is actually buying property at any given moment. Here are the three operative charts: Investors by state: We don’t know how Westpac achieves this split. The ABS does not provide state
By Leith van Onselen Today’s housing finance data released by the ABS revealed a worsening slump in mortgage demand from first home buyers (FHBs). According to the ABS, the number of finance commitments to FHBs nationally slumped to just 6,557 in December 2012, which is the lowest recorded level since February 2011 (see next chart).
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of December, which registered a seasonally-adjusted -1.5% decrease in the number of owner-occupied finance commitments over the month. Analyst’s had expected zero growth over the month: The fall in finance commitments was caused almost entirely by
By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered a solid 69% preliminary clearance rate on 204 auctions reported to the REIV. This compares to last week’s preliminary clearance rate of 71% from 108 auctions, which was later revised down
By Leith van Onselen In mid-January 2003, just days before bush fires hit the outlying suburbs, my girlfriend (now wife) and I moved to Canberra from Melbourne so that I could commence work as an economist at the Australian Treasury. Fortunately for us, we had secured rental accommodation in December 2002, so were unaffected by
By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) has released data on housing transfers and mortgage lodgements for the month of January. According to DERM, the number of housing transfers and mortgage lodgements rose by 5.2% and 19.3% respectively in January 2013. However, on a year-on-year basis, housing transfers rose
From Banking Day comes news that on again off again Genworth IPO is on again, or is that off again? Martin Klein, acting president of Genworth told a conference call yesterday that “executing a partial sale of our Australia MI [mortgage insurance] platform remains a key goal…Execution of an IPO is subject to market valuation
By Leith van Onselen Starting today, I will be providing a weekly update on the latest movements in the RP Data-Rismark daily dwelling price indices, which covers the five major capital city markets. In the week ended 7 February 2013, the 5-city dwelling price index fell by -0.22%, which was the second consecutive week of
By Leith van Onselen In my regular Monday auction results post, I noted that last weekend’s preliminary auction clearance rate, as reported by the Real Estate Institute of Victoria (REIV), was a solid 71% on 108 results, but that there were 24 results missing, which would likely bring the final figure down once those missing
From the AFR: Australia’s second biggest home lender, Westpac Banking Corp, announced on Thursday that the rate to fix home loans for two years had been lowered to 4.99 per cent. It is the lowest fixed rate offered by Westpac since April 2009 and follows the Reserve Bank of Australia’s decision on Tuesday to keep the
From The Oz: MIRVAC Group has wiped $273.2 million off the value of its development projects on the back of weak conditions in Queensland’s apartment market. …Mirvac said that sales and prices in parts of Brisbane, regional Queensland and Perth had either fallen or stagnated. “The 2012 spring and summer sales season was expected to
In the long debate over housing supply, I have been on the lonely side of the argument. Many readers would not know that my past career involved assessing site acquisitions and development feasibilities for residential and industrial developments. I was quite intimately involved in planning applications and housing supply decisions. I took away an important
Please find below an interesting post from economist, Matt Cowgill, challenging the notion that affordable housing can be achieved amid solid population growth, restrictions on development in pre-existing areas, as well as an urban growth boundary that restricts sprawl. Be sure to also check out Matt’s blog, We Are All Dead, which examines a wide
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
The ABS eight city house price index is out and accords with APM’s house price movements announced last week of a 1.6% increase in the December quarter: And 2.1% on the year: Rises were led by Perth and Darwin and Sydney was also solid: These results are at the stronger end of the spectrum of
By Leith van Onselen The AFR has a piece today aiming to look at the bright side of what appears to be a structural shift away from detached houses for consumers: Australia’s commitment to detached housing is waning, with apartments and townhouses comprising a record 41 per cent of all private dwelling approvals in 2012.
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 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,