In October last year, Phil Chronican, chief executive of ANZ Australia, warned Fairfax radio station 3AW that: “when there is a lot of cheap money around that results in asset price inflation”. 11 months later, with Sydney going nuts, Bloomie reports that: ANZ OFFERING LOANS TO CHINA RESIDENTS TO BUY HOMES IN AUSTRALIA BN 09/26 03:18
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.
From the AFR, the bubble drum is beating hard, with Ric Deverell, head of global commodities, foreign exchange and Asia strategy at Credit Suisse in London and former Reserve Bank deputy head of economic research coming out: “House prices are popping, Sydney is going berserk,” said Ric Deverell, head of global commodities, foreign exchange and Asia
Chris Joye today continues his crusade to highlight the growing risks around investors in Australia’s property market. From the AFR: The $530 billion or so squirrelled away by mums and dads who have elected to take control of their savings destinies, rather than outsourcing decisions to super fund trustees, has never had much exposure to
Chris Joye is maintaining the rage at the AFR: … the Reserve Bank of Australia has seen the writing on the wall. It is clear the central bank is increasingly exercised about the prospect of “imbalances” (aka bubbles) emerging in Australia’s highly leveraged housing market. As it should be. In its semi-annual Financial Stability Review published
By Leith van Onselen Residex has released its house and unit price results for the month of August, which revealed essentially flat growth in overall home values over the month, with house values rising by 0.08% at the national level, whereas unit values fell by 0.19%. Over the quarter, house values nationally rose by only
From the SMH: Financial comparison website RateCity says about three-quarters of home loans being offered in Australia now require a mere 5 per cent deposit or less, terms not seen since the aftermath of the 2008-2009 global financial crisis. ‘‘Many more potential borrowers are eligible for loans that may not have been approved in the
SQM Research has today released its rental vacancies report for the month of August, which revealed minimal change in overall rental vacancies, with the national vacancy rate holding steady at 2.2%. However, they remained 0.3% higher than a year ago, suggesting the rental squeeze is dissipating. From the Media Release: On a capital city level,
From the AFR: The International Monetary Fund will investigate any risks posed by surging housing prices when it sends a team of economists to Australia later this year. The IMF is scheduled to conduct its annual Article IV consultation on the Australian economy in November, with financial stability and the hot housing market expected to
By Leith van Onselen The Reserve Bank of Australia (RBA) released its quarterly Bulletin late last week, which included a number of papers on a variety of topics. One of the papers provided a detailed examination of the Performance of Resource Exporting Economies, namely: Australia, Canada, Brazil, Chile, Russia, and South Africa, and found: The surge
With the commentariat locked in a debate over whether the Australian housing market is facing a bubble, brought about by near record low mortgage rates, intense investor participation, and rising prices, it is worth revisiting the work of Philip Soos, masters research student a Deakin University, who has recently updated his chart pack tracking 150
After declaring two weeks ago that Sydney was in the grip of an “unprecedented” boom in Chinese property investment, real estate agent John McGrath returns today to hose it all down: “There is no bubble. Sydney properties are not overvalued. They are at fair market value and heading up,” Mr McGrath wrote in his annual report
Cross-posted from The Conversation The historically low interest rates being enjoyed by Australian households are fuelling talk of a housing bubble, despite efforts by the Reserve Bank of Australia to hose down what it calls “unrealistic alarmism” around these dangers. Many of these hopeful buyers – particularly first home owners on low to moderate incomes
By Leith van Onselen The Weekend Age published an interesting article on how Australia’s ageing population is exacerbating housing shortgages, since it is increasing the number of elderly “empty nesters” living in large homes with excess bedrooms, thereby helping to deprive young, growing families of housing choice: The number of older Australians who live alone
By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets were strong again over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 78% on 837 auctions reported to the REIV, although 72 auctions listed as “no result”, meaning there will likely be some downward revision
One week away and the world goes crazy! From the AFR, PIMCO’s …Saumil Parikh, a senior member of Pimco’s global investment committee, joins the rousing chorus warning against letting house prices run: “If the only impact from stimulatory policy elsewhere in the world is to inflate our residential property prices, it’s a disaster,” he said. “All
Chris Joye has followed-up on his fine work recently, with a stinging rebuke at the widespread complacency on display over the risk of an Australian housing bubble. From the AFR: Residential property is the biggest source of household wealth and underlies the most important asset – home loans – held by Australia’s colossal and concentrated
Cross-posted from Ross Elliott at The Pulse Australia has an ageing society and while living longer is good news for many, there are some major economic issues we need to understand to avert a huge problem in the years to come. According to a recent UN report, roughly half the children born in developed and
By Leith van Onselen In the week ended 19 September 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.80% rise, which was the fourth consecutive weekly increase (see next chart). Values rose in all major capitals except Perth and Brisbane (see next chart). Values
By Leith van Onselen Alan Kohler has posted an interesting article in The Australian today arguing that Australian housing is not a bubble, since values are underpinned by a shortage of homes (my emphasis): INVESTING in property is a no-brainer at the moment. Prices have bottomed, auction clearance rates are on fire, especially in Sydney,
By Leith van Onselen Reserve Bank of Australia (RBA) assistant governor, Malcolm Edey, has spoken out against claims that Australia is facing a housing bubble at a financial services conference held in Sydney today. From the AFR: “There is no doubt [house prices have risen] but we have to keep in perspective. House prices have
SQM Research has today released its 3rd annual Housing Boom and Bust Report for 2014, which forecasts an accelerating housing market recovery in 2014, led by Sydney, which will experience a house price boom, with prices in that city now expected to rise between 15-20%. From the Media Release: SQM Research predicts significant price rises
By Leith van Onselen The Queensland Government has released data on housing transfers and mortgage lodgements for the month of August. According to the Government, the number of housing transfers fell by 7.1% in August, whereas the number of mortgage lodgements fell by 9.4% over the month (see next chart). However, the data is not
By Leith van Onselen The Department of Sustainability & Environment (DSE) has released data on the number of housing transfers and mortgage lodgements/disharges across Victoria in August, which showed ongoing weakness in both housing turnover and mortgage demand. Looking at the transaction side of the market first, you can see that the number of transfers
By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets were strong again over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 76% on 832 auctions reported to the REIV, although 105 auctions listed as “no result”, meaning there will likely be some downward revision
By Leith van Onselen Chris Joye has followed-up on his fine work last week, warning over imbalances that may be developing in the housing market in the above Radio National interview, aired Sunday morning. According to Joye: Australia’s banks are incentivised to maximise credit growth in order to maintain pre-GFC levels of profitability. Accordingly, Australia
By Leith van Onselen Goldman Sach’s Australian chief economist, Tim Toohey, believes that the Australian Prudential Regulatory Authority (APRA) may look to impose macro-prudential curbs on investor morgage borrowing should Australian house price growth accelerate. From the Weekend Australian: Investors have contributed 54 per cent of the bounce in mortgage lending in the past six
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 15 September 2013. 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;;
From the AFR: The housing sector is clearly turning up, but the gains have been modest and largely reflect fundamentals. We’re far from bubble territory. …So far so good, but is the sector in danger of overheating? Could housing overcook the economy, forcing up interest rates by early 2014? I doubt it. Given the need