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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Comparing the big four house price indices

By Leith van Onselen It’s been a busy couple of weeks, with Australia’s four main housing data providers – the Australian Bureau of Statistics (ABS), Australian Property Monitors (APM), RP Data-Rismark, and Residex – each providing their capital city house price indices results for March or April 2012. Those unfamiliar with these indices would be

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ABS: House prices continue to fall

By Leith van Onselen The last of the major house price data providers, the Australian Bureau of Statistics (ABS), today released their capital city house price indices for the March quarter of 2012, which confirmed that the housing “slow melt” has continued. In seasonally adjusted terms, the price index for established houses for the weighted

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Tax stats unmask negative gearing

By Leith van Onselen The Australian Taxation Office (ATO) today released its Taxation Statistics for the 2009-10 financial year, which once again revealed that Australia has become a nation of loss-making landlords. Below are the key tables from the ATO release. First, the summary of rental deductions for the 2009-10 and 2008-09 financial years: According

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New home sales crater

From the HIA! New home sales fell to their lowest level in over a decade in March 2012, said the Housing Industry Association, the voice of Australia’s residential building industry. HIA Chief Economist, Dr Harley Dale said the Reserve Bank of Australia needs to act boldly tomorrow and cut the official cash rate by 50 basis points. “The Bank needs to send a clear

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Australian housing’s poor April

By Leith van Onselen RP Data-Rismark this morning released its daily home price indices for 30 April, which revealed that Australian capital city home values recorded a -0.73% fall over the month – the largest decline since January 2012 (-0.97%) and breaking two consecutive months of rises (+0.68% in February and +0.18% in March). The

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APM’s house price revisions

By Leith van Onselen Australian housing is back! Or its it? A quick read of the latest Australian Property Monitor’s (APM) house price results for the March quarter (release below) suggests that the Australian housing market has shrugged-off recent woes and has returned to growth, rising by 0.9% in the March quarter: AUSTRALIA’S house prices

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APM’s magical March quarter house price rises

APM has released its March quarter house price data. The release was titled “Australian housing market shows signs of recovery” and here are the headlines: All capitals recorded increases in house prices over March with the exception of Adelaide and Brisbane. Sydney’s resilience continues despite Australia’s highest medians with both house (+1.4%) and unit (+2.5%)

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NAB Commercial Property Index falls

For those who don’t know, NAB releases a quarterly index tracking commercial property. The two outstanding points this quarter are the ongoing retail carnage, hitting new lows in the quarter, and the optimistic projections that seem to characterise this industry relentlessly. NAB Commercial Property Survey _March-2012 \

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Rental vacancies flat in March

By Leith van Onselen From SQM research comes the news that Australia’s rental vacancy rate remained flat in March at 1.7% (up 0.2% year-on-year), with only 243 vacancies added during the month: According to SQM Reserach’s Managing Director, Louis Christopher: It appears that Australia’s rental market is remaining excessively tight for the time being with

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Weekly RP Data house price index analysis

By Leith van Onselen If there’s one industry that will welcome the upcoming cut in official interest rates it’s the housing industry where, according to the RP Data-Rismark daily home values indices, overall Australian capital city home values continued to contract in the week to 25 April 2012, led by Melbourne (see below chart). According to RP

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Increased mortgage enquiries pointing to housing bottom?

By Leith van Onselen Today, Veda released the results of their quarterly Consumer Credit Demand Index for January to March 2012. Below are the full details presented without comment. PRESS RELEASE Veda’s Quarterly Consumer Credit Demand Index January – March 2012 Consumer credit demand still soft but mortgage enquiries rise for first time since GFC

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Victoria’s Budget is in trouble

By Leith van Onselen Earlier in the month, The Age reported that the property industry (including residential construction) is the most valuable industry in Victoria, contributing $36.9 billion, or 12.2%, to the gross state product of $301.4 billion, according to economic consultants AEC Group for the Victorian division of the Property Council of Australia (see

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The impact of foreign purchases on property

I’m not going to pretend that the following is forensic but with the release late last week of the Foreign Investment Review Board’s (FIRB) annual report, we can now estimate the degree of involvement of foreign purchases in the Australian property market. According to FIRB, residential property recorded 20.92 billion from 9556 approvals: That’s an

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Real estate industry positively negative

Cross posted with permission from Capital Appreciation: The latest Property Council of Australia (PCA) – ANZ Property Industry Confidence Survey results indicate that property professional respondents in the ACT were slightly more positive about residential property in the June 2012 quarter but they are generally negative about the overall economy. I’ve highlighted some of the charted results for the ACT

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Genworth credit rating under review

Moody’s has just announced that they have put Genworth Financial Mortgage Insurance Australia, one of Australia’s largest mortgage insurers, under review for possible downgrade of their credit rating. The reason for the review was obvious, with the delay of the partial IPO pushed back to 2013 (if at all?) and the announcement of  a first

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Land sales weak as prices remain high

The Housing Industry Assocation (HIA) and RP Data have put out their latest residential land update for 2012 this morning. It’s not pretty reading, as it shows land sales “hitting a fresh low and median land values rising further in the December 2011 quarter.” In other words, a supply squeeze with a likely price shock to

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Victorian building boom goes bananas

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released Building Activity data for the December quarter, which registered an 0.8% increase in the number of dwelling commencements in the December quarter to be down -15.7% over the year. However, there were large variations across the states and territories: New South Wales:

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Weekly RP Data house price analysis

By Leith van Onselen Following on from this morning’s post on RP Data’s April Housing Market Update, below are some charts showing the weekly and monthly changes in the RP Data-Rismark capital city daily house price indices as at 18 April 2012. First, the weekly percentage movements: As you can see, it’s been an ordinary

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Housing melt claims Genworth IPO

Genworth have announced a “new timing” for its planned IPO (initial public offering) of its Australian mortgage insurance business. The release, which is attached below, claims the move, planned for the second quarter of 2012 but now pushed back to “early 2013” reflected “recent business performance in Australia”: For the 2012 first quarter, the company

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A poor quarter for rents

By Leith van Onselen Australian Property Monitors (APM) on Friday released its Rental Market Report for the March quarter (below) and, sadly for those hoping rising rents in will justify property investment in an era of flat capital growth, the quarter was a disappointment. All capital cities, with the exception of Hobart and Darwin houses,

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Property ACTing up or down?

Cross posted with permission from Capital Appreciation’s blog  After several months in the wilderness, allhomes have begun publishing their short- and medium-term ACT real estate market trends again. Median house and unit prices are some of the data published by allhomes and I thought I’d take the opportunity in this post to reproduce some of these data below. Although

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Majority see house price stability

The Westpac-Melbourne Institute Consumer House Price Expectations Index was released today, slipping 2.3pts from 25.1 in January to 22.8 in April.  The major takeaway item – apart from the insanity around this watching of a consumption item turned into a speculative frenzy – is that majority of survey respondents thought that house prices would be either

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REIV goes the full spruik

By Leith van Onselen “The greatest failing of the human race is the inability to understand the exponential function” – Dr. Alfred Bartlett And so it is, with the head of the Real Estate Institute of Victoria (REIV) making the following absurd claim on Property Observer [my emphasis]: The recent release of the REIV’s calendar

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NSW kills housing finance recovery

By Leith van Onselen The Australian Bureau of Statistics (ABS) released the February Housing Finance data this morning, which registered large falls on the back of the hangover caused by the 31 December expiry of New South Wales (NSW) first home buyer (FHB) stamp duty concessions. As I noted previously, much of the recent bounce

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NAB Property Survey rises

NAB’s quarterly Residential Property Survey, which seeks to measure confidence in the residential property market, is out and has improve 5 points since the December quarter. Does this tell us anything? NAB thinks so: The NAB Residential Property Index rose to +5 points in March. WA now the best performing state and Victoria the weakest. WA