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.
Please find below Nathan Webb’s take on the AFG June Mortgage commitment numbers. Enjoy! It was another flat month for AFG mortgage sales, which continues the recent trend. While the raw number (6690) was down by 12%, the prediction was for 6556 which means that it came in slightly on the plus side, but only
By Leith van Onselen In case you missed it, The Sunday Age yesterday ran a great article on the epic housing supply glut that is affecting Melbourne where, according to SQM research, the number of homes for sale has hit a record high, around double 2008 levels: Here are some key extracts from the Sunday
By Leith van Onselen Following on from yesterday’s post on Melbourne’s record glut of unsold homes, please find below SQM Research’s press release assessing the stock on market as at June 2012. Figures released this week by property research house SQM Research reveal that the level of residential stock increased during the month of June
By Leith van Onselen Yesterday’s dwelling approvals data by the Australian Bureau of Statistics confirmed that the construction boom that has gripped Melbourne over the past three years continues: Now SQM Research has released their stock on market figures for the month of June, which reveals that the number of homes for sale in Melbourne
By Leith van Onselen Two years ago, the Sunday Telegraph published an article citing Commsec research showing the sharp deterioration of housing affordability over the past 50 years: AUSTRALIANS have to work almost three times harder to pay off the average family home than they did 50 years ago. Figures compiled by CommSec for The
Please find below a press release from SQM Research questioning the efficacy of the RP Data-Rismark daily home values index: Upon the back on recent commentary released by RP Data-Rismark in relation to increasing house prices in Australia, property research house SQM Research would like to take this opportunity to formally state our contrasting beliefs
By Leith van Onselen Auction clearance rates over the weekend were 59% in Australia’s two major markets – Sydney and Melbourne. This compares to a year-to-date average of 62% and 61% respectively, according to the Real Estate Institutes of New South Wales and Victoria. In Victoria – usually the auction capital of Australia – the
By Leith van Onselen The RP Data-Rismark house price results for June are out and national capital city home values have clawed back around two-thirds of May’s losses, increasing 0.97% over the month. A summary of the key results are provided in the below table: The below chart shows the daily price movements by capital
Here’s a reasonable take on the housing market from Shane Oliver echoing many of my own thoughts on the slow melt. Aust House Prices – OI #21 2012
By Leith van Onselen Last week’s revelation that the number of households disclosed in the 2011 Census was some 900,000 less than that assumed by the National Housing Supply Council (NHSC) appears to have prompted a rear guard action from one of Australia’s key housing shortage proponents – the ANZ Bank. Over a number of
From Banking Day: Borrowers with low-doc loans, who tend to be self-employed, may be experiencing a greater than the usual level of difficulty paying their loans. Fitch Ratings said that delinquencies in the low-doc segment tend to be between two times and two and a half times those of full-doc loans. In the year to
By Leith van Onselen The RP Data-Rismark daily home values index has, for the fourth week in a row, registered a weekly rise, with national capital city home values registering a 0.32% increase in the week to 27 June 2012 (see below chart). This week’s rise was driven primarily by Australia’s two largest markets –
By Leith van Onselen It seems everyone is turning on the Melbourne housing market. Earlier this week, the Real Estate Institute of Victoria (REIV) capitulated, noting that Melbourne would see no house price growth in the short-term and, at best, only moderate price growth over the medium-term. The REIV’s analysis was joined by the generally
From the SMH: Australia is not at danger of a collapse in the housing market, a top central banker says, again playing down concerns that Australia could suffer price falls like those seen in the United States or parts of Europe. Speaking at a mortgage conference, Reserve Bank assistant governor Guy Debelle said he was
By Leith van Onselen As noted previously, the Budgets of Australia’s state governments are suffering badly from a sharp drop in stamp duty receipts on housing transfers, which in 2011-12 are expected to be -20% below the levels of 2007-08 (see below chart). In addition to lower housing prices, a key driver behind the fall
By Leith van Onselen House price analysis has just gotten more confusing after Residex released its home price results for May, which recorded a monthly rise of 1.01% nationally for houses and 0.02% for units (see below tables). The result contradict those of RP Data, which reported a fall of -1.8% for houses and a
By Leith van Onselen Auction clearance rates over the weekend remained lacklustre in Australia’s two major markets. According to the REIV, Melbourne recorded an auction clearance rate of 56% over the weekend, which was the same as the previous week (revised down from 57%) but below the year-to-date average of 61%. The number of reported
By Leith van Onselen The release of the 2012 REIV State of the Victorian Property Market report (below) provides a sobering assessment. According to the REIV, transaction levels – both private sales and auctions – are well down on the five-year average (see below table). Which, given that transaction volumes typically drives prices, suggests that
By Leith van Onselen The so-called housing shortage, which has been used by the property industry as an excuse for Australia’s overpriced housing, has been exposed by the 2011 Census figures. The Census revealed that the number of households in Australia is some 1 million less than assumed by the National Housing Supply Council (NHSC)
This morning Banking Day has delivered a snap shot of some key household metrics for mortgages and income from the first batch of Census data. I will address the Census over the next week but for the time being this is a good wrap of some headline results: Four things stand out from the 2011 census,
By Leith van Onselen Earthsharing Australia has released the 2012 Speculative Vacancies in Melbourne Report (below), which shows a vacancy rate in Melbourne of 5.90%, which is a slight increase from 2010, although still below that recorded for 2008 and 2009 (see below table). According to the report, there is an estimated 90,700 vacant houses
The pain in housing construction is becoming very palpable indeed with a huge miss in first quarter dwelling starts from the ABS today. Consensus for some reason expected a minor fall of -2.3%, as opposed to what was delivered, -12.6%: The internals are all a bit depressing too: To give you some perspective, that total
By Leith van Onselen After seven consecutive weeks of declines until the end of May, the RP Data-Rismark daily home values index has, for the third week in a row, registered a weekly rise, with national capital city home values registering a 0.29% increase in the week to 20 June 2012 (see below chart). Surprisingly,
By Leith van Onselen SQM Research has released its rental vacancies report for the month of May, which revealed that the vacancy rate nationally has remained flat at 1.8%, with Melbourne (3.1% vacancy rate) once again leading the nation. Year-on-year however, vacancies have risen by 7,270, with the national vacancy rate increasing by 0.2% since
By Leith van Onselen The recent 75 basis points of cuts to official interest rates since early – May appears to have done little to reinvigorate the auction market, which turned in a lacklustre performance over the weekend, particularly in Melbourne. According to the Real Estate Institute of Victoria (REIV), Melbourne recorded an auction clearance
By Leith van Onselen Last week, the Queensland Department of Environment and Resource Management (DERM) released data on housing transfers and mortgage lodgements. Like the Victorian Department of Sustainability and Environment statistics analysed last week, which showed ongoing deleveraging, the DERM data is current to May 2012, so it leads the Australian Bureau of Statistics
By Leith van Onselen RP Data has released its June wrap of the Australian housing market (video below) which, as always, makes for some good viewing. The video covers housing market conditions and prices as at end-May 2012, where dwelling values fell by -1.4% over the month, which was the worst result since 2008 at
By Leith van Onselen Last Friday, Victorian Department of Sustainability & Environment (DSE) released ransfer and mortgage data for the month of May, which showed continued weakness in the number of housing transfers and finance commitments. First, below is a chart showing the rolling annual number of housing transfers from May 2003 to May 2012:
By Leith van Onselen After seven consecutive weeks of declines until the end of May, the RP Data-Rismark daily home values index has, for the second week in a row, registered a weekly rise, with national capital city home values registering a 0.01% increase in the week to 13 June 2012 (see below chart). Like
The Reserve Bank may be happy to watch housing burn but right on cue government intervenes to ensure the dream lives on. The chosen weapon? Grants! From the AFR: The centrepiece of the O’Farrell government’s budget, delivered on Tuesday, is a package to encourage new housing developments, including a $5000 “New Home Grant” for all non-first
