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.


Stop demonising McMansions

Cross-posted from The Conversation Let me declare myself unambiguously: I do not hate McMansions, just because they’re easy to hate. For quite a few years now, anybody who writes about these oversized single family homes has consistently demonised them as not just individually ugly, ill-designed and unsustainable, but as the building blocks of isolated suburbs


HIA slaps lippy on the new home hog

The Housing Industry Association (HIA) has today released a new report claiming that prospects have brightened for a broad-based recovery in dwelling construction (with the exception of Victoria), although supply-side barriers remain: New dwelling commencements (housing starts) increased by 11 per cent in 2012/13. This result followed two consecutive years of decline which saw commencements


How mortgage repayments outpaced incomes

By Leith van Onselen The Australian Bureau of Statistics (ABS) has today released an interesting report examining the growth in mortgage repayments between the 2006 and 2011 census periods, whereby median repayments grew at nearly twice the rate of incomes: Between 2006 and 2011, median monthly mortgage repayments in Australia climbed 38.5 per cent, from


Stamp duty has to go

By Leith van Onselen The AFR’s Robert Carling has posted an article today arguing to reform stamp duties: …the states’ reliance on this source of revenue [stamp duties] is unhealthy and highlights the need to rethink how states are funded. The beginnings of the Sydney boom helped push the NSW budget to an unexpected operating


Talk is cheap. It’s time for action on housing

By Catherine Cashmore, a market analyst and journalist with extensive experience in all aspects relating to property acquisition. Follow Catherine on Twitter or via here Blog. Last year ABC’s ‘QandA’ ran a one-hour special with then Prime-Minister, Julia Gillard. At the time, Labor’s popularity was at an all time low, with the latest Galaxy poll


How to fix auction reporting

By Leith van Onselen AquAsia financial strategist, Mark Bayley, has continued last week’s attack on auction statistics in today’s AFR: With so many auctions results that aren’t recorded, should so much credence be given to these calculated clearance rates? At the moment, these clearance rates are not only used by homebuyers and vendors but also


Is Melbourne China’s new ghost city?

From Bloomie, Melbourne’s building boom just keeps on giving: Greenland Holding Group Co., the builder of one of China’s tallest towers, plans to construct 1,000 apartments on a Melbourne site and expects to open a five-star, 180-room hotel in Sydney by 2015. The state-owned developer is seeking to finalize the purchase of the land from the


Auction clearances weaken on high volumes

By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets weakened slightly over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 71% on 1,048 auctions reported to the REIV, with 140 auctions listed as “no result”, which could result in some small downward revision once


Steven Keen backs macroprudential

By Leith van Onselen A key point of discussion in the weekend’s podcast with Catherine Cashmore and Dr Steve Keen on housing was the different approaches to housing policy adopted in Australia and New Zealand, despite both countries facing very similar housing dynamics: essentially the same banking system; similar levels of leverage; the same official


Van Onselen vs Keen vs Cashmore on property

With mainstream media attention focused on whether Australia is or isn’t in a real estate bubble, and the atmosphere around Sydney prices becoming rarefied, Gunnamatta spoke with Leith Van Onselen, Catherine Cashmore, and special guest, Professor Steve Keen, on the current real estate market, the supply and demand drivers articulated by that market, and the


Housing boom not bubble

More bubble porn today, this time from the AFR, where Urbis chief economist Nicki Hutley reckons there is no bubble, we’re on the verge of an endless property boom, that interest rates have bottomed, that negative gearing boosts supply (!) and that the solution to supply constraints is greater urban consolidation! I would normally ignore


Housing materials signal tepid building recovery

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released data on construction materials volumes for the September quarter. While it showed a continued improvement in the production of clay bricks – a material typically used in housing construction – there was no associated increase in roof tile production. There was also


Rental vacancies down in October

By Leith van Onselen SQM Research has released rental vacancies data for the month of October, which revealed that the vacancy rate nationally fell by 0.1% to 2.0%, with most capitals experiencing declines: According to SQM Research: SQM Research does expect vacancies to begin to rise in the lead up the Christmas as this normally


Fed’s Fisher: Chinese driving Oz house prices

From the newly free and spruikaliscious BRW: Australian house prices are being fuelled by Chinese buyers, says the president of the Federal Reserve Bank of Dallas, Richard Fisher, but as long as Australian households don’t over-leverage, house price growth shouldn’t be a worry. …Fisher says Australia’s housing market is “robust” due to “unique factors” where


Dodgy auctions figures “put buyers at risk”

By Leith van Onselen AquAsia financial strategist, Mark Bayley, has today lambasted auction results reported by the Real Estate Institutes and private data providers, claiming they paint an overly rosy picture of the market and provoke ­over­-excitement based on misleading figures. From the AFR: “At best, these figures provide only a rough guide to a


APRA: We are monitoring high LVR lending

By Leith van Onselen Following news yesterday that high loan-to-value ratio (LVR) mortgage lending is on the rise, chairman of the Australian Prudential Regulatory Authority (APRA), John Laker, has declared the regulator is monitoring the situation closely, and has vowed to take action if necessary against individual lenders. From the AFR: “One area of higher


HIA sees brighter days ahead

By Leith van Onselen The Housing Industry Association (HIA) has today released its Spring 2013 edition of its National Outlook, which forecasts a moderate pick-up in dwelling construction, but a big recovery in renovation activity. It also argues that a sustainable pick-up in dwelling construction is unlikely unless structural supply-side barriers are tackled: “The improving


No more FHB grants

BS’s new bear, Callam Pickering, is at it again: With first home buyers priced out of the market, housing affordability will become an increasingly hot topic for governments at the federal and state levels. Historically this has always meant an increase to the first home owner grant. Earlier this week Tasmanian Premier Lara Giddings announced


SQM launches new rental yield index

From SQM Research’s weekly newsletter comes news that it has launched a new index measuring implied gross rental yields. According to Louis Christoper: This index is a measurement of gross rental yields. That is – rents before costs such as agent fees, council fees, maintenance, taxes etc divided into the median sale price for the


High LVR’s make a come back

From the AFR this afternoon: Allan Savins, chief operating officer at non-bank lender RESIMAC, told the Australian Securitisation Forum conference in Sydney on Tuesday that higher loan-to-valuation ratio (LVR) products were “creeping in” to the market. Stephen Campbell, head of credit risk management at QBE’s lenders mortgage insurance business, said maximum LVRs had reverted back


Business leaders: Negative gearing’s gotta go

By Leith van Onselen Above is an interesting short discussion on negative gearing, aired last night on the ABC’s Q&A program. The panelists, which included a range of prominent business leaders, were asked to respond to the below question by Western Australian single mother, Leanne Murphy: I’m a single parent struggling to make ends meet


Sydney to undergo massive apartment boom

By Leith van Onselen BIS Shrapnel have released bullish forecasts for Sydney apartment construction, which it claims will be the biggest on record driven by: a decade of undersupply; strong population growth; strong capital growth; and growing investor interest both domestically and from abroad. From the AFR: Kim Hawtrey, associate director at forecaster BIS Shrapnel,


Impartial my butt

The AFR’s John Kehoe has shown ability recently but he’s got a bit of a shocker up today. Here ’tis: The problem with the current emotionally charged debate over whether Australia is experiencing a risky house price bubble is that the discussion is filled with vested interests. It is not in the interests of a


First home buyer retreat turns to rout

By Leith van Onselen Today’s strong housing finance data, summarised earlier, reported a further weakening of first home buyer (FHB) demand, suggesting this housing cycle continues to be driven by investors and upgraders (see next chart). As noted in my earlier post, FHB commitments nationally slumped by 9% (non-seasonally adjusted) in September and were down


Australian housing finance rockets

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of September, which registered a seasonally-adjusted 4.4% increase in the number of owner-occupied finance commitments over the month: The number of owner-occupied housing finance commitments excluding refinancings registered a seasonally-adjusted 5.0% increase over the month to