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.
An interesting article appeared today in the Fairfax press about the extortionate cost of land on the fringe of Australia’s capital cities. The value of land sold…rose 5.2 per cent to a median lot price of $186,629 over the year to September, or 2.8 per cent in the quarter alone. “Land price appreciation is a key cause of
With the the 7th Annual Demograhia International Housing Affordability Survey due to be released on 24 January 2011, you can expect the banks and property spruikers to come out in force proclaiming that: Australia’s housing market is not overvalued; that there is no housing bubble; that house prices will continue to rise inexorably; and that somehow Australia
Just a short post today, we are a bit busy with some other work and are expecting a busy day tomorrow as there is lots of community recovery support work to do in Brisbane , and we are eager to help out where we can. As we mentioned in an update to yesterday’s post a
Sam Birmingham runs a top quality networking site for young professionals called WeBe, which provides up-to-date information on financial matters, work-related issues, lifestyle news and reviews, and current affairs and opinion pieces. WeBe also provides a platform where members can have their voices heard, express opinions and share ideas with other like-minded Young Professionals. Yesterday, Sam published the first in
As we have said previously in response to the “soft landing” rhetoric for Australian Property. Some may say this is a “soft landing”, we say it has only just begun , the landing gear is still up and we can’t even see the runway yet. And yet again today, we are completely unsurprised that housing
Regular followers would remember the below chart from my Battle of the Bubbles article, measuring potential overvaluation of the housing market by reference to total residential housing value to GDP. Well now AusHousingCrash has provided an even better chart comparing the aggregate land values (residential + commercial + rural) to GDP/GSP from the Australian Bureau of Statistics State
The Conga line of analysts and commentators calling Australia’s housing bubble has been growing longer recently. Now the Australian Treasury – the main custodian of Australia’s economic policy – appears to have joined the chorus. In what should ring alarm bells, and scare the heck out of anyone with a highly leveraged property position, this is
In this week’s post, I’ve undertaken a detailed analysis of one of the key macro factors I believe will exert significant downward pressure on Australian asset values, in particular housing, over the next decade: the retirement of the Baby Boomer generation. But before I launch in, here’s an overview on what I have said previously about this issue on
The following article was posted on Seeking Alpha – a leading North American investment blog that provides free investment market analysis primarily from money managers, investment newsletter writers, and the general public. The great Australian housing bubble debate is gathering momentum. In recent weeks, several international observers have released warnings that Australia’s housing market is severely overvalued. For instance, in its latest survey of
Fellow econblogger, Delusional Economics, has posted an excellent, yet frightening summary of some of the key risks currently facing the Australian financial system, housing market and broader economy. It is captured in an email message from “Deep Throat” – an experienced financial industry participant whom wishes to remain anonymous. Deep Throat has delivered a worrying analysis of the Australian banks’
Last week, the Commonwealth Bank of Australia (CBA) – Australia’s largest bank – released a presentation on the Australian housing market to support an upcoming overseas tour by senior management who are meeting overseas investors. The CBA’s press release for the presentation read as follows: Australian Residential Housing Sydney, 9 September 2010: Senior executives from the
Whilst I was on vacation escaping the bitter Melbourne cold, Morgan Stanley Chief Strategist, Gerard Minack, released an excellent research article on the Australian housing market, entitled Living in a Bubble. Mr Minack’s article received widespread coverage in the press (for example, see here and here), so it is likely that many Australian readers are aware of his analysis already. And fellow
In Bringing it Home, I argued that demographic factors have played an important role in creating Australia’s housing bubble and that these same factors are likely to contribute to a house price correction in the future: “One of the key drivers of Australia’s strong house price growth has been the Baby Boomer generation’s rampant buying of investment
A reader “Billy” sent us an e-mail today to point out that the international business times has noted that mortgage demand in Australia continues to be very weak. Demand for new mortgages tanked by 20% during the June quarter when compared with the same time last year, figures from credit reporting agency Veda Advantage show.
I know I said that I had finished writing about the Australian housing bubble. But these articles in Forbes (click here and here) are simply too good to pass by without an honourable mention. It seems that Forbes has similar views about Australia’s housing bubble to those expressed on The Unconventional Economist (see here, here and here). I always find it
Last week we mentioned that a high profile property spruiker seems to have given up. Today we note that Australian politicians are racing to close the door on “Big Australia”. A coalition government will reduce Australia’s immigration numbers back to a reasonable level, according to shadow treasurer Joe Hockey. Opposition Leader Tony Abbott shortly is
A very well known Australian property spruiker has finally admitted the dreaded words. Our judgment is that a combination of higher interest rates, modest housing finance growth, skinnier auction clearance rates, and a surge in supply-side listings suggests that we may not see much, if any, further house price growth this year. Indeed, the second
The Australian Federal Minister for housing, Tanya Plibersek, is the “front person” for a home buyer and property show. Her statement: The Australian Government understands the importance of housing to people’s lives and we are working hard to help more people get into a home at a price they can afford. Since coming to government
Since launching The Unconventional Economist in May, I have written eight housing-related articles focusing on the key drivers and consequences of the Australian residential property bubble. Before moving on to other topics, I thought it would be useful to provide a re-cap of the key themes raised in my earlier posts and offer some practical policy solutions aimed at: making
