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 SQM Research’s free weekly newsletter comes the below report on listings and vacancy rates in Australia’s resources towns. Note how vacancy rates and listings in mining towns have generally risen significantly over the past year, whereas agricultural-based towns are showing more stability. We should expect the situation in mining towns to deteriorate further as
Old media at its powerhouse best…
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. Australia Day traditionally flags the end of the real estate ‘vacation’ period with the long weekend being the last chance most agents have to take a breather before the
By Leith van Onselen In the week ended 23 January 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.39%. It was the fifth consecutive weekly increase in values (see next chart). Values rose in four major capitals and fell in one (see next chart).
Please find below another interesting article from Prosper’s David Collyer on land banking. For David’s earlier articles on this issue, see here, here, and here. Victorian Planning Minister Matthew Guy has been out this week energetically pointing to fresh ‘land releases’ around Melbourne. Growth, or the illusion of growth, is a powerful sedative that buys
By Martin North, cross-posted from the Digital Finance Analytics blog. The Australian Mortgage industry has a feature which is relatively unusual internationally speaking. Lenders Mortgage Insurance or LMI is an insurance scheme which protects lender from default by the mortgage borrower. It is not the same as mortgage protection insurance, which is insurance a borrower
By Leith van Onselen Stephen Kirchner, a research fellow at the Centre for Independent Studies, has written an article in The Australian defending negative gearing and arguing that housing reform should instead focus on the supply-side. Let’s take a look: DEBATES about housing affordability continue to point to negative gearing as a factor putting upward
By Leith van Onselen RP Data’s Cameron Kusher has produced an interesting post this afternoon on Australian housing values in the wake of today’s December quarter CPI release from the ABS: The raw capital growth figures show that combined capital city home values at the end of 2013 were 3.5% higher than at their previous
By Martin North, cross-posted from the Digital Finance Analytics blog. Today we examine the motivations of Down Traders, a household segment which we identified in our household survey. They are people looking to sell their current property and buy smaller, so releasing capital to add to their savings. We have looked further at the data
By Leith van Onselen The December quarter consumer price index (CPI) data, released today by the Australian Bureau of Statistics (ABS), revealed a continued moderation of rental growth at the national capital city level. According to the ABS, rents nationally grew by 0.6% over the December quarter of 2013: the equal lowest quarterly rate of
Fresh from Fitch’s newly released Global Housing and Mortgage Outlook, 4% growth for the Australian housing market in 2014: Australia House Prices: Continued House Price Growth House prices in Australian capital cities rose 11.8% in the 19 months to December 2013. This followed a decline of 7.4% in the previous 19 months to May 2012
By Leith van Onselen The Housing Industry Association’s (HIA) Shane Goodwin yesterday wrote a spirited defence of negative gearing in The AFR. Let’s evaluate Goodwin’s arguments: Much of the commentary around negative gearing appears based on the presumption that it is the exploitation of a loophole by investors in residential property, when of course, it
From SQM Research’s free weekly newsletter: We continue to remain bullish on the Sydney housing market. Don’t believe the hogwash that came out of another reporting body over the weekend. The market is not about to slow, its actually about to have the strongest start yet in over 15 years. Let me tell you why
By Leith van Onselen Business Spectator’s Robert Gottliebsen (“Gotti”) has had a chat with his mate, apartment developer Harry Triguboff, and apparently the dam is about to break on Sydney housing, with a flood of apartments supposedly destined to hit the market: New ingredients are emerging that look set to generate a surplus of apartments
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. I’m know I’m not alone in feeling an immense amount of frustration at the circular debate amongst commentators in the mainstream media, that surrounds our first homebuyer demographic, and
By Leith van Onselen I wrote last week (here and here) how the ACT Government is deliberately manipulating urban land supply in order to maintain exorbitant land/house prices. Despite having an abundance of developable land, the Government has for a long-time drip-fed supply to the market, maintaining an artificial land shortage (scarcity) and, in the
By Leith van Onselen The AFR is today reporting that Saul Eslake, who has held multiple chief economist roles at various banks, as well as acted on the National Housing Supply Council, has provided a personal submission to a Senate Inquiry into Affordable Housing. The submission, entitled ‘50 years of failure’, provides a damning assessment
By Leith van Onselen The 10th Annual Demographia International Housing Affordability Survey has just been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed. This year’s report assesses 360 urban markets in nine countries: Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore,
By Leith van Onselen With Sydney house prices reaching for the stars: Driven by an epic boom in investor demand: Data providers – Australian Property Monitors (APM) and RP Data – have both issued warnings that Sydney housing values have overshot fundamentals and risk a slowdown: ”All the pointers are there showing that the Sydney
By Martin North. Cross Posted from Digital Finance Analytics Blog Last November the Bank of International Settlements published an interesting working paper entitled “Can non-interest rate policies stabilise housing markets? Evidence from a panel of 57 economies “. The paper discussed the relative effectiveness of a number of policies, over and above the blunt instrument
By Leith van Onselen I wrote on Tuesday how the ACT Government is deliberately manipulating urban land supply in order to maintain exorbitant land/house prices. Despite having an abundance of developable land, the Government has for a long-time drip-fed supply to the market, maintaining an artificial land shortage (scarcity) and, in the process, forcing buyers
By Leith van Onselen I have been a long-time skeptic of the purported environmental benefits of forced urban consolidation, which seeks to ameliorate concerns that excessive suburban sprawl is increasing humanity’s ecological footprint and greenhouse gas emissions. By restricting urban growth, it is claimed that these ‘costs’ can be reduced via less car dependence and
By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released dwelling commencement data for the September quarter of 2013, which disappointed registering a 2.0% fall in the number of dwellings commenced over the quarter, but a 2.6% increase over the year (see next chart). The 2.6% annual rise in dwelling commencements was broad-based,
By Martin North. Cross Posted from Digital Finance Analytics Blog One factor which is driving the residential property market, especially in the major centres of Sydney, Melbourne and Perth is a rise in overseas purchasers. They may be Australian residents, overseas purchasers buying property for investment through an approved development, or locals acting for overseas
By Leith van Onselen In the week ended 16 January 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.24%. It was the fourth consecutive weekly increase in values (see next chart). Values rose in two major capitals and fell in three (see next chart).
Westpac’s Elliot Clarke has produced an interesting note today on the increased purchasing by Self-Managed Superannuation Funds (SMSFs) of Australian residential property: Superannuation is the principal form of savings for Australian households outside of the family home. As at September 2013, household superannuation assets stood at just over of $2trn – $1.7trn in super funds
By Leith van Onselen SQM Research has released its rental vacancies report for the month of December, which registered a big increase in the vacancy rate to 2.6% nationally, from 2.2% in the prior month and 2.3% in December 2012: Part of the increase in the vacancy rate in December relates to seasonality, with vacancy
By Martin North. Cross Posted from Digital Finance Analytics Blog We just completed some analysis from our surveys on the attitudes of first time buyers. We cut data from our 2013 and 2010 data sets to compare and contrast. Back in the heady days of 2009/2010, first time buyers made up to 27% of all
By Leith van Onselen As noted earlier this week, Monday’s Housing finance figures for November, released by the Australian Bureau of Statistics (ABS), revealed a continued blow-off in investor demand, with investor finance commitments rising by 1.5% in November, 35% over the year, and hitting the highest level on record (see next chart). Yesterday’s Lending
By Leith van Onselen Australian Property Monitors (APM) has today released its rental report for the December quarter of 2013, which revealed a sharp divergence in rental price growth across Australia and between houses and units & apartments: As shown above, Sydney house rents have flatlined whereas unit rental growth is powering. However, the opposite
