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.
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the December Housing Finance data this morning and unlike the Reserve Bank of Australia (RBA) credit aggregates, released earlier in the month, it points to increasing demand for mortgages. According to the ABS, in seasonally adjusted terms, the number of commitments for owner occupied
Almost missed this one. Residex on Friday released its house price index for the month of January. According to Residex, national median house prices fell by 1.2% over the month and units fell by 0.7%. Of the major capitals, Melbourne and Sydney recorded the largest price falls, declining -1.7% and 1.2% respectively (see below table).
By Leith van Onselen Over the past year, I have written extensively on the economy-wide implications of Australia’s slowing housing market including, amongst other things, worsening government finances, slowing retail sales, and lower jobs growth. On Friday, RP Data posted an interesting blog about the pain being felt by the real estate industry from falling
The latest SQM research newsletter came out yesterday and as usual it contains some interesting data and predictions: Figures released this week by SQM Research reveal that residential sales listings decreased during the month of January 2012, coming to a national total of 368,510. This is the second consecutive monthly decrease in sales stock, coming
By Leith van Onselen Last week, the Real Estate Institute of Western Australia (REIWA) made the following plea to Perth’s baby boomers: THE head of the Real Estate Institute of WA has warned “scared” baby-boomers being lured to the safety of cash against selling their investment properties, particularly in Perth’s western suburbs. REIWA president David
Please find below another guest post from MacroBusiness reader, Nathan Webb. Enjoy! The monthly AFG Mortgage Index has been actively followed by Delusional Economics, owing to their extremely timely releases. They manage to get their numbers and analysis out to the public within a week of the end of the month. Impressive stuff! But what’s
I don’t place a lot of stock in the AIG PSI. Its registry of service sector activity never seems to correlate with broader economic data. Note, for instance, the weakness throughout 2010 and then greater strength across 2011 which is the opposite to what you’d expect as the post-GFC services sector stimulus of 2010 faded
Once again it is time to look at the the AFG mortgage index report as the data for January was released yesterday. As per usual, if you are new to this, here is the blurb on why I look at this data every month. I use the AFG lending volumes as a leading indicator of the
The Australian Bureau of Statistics (ABS) has just released dwelling approvals data for the month of December and while it’s a laclustre result overall, there are significant variations across states. The number of dwellings approved fell -1.0% in December 2011, in seasonally adjusted terms, following a rise of 10.1% in November. The number of approvals
By Leith van Onselen It’s been a busy week, with Australia’s three main housing data providers – Australian Property Monitors (APM), the Australian Bureau of Statistics (ABS), and RP Data-Rismark – each providing their capital city house price indices results for December 2011. Those unfamiliar with these indices would be forgiven for being confussed, with
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 December quarter 2011. The price index for established houses for the weighted average of the eight capital cities decreased -1.0% in the December quarter, with Melbourne (-1.6%), Adelaide (-1.6%), Darwin (-1.4%),
NAB’s quarterly survey of housing insiders shows an improvement in sentiment. And here’s why: Moderating house price declines and stronger rental growth saw NAB’s Residential Property Index move just back into positive territory in the December quarter (+1 point) after two consecutive quarters of negative results. Although conditions improved in all states, there is considerable variation
Evidence continues to mount that Australians are not responding to interest rate cuts with a stampede into housing. HIA new home sale for December was just released and gave back most November’s gains: The HIA – JELD-WEN New Home Sales Report, based on a survey of Australia’s 100 largest builders, showed a decline of 4.9 per cent
In May last year while commenting on the beginnings of what appeared to be in-fighting in the housing industry data providers I stated: Back when the housing market was booming everyone got their slice of the pie there were no losers so no one needed to argue any particular point or methodology. As long as
Please find below the full RP Data-Rismark December Home Value Index media release. Here are the key figures taken from the release. First, the change in dwelling values: Note that the -0.2% fall in December seasonally adjusted capital city dwelling values was offset by a +0.3% upwards revision in the November seasonally adjusted figures, from +0.1%
So then, R.P.Data December house price data is out and the melt continues down 0.2% seasonally adjusted for the month: The raw data was much worse, down 1.2% on the month: But there was an upwards revision for November to 0.4%. Below find the full tables, with everywhere falling except Sydney (which has been supported
I am not going to spend to much time on this post because most MacroBusiness readers would already be aware of the issue. However, in case you don’t know one of my pet peeves is the liberties available to the Real Estate industry because their agents do not have to conform with the Australian Financial Services Licencing Act.
Today, reader AxeIF posted a comment linking to the latest RPData Industry Market Wrap, which provides the following tables showing the Advertised Stock on Market and the Number of Properties Advertised for Rent. Turning to the Stock on Market first, you can see that the number of homes for sale nationally is up by 35%
On Friday at its blog, R.P.Data produced an interesting comparison of house prices across a number of Anglosphere markets. The first three years of US home prices coming down could be characterized as a reasonably steep downwards trajectory. Using a compounding growth rate, between April 2006 and April 2009 the annual rate of decline averaged
A few weeks back I reported how Melbourne rental vacancy rates, as recorded by SQM Research, have ballooned to 4.4% – a six year high: Yesterday, the Sunday Age published an interesting article, Rental squeeze begins to ease, which adds some colour on the rental apartment glut that is developing in Melbourne. MELBOURNE’S rental market
On Wednesday, the mainstream media reported on the December 2011 house price data released by Australian Property Monitors. These reports noted that national house prices rose marginally in the December quarter, breaking a year long run of negative growth. The below extract from Fairfax is indicative of mainstream media’s reporting of the APM release: HOUSE
You never know what your going to be handed in a train station: could be a ticket, maybe a price rise, even a good kicking. Yesterday for me it was a combination of all three. The ticket came in the form of a pamphlet from Lend Lease promoting a Brisbane property development. The price rise was simply
In March 2011, HSBC’s chief economist, Paul Bloxham, made the following claims in relation to Australia’s housing bubble: Without some reversal of these structural changes [lower interest rates, better-anchored inflation expectations, and increased availability of housing credit] – which is a virtual impossibility – we do not expect Australian housing prices to fall. Indeed, we
The 8th 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 325 markets in seven countries: Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom, and the United States.
Following is a guest post from regular commenter Nathan Webb: You could be easily forgiven for not noticing that RPData’s house price series is subject to revision. The revisions are usually difficult to find and seldom referred to in R.P.Data commentary. Nonetheless, they are there and run the numbers to see what they can tell us
It seems that Melbourne’s booming dwelling construction is having the desired effect, with the state’s rental vacancy rate hitting a seven year high of 4.4% according to SQM research: This compares to the national rental vacancy rate of 2.4%: In both charts, there is an unmistakable seasonal element to a December spike but, equally, there’s
Westpac has released its quarterly house price expectations index. Since October there’s been a marked lift: The Westpac-Melbourne Institute Consumer House Price Expectations Index posted a strong rise in January, increasing 16.1pts from 9.0 in October to 25.1. This is the highest reading since April last year and the first gain since January 2010. While
Residex has released some new stats on the Australian housing market. I tend not to follow Residex to closely. I prefer RP Data’s hedonic methodology. However, in the interests of full disclosure it is always important to get a second opinion. The latest data from Residex is below. There is nothing remarkable about it and
As UE noted earlier, the ABS has updated its 5671 dataset today which means it is time for me to update the charts that give us a sneak peak of the direction of the housing market. For those new to these charts here is what I said last time: For those who don’t know, the ABS
Over the weekend, serial entrepreneur and celebrity Mark Bouris penned an investment advice piece in the Daily Telelgraph extolling the virtues of property as a long term investment. It’s not worth wasting too much time on this but the thrust of his piece is worth looking at because it makes one big mistake that you should
