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.

48

Pascometer burns red on property

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

53

Defending the bubble

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

137

2012 Demographia International Housing Affordability Survey

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.

18

Crunching RPData’s revisions

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

85

Melbourne rental vacancies skyrocket

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

30

Rate cuts boost house price expectations

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

19

Residex house prices

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

48

You’re fired

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

27

NSW FHB’s drive housing finance

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the November Housing Finance data. The overall value of dwelling commitments rose 2.1% seasonally adjusted in November, with owner-occupied commitments rising 2.2% and investor housing increasing 1.8%. In number terms, owner-occupied finance commitments rose 1.4%, led by the purchase of new dwellings

21

QBE’s poor timing

Yesterday QBE Insurance Group (QBE) shocked the share market with a huge profit warning: QBE Insurance Group foreshadowed a 40%-50% fall in annual profit for calendar 2011 following a late spike in catastrophe claims. QBE said its US$1.28bn profit in 2010 could be chopped in half, partly because the claims bill generated by severe floods

46

HIA dispels the doom

The Housing Industry Association (HIA) Economics Group has released a note on where it sees dwelling prices heading for 2012. Strangely for an economic review the language appears very defensive and subjective, e.g “slice and dice”, “no bloodbath”, “bleating”, “yacking”, and “peddle” whilst the all too familiar words like “softening” and “price moderation” are dragged

75

Bottom picking is for monkeys

Fairfax’s Chris Vedelago has published a marvellous piece of journalism at Domain today: Counting eggs before they hatch It’s amazing how little it takes to get some people in propertyland very excited. Not long after RP Data-Rismark released its November property price data the industry was buzzing with “news” that the much-anticipated recovery for the residential real

31

AFG says mortgage lending trending up

The latest AFG mortgage index report was released yesterday. As MacroBusiness readers may remember I use the AFG lending volumes as a leading indicator of the direction of the home lending market as they appear to be a relatively good leading indicator for the official ABS data in the 5609 and 5671 datasets. For those who

31

HIA says house sales up, unit sales down

The Housing Industry Associations (HIA) released its November 2011 New Home Sales report today, a survey of Australia’s 100 largest builders. According to the HIA: Total seasonally adjusted sales increased by 6.8% October figures were revised down to 2.8% gain Detached house sales increased by 9.8%, mainly through NSW and Victoria Multi-unit sales dropped by

50

Westpac blindsides APRA

The politico-housing complex appears to have some infighting on its hands, with news that Westpac, the country’s second largest bank, has incorrectly classified nearly $30 billion in loans: Westpac has infuriated the peak banking regulator and the opposition has called for an explanation after the bank revealed that it had incorrectly classified $28.8 billion in

38

RP Data home price index for December

By Leith van Onselen Please find below the RP Data December home price index press release which, for some reason, is still not available on their website. Here are the key figures taken from the release. First, the change in dwelling values: Note the -0.2% fall in raw (non-seasonally adjusted) capital city dwelling values and the -0.1% fall

50

Home prices rise slightly in November

Just in, RP Data has released its home values index for November. Capital city home prices have risen by a seasonally adjusted 0.1% over the month and regional values by 0.3%. Here is the release on AAP via Business Spectator: Australia’s capital city home values rose by a seasonally-adjusted 0.1 per cent in November, according to the RP Data-Rismark Home

57

RP Data expects ‘slow melt’ to continue

Missed this one last week. RP Data has released its 2012 Outlook, which forecasts a continued thawing of Australian home values: 2012 2011 has certainly been a tough year for the residential property market with property values falling across most capital cities and regional markets and the number of transactions also decreasing in most regions.  According to the October

52

Melbourne rental vacancies continue to rise

From SQM Research’s weekly newsletter comes the news that Melbourne’s rental vacancy rates again rose in the month of November, climbing to 3.4%: According to SQM Research: It seems that overall, rental vacancies remained reasonably steady throughout the country with the exception of Melbourne, whose vacancies continue to increase from month to month. SQM Research would now

39

The housing agenda

The RBA yesterday published the papers and discussions from its conference in August this year on the theme – The Australian Economy in the 2000s.  The whole selection of papers makes for an interesting read, including the one clearly written for the benefit our resident troublemaker Houses and Holes, entitled Housing and the Mining Boom.

21

Debating Black Dragon on house prices

Last week I posted about Louis Christopher’s latest appearance on Channel 7’s breakfast show in which he appeared to take a bullish position on the house market. This may have come as a bit of a surprise to many housing market watchers given that he appeared on the same show just 9 days prior with a

9

Developer damage

It shouldn’t really be much of a surprise to MacroBusiness readers that I have been expecting to see more flow-on effects of disleveraging. The slow down in the rate of credit issuance for housing has had quite an obvious effect on the government budget and we have also seen a slow down in retail trade.

57

Auctions defy AFG data

As I mentioned early last week, AFG’s lending figures pointed to a surge in new finance activity. The problem was, as I said in the post, that there weren’t any other leading indicators that matched this trend. The housing stock on market continues to rise, albeit at a slower pace, and auction clearance rates certainly didn’t show

19

RP Data October housing market overview

Find below RP Data’s October housing market overview. Some key points from this update: October saw the 10th consecutive month of home price falls. That’s the same number of months that prices fell during the GFC, when prices fell just 2.7% peak-to-trough on a seasonally adjusted basis. So the current decline from peak – 4.0%

35

An affordable Rolls Royce

The SMH howled this morning that “Housing affordability improves as prices slip”: Weaker house prices and falling fixed interest rates have increased affordability in the housing market for the third straight quarter, according to a survey. The Housing Industry Association-Commonwealth Bank housing affordability index rose by 1.2 per cent in September quarter to a reading

28

More weak housing indicators

As I stated yesterday, when it comes to Australian housing market analysis nothing is ever easy. AFG’s latest data is showing the boom is back, yet there isn’t any other leading indicator supporting this. Previous auction results still point to a subdued market and continue to follow a long term downwards trend that has been running since

27

Housing bear turns bull

Last week I mentioned that Louis Christopher from SQM research was on Channel 7’s sunrise show giving the real estate market a jolly good mauling with discussions of flakey real estate auction rates, bearish talk about increasing LVR’s and the fact that there was precedent for property prices to fall by 20%. However, SQM research