By Leith van Onselen It’s been a poor week for the Australian housing market, with the RP Data-Rismark daily home price index recording a -0.59% decline in national capital city home values in the week ending 9 May 2012. Australia’s three major capitals – Sydney (-1.20%), Melbourne (-0.55%), and Brisbane (-0.15%) – led the declines,
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.
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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.
In a move that must go down as rather bold for the nation and downright upsetting for Melbourne, last night’s Budget included the following, from PWC: Removal of CGT discount for non-residents The Government will remove the 50 per cent capital gains tax (CGT) discount for non-residents on capital gains accrued after 7:30pm (AEST) 8
By Leith van Onselen Well it didn’t take long, the Federal Budget has only just been released (it’s 9.00pm Tuesday as I write this post), and already the Housing Industry Association (HIA) is complaining that the Government didn’t offer incentives aimed at reinvigorating Australia’s ailing home building market: The Housing Industry Association, the voice of
By Leith van Onselen With the Australian Bureau of Statistics (ABS) scheduled to release the March Housing Finance statistics next week, I thought it would be worthwhile to update readers on recently released Victorian Department of Sustainability & Environment (DSE) transfer and mortgage data for the month of April, which shows continued weakness in the
Please find below another guest post from MacroBusiness reader, Nathan Webb. Enjoy! The whole reason that I started looking at seasonal adjustments of the AFG volumes was that I couldn’t stand the erratic and false headlines that AFG were producing. It’s a symptom of them not understanding what actually drives their monthly totals, which is
By Leith van Onselen SQM Research has released their stock on market data for April, which has registered a small fall in the number of homes for sale nationally, with stock levels largely unchanged from April 2011: However, there’s great divergence between the capital cities, with stock levels remaining highly elevated in Melbourne, Adelaide, Hobart
Now that all the hype over the RBA’s rate cut and Mega Bank’s reduction in mortgage rates has died down. Its time to recap on the only campaign in Australian media focused on Mega Bank’s balance sheet and urging bankers to follow regulatory rules and responsibilities. Whatever situation Mega Bank may be faced with politically
By Leith van Onselen Earlier today, Houses and Holes posted on Genworth LMI’s worsening exposure to the Australian housing market. In the Genworth presentation attached to the post is the below chart, showing that a key driver of the increased insurance pay-outs (and the 1st quarter loss) was a sharp rise in mortgage delinquencies in
By Leith van Onselen The release of the HIA-Jeldwen New Homes Sales report earlier this week was a disaster for Australia’s residential construction industry, with new home sales in March falling to the lowest level since 1994: Two states where the situation appears particularly worrying are Victoria and Queensland, where new house sales are running
From the excellent Banking Day: Genworth will lift its premiums on lenders’ mortgage insurance by seven per cent in Australia, its US management disclosed last night. The rise will help offset a rise in the severity of claims that triggered a loss of US$21 million in the March 2012 quarter on Genworth’s Australian business. The company’s
By Leith van Onselen It’s been a busy couple of weeks, with Australia’s four main housing data providers – the Australian Bureau of Statistics (ABS), Australian Property Monitors (APM), RP Data-Rismark, and Residex – each providing their capital city house price indices results for March or April 2012. Those unfamiliar with these indices would be
By Leith van Onselen 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 March quarter of 2012, which confirmed that the housing “slow melt” has continued. In seasonally adjusted terms, the price index for established houses for the weighted
By Leith van Onselen RP Data-Rismark has just released it’s home values index report for the month of April (below), and it’s poor month as predicted with Australian home values declining by -0.8% over the month nationally, led by Melbourne (-1.7%): The result would have been much worse had it been seasonally adjusted. According to
By Leith van Onselen The Australian Taxation Office (ATO) today released its Taxation Statistics for the 2009-10 financial year, which once again revealed that Australia has become a nation of loss-making landlords. Below are the key tables from the ATO release. First, the summary of rental deductions for the 2009-10 and 2008-09 financial years: According
From the HIA! New home sales fell to their lowest level in over a decade in March 2012, said the Housing Industry Association, the voice of Australia’s residential building industry. HIA Chief Economist, Dr Harley Dale said the Reserve Bank of Australia needs to act boldly tomorrow and cut the official cash rate by 50 basis points. “The Bank needs to send a clear
By Leith van Onselen RP Data-Rismark this morning released its daily home price indices for 30 April, which revealed that Australian capital city home values recorded a -0.73% fall over the month – the largest decline since January 2012 (-0.97%) and breaking two consecutive months of rises (+0.68% in February and +0.18% in March). The
By Leith van Onselen Here is the Residex home price results for the month of March, as well as an extract of the commentary from Residex CEO, John Edwards. For readers unfamiliar with how the Residex home price indices are calculated, John Edwards provides the following explanation: It is an index calculation developed by Residex over
By Leith van Onselen Australian housing is back! Or its it? A quick read of the latest Australian Property Monitor’s (APM) house price results for the March quarter (release below) suggests that the Australian housing market has shrugged-off recent woes and has returned to growth, rising by 0.9% in the March quarter: AUSTRALIA’S house prices
APM has released its March quarter house price data. The release was titled “Australian housing market shows signs of recovery” and here are the headlines: All capitals recorded increases in house prices over March with the exception of Adelaide and Brisbane. Sydney’s resilience continues despite Australia’s highest medians with both house (+1.4%) and unit (+2.5%)
For those who don’t know, NAB releases a quarterly index tracking commercial property. The two outstanding points this quarter are the ongoing retail carnage, hitting new lows in the quarter, and the optimistic projections that seem to characterise this industry relentlessly. NAB Commercial Property Survey _March-2012 \
By Leith van Onselen From SQM research comes the news that Australia’s rental vacancy rate remained flat in March at 1.7% (up 0.2% year-on-year), with only 243 vacancies added during the month: According to SQM Reserach’s Managing Director, Louis Christopher: It appears that Australia’s rental market is remaining excessively tight for the time being with
By Leith van Onselen If there’s one industry that will welcome the upcoming cut in official interest rates it’s the housing industry where, according to the RP Data-Rismark daily home values indices, overall Australian capital city home values continued to contract in the week to 25 April 2012, led by Melbourne (see below chart). According to RP
By Leith van Onselen Today, Veda released the results of their quarterly Consumer Credit Demand Index for January to March 2012. Below are the full details presented without comment. PRESS RELEASE Veda’s Quarterly Consumer Credit Demand Index January – March 2012 Consumer credit demand still soft but mortgage enquiries rise for first time since GFC
By Leith van Onselen Earlier in the month, The Age reported that the property industry (including residential construction) is the most valuable industry in Victoria, contributing $36.9 billion, or 12.2%, to the gross state product of $301.4 billion, according to economic consultants AEC Group for the Victorian division of the Property Council of Australia (see
I’m not going to pretend that the following is forensic but with the release late last week of the Foreign Investment Review Board’s (FIRB) annual report, we can now estimate the degree of involvement of foreign purchases in the Australian property market. According to FIRB, residential property recorded 20.92 billion from 9556 approvals: That’s an
By Leith van Onselen Residex CEO, John Edwards, last week gave an interview on Switzer (video above), in which he gave a dire prognoses of the Victorian (read Melbourne) housing market: “I’m worried about Victoria. When I look at the Victorian economy, I can’t see anything that’s actually going to do it any good. It’s
Cross posted with permission from Capital Appreciation: The latest Property Council of Australia (PCA) – ANZ Property Industry Confidence Survey results indicate that property professional respondents in the ACT were slightly more positive about residential property in the June 2012 quarter but they are generally negative about the overall economy. I’ve highlighted some of the charted results for the ACT
Moody’s has just announced that they have put Genworth Financial Mortgage Insurance Australia, one of Australia’s largest mortgage insurers, under review for possible downgrade of their credit rating. The reason for the review was obvious, with the delay of the partial IPO pushed back to 2013 (if at all?) and the announcement of a first
The Housing Industry Assocation (HIA) and RP Data have put out their latest residential land update for 2012 this morning. It’s not pretty reading, as it shows land sales “hitting a fresh low and median land values rising further in the December 2011 quarter.” In other words, a supply squeeze with a likely price shock to