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.

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The foolproof investment

I just noticed that the residex blog had a couple of interesting data tables containing the breakdown of growth in house and unit prices over various time periods according to their own indexes. Houses Area Median Value Growth Rent Sales Predictions 20 Years % p.a. 10 Years % p.a. Year Ending July 2011 Last Quarter

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Earth to APRA…

In their latest monthly report this is what Herron Todd White had this to say about Western Australian housing: Perth Western Australia’s mining industry continues to be a symbol of Australia’s growing economic prominence on the global stage. The vast riches on offer have resulted in rapid population growth leaving the housing market in an

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Housing’s straw man argument

Rismark International’s Joint managing director, Christopher Joye, yesterday posted an interesting comparison of the Australian and UK housing markets, which he cleverly uses to defend Australian housing values. Let’s take a look at some key extracts. You often hear that Australian housing is more expensive than, say, UK or US housing, if not the dearest

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Herron Todd White’s bearish August

Two weeks ago I posted an article about the vintage of the real estate market in Brisbane. While doing so I provided a number examples of recent home sales in Brisbane that were below the value of the previous transactions in order to judge which year the market had wound back to in a broad sense.  Today

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Unsold housing supply jumps

As Macrobusiness readers would be aware the Australian economy has entered a period of slow credit growth, in fact last month Australia managed to deleverage for the first time since the GFC. This lower rate of credit issuance is having flow-on effects across the economy and one of the most obvious places is house prices.

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Analysing household risk in the SoMP

I have spoken previously a number of times about my concern that the RBA is mis-reading the risk presented by the high level of household debt that exists in the Australian economy at a time when debt growth is decelerating. The main crux of my concern is covered in the following paragraph in reference to the 2009

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More on Housing Finance

As H&H said earlier today, the 5609 dataset from the ABS has been updated for June. We actually need to wait until tomorrow to get the whole story on housing credit because the 5609 dataset has a sister dataset 5671 which contains the investor data. In the meantime here are some drill-downs on the owner occupier

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Housing finance bounce ends

JUNE KEY POINTS VALUE OF DWELLING COMMITMENTS June 2011 compared with May 2011: The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.5%. Owner occupied housing commitments rose 0.9%, while investment housing commitments fell 0.4%. In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations

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RPData sees the light

RPData has seen the light. For the first that I can recall it has stepped outside of simple supply and demand arguments for house prices and provides a downbeat assessment based upon rates of credit issuance: The Reserve Bank’s private sector credit numbers for June 2011 showed the lowest level of annual growth in history

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AFG’s July data

Just so we are clear about this, I am no longer sure if I trust the AFG data after the data revisions I reported on in early July. But in crazy times such as these it is important that everyone gets all the data and makes the decisions for themselves. So for the sake of

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Will aged care exacerbate the baby boomer bust?

Yesterday, Fairfax published an interesting article, Sell the family home: PM’s aged care shake-up, which highlights one of the key longer-term challenges facing the Australian housing market: the impending retirement of the baby boomers. JULIA GILLARD will prepare the ground today for the biggest shake-up of aged care in decades with a speech calling for

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More rent hysteria

It’s been interesting watching the change in perceptions regarding the housing market. Around this time last year, several well-known housing commentators were predicting strong gains in home values, including: BIS Shrapnel, which in July 2010 forecast a 30% rise in home prices over 3 years; and Australian Property Monitors (APM), which in March 2011 forecast

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RPData’s August video

RPData’s August housing market overview video was released today and is available below. Although I don’t agree with some of conclusions there isn’t much need for additional comment as once again the data trends speak for themselves. I do wonder however, given the latest credit issuance data, if those are bulltraps I see forming/ed at the end of some

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Gold Coast launches FHB triple pass (Updated)

Update: I was a little too quick on my judgement of the GCCC. It seems that this triple pass has actually been voted down 8-7 in this afternoon’s session. This may have been because on further inspection the new grant would have made the applicants ineligible for the latest state government grant. Either way the Mayor seems disappointed with the

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ABS house price falls moderate

Here are the ABS results for June Qtr house prices. All capitals fell slightly, except Sydney and Canberra, which eeked out small gains. JUNE KEY POINTS ESTABLISHED HOUSE PRICES Preliminary estimates show the price index for established houses for the weighted average of the eight capital cities decreased 0.1% in the June quarter 2011. The

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Move over banana smoothie

As the Australian housing bubble lurches, the CBA has launched a new marketing tool for would-be investors, an online game. “Investorville” is “fun and friendly” where you can make choices “just like a real investor”. In time, you’ll get so good at it that you’ll be able to “give it a go in the real

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The long kiss goodnight

The Australian housing bubble debate appears to have hit a stalemate, where the dominant view is that home prices will stagnate for an extended period as incomes catch-up (i.e. declining in real terms). It’s a reasonable view with precedent. For example, after the late-1980s house price boom and the strong run-up in house prices between

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Melbourne’s Miami connection

A few months back I had dinner with an American hedge fund manager. The fund had made good returns shorting the United States and Irish housing markets, and was undertaking reconnaissance of Australia’s capital city housing markets to determine whether similar shorting opportunities were available. In the days prior to the meeting, the fund manager

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June house price analysis

As Data sword stated earlier today the latest RPData media release is out today. As per usual I like to look beyond the headlines. Across the combined capital city housing markets, the rate of home value declines continued to moderate with values in June falling 0.2% in seasonally adjusted (s.a.) terms. The relatively flat June result follows

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House prices slide on in June

The RP Data-Rismark house price data for June is out and it’s basically an unchanged trend down. Seasonally adjusted, prices fell 0.2% (compared to 0.3% in May whilst the raw numbers slid 0.6% (compared with a revised 0.6% in May). The slide is looking rather like 2008, before the rescue. Delusional Economics will return later

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More rent hawkishness

RP Data a few days back released its June Quarter Rental Review. The report provides a detailed summary of the nation’s rental markets, both at the capital city and regional levels. Consistent with the June Quarter APM Rental Report, released last week, RP Data confirms that rental growth has stalled after a solid run-up between

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The vintage of Brisbane real estate

After Wednesday’s CPI announcement I received a phone call from a friend who I consider a perma-bull on houses. We have had many verbal jousting matches in past years about the future of housing and I doubt very much during those discussions whether I was listening to him or he was listening to me. The

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Another “affordability” study

  Below find the new National Centre for Social And Economic Modeling (NATSEM) report into housing affordability. The report is both quite good and quite frustrating. It acknowledges the severe unaffordability of the national housing market but never uses the word “bubble”.  As such, it provides some very good overvaluation assessments but fails completely to canvass

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BIS chief pushes the housing envelope

Earlier this month, the Chief of BIS Shrapnel, Dr Frank Gelber, gave an interesting interview on Switzer on the outlook for the housing market (click to watch video). The key discussion on the housing market starts from 5.15, where Dr Gelber says the following (paraphrased): The doomsdayers are “discredited”. “That was crazy stuff… they have

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Bulls, banks turn pathetic

Yesterday Michael Yardney the director of Metropole Property Investment Strategists penned a property piece in Smart Company that began: I’ve decided that I’m not going to participate in the property downturn and I would like you to join me. By now you are probably sick of hearing about the economic wows of the world and how Australia’s economy has

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Moody’s warns on Aussie housing market

Try as I might, I can’t find any reference in the Australian media (could be wrong) to a press release this afternoon by Moody’s warning of trouble ahead for the Australian housing market and a review of RMBS ratings. Thankfully in New Zealand they still seem to breathing (via Alex Tarrant at Interest.co.nz): Sydney, July 26, 2011

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Rents going nowhere fast

Last week, in The boys who cried rents, I showed how the private sector housing data providers’ perennial bullish predictions of strong rental growth across Australia’s capital city housing markets is at odds with recent data, which has shown sluggish rental growth nationally since early 2009 (see below RP Data chart). Chief amongst the forecasters

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Repossessions rising

In the last Financial Stability Review, the RBA had this to say about the rate of housing repossessions  in Australia: Rates of mortgagees’ applications for property possession generally declined in the second half of 2010; for the year as a whole, these rates were below those seen in recent years. The exception was south-east Queensland (comparable

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Residex responds (Updated)

Yesterday I posted on what seemed to be a very large turn around in sentiment from John Edwards the CEO of Residex. I also noted that there were some discrepancies between his claimed length of tenure in two of his own articles, and I also thought Mr Edwards was doing a bit of his own jawboning

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A new bullhawkian argument

Today’s bullhawkian charge cannot go without a prod. According to Chris Joye writing in Smart Company: There is mounting evidence to suggest that Australia’s housing market rests at a critical juncture…In my opinion, the near-term destiny of Australia’s housing market very much depends on next week’s second-quarter inflation numbers. If inflation is low, the RBA