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.


SQM: Stock on market steady in September

By Leith van Onselen SQM Research has released its stock on market figures for the month of September, which registered no change over the month nationally, but a -2.6% decrease in the number of homes for sale over the year: Here’s the national chart, which shows stock levels remaining elevated: However, it’s a two-tiered market,


Negative gearing exposed

By Leith van Onselen Philip Soos, Master’s research student and employed researcher at Deakin University, last night gave a presentation on negative gearing. His Powerpoint is provided below. A summary article was published on Monday in The Conversation. I have been a long-time skeptic of negatively geared property investment, as articulated in detail on my old blog in June


House prices jump 1.4% in September

R.P.Data’s September house prices results are out this morning and, voila, growth! Over the month, house prices rocketed 1.4%: Here are the Hedonic Index prices: And the median prices: Finally, here’s the Sydney price chart, leading the charge: And Melbourne, less convincing: Perth, range bound: Brisbane, bouncing along the bottom: Am I excited by this?


Auctions take a breather

By Leith van Onselen The staging of the AFL and NRL Grand Finals over the weekend led to reduced auction activity in Australia’s two largest markets. In New South Wales, a provisional auction clearance rate of 62% was recorded from 424 auctions reported to the REINSW. This compares to a provisional clearance rate of 63%


Genworth’s housing confidence report rises

Yesterday Genworth released its biannual housing buyer confidence index and results showed a solid rise in confidence over the past six months to the highest level since 2007: And by state: The jump in Victorian confidence is especially eye-popping. But confidence in what exactly? The factors are these: The proportion of monthly income used to


Uncovering Australia’s sub-prime lending

By Leith van Onselen The Australian newspaper (Anthony Klan in particular) has done some great work this year in questioning the commonly held view that Australia’s banking sector is conservative. In April, The Australian uncovered how Australia’s largest banks are being forced to forgive mortgage debts of borrowers granted loans based on falsified or fraudulent


SQM turns bullish on house prices

Find below the press release for SQM’s new bullish house price predictions for the next eighteen month. They are certainly more sober than the reporting at the AFR suggests. A firming in house prices over the next 6-9 months is quite possible, based on the same condition you will see in SQM’s chart, that the terms


Stop talking, RBA, and do something

By Leith van Onselen The Reserve Bank of Australia’s (RBA) Financial Stability Review, released yesterday, contained at least three unambiguous warnings that Australian lenders should not seek to relax lending standards in a bid to increase market share and boost profitability: “With demand for credit likely to remain moderate, a challenge for firms in a


More salty claims on housing affordability

By Leith van Onselen There has been a spate of articles recently making some spurious claims about housing affordability in Australia. Yesterday, two articles caught my eye. The first, by the AFR’s David Basanese argued that mortgage repayments as a percentage of disposable income were around 6% below the average since mid-1986. My colleague, Houses


Residex challenges data provider’s rosy view of housing market

By Leith van Onselen Yesterday, Residex released its house and unit price results for the month of August. According to Residex, house prices nationally fell by -0.8% over the month, although prices rose across most of Australia’s sub-markets: Results were better for the unit market, with prices down by only -0.06%, with mixed results across


Auction clearances dip on higher volumes

By Leith van Onselen Auction clearance rates fell slightly over the weekend in Australia’s two major markets, although volumes were up significantly. In New South Wales, a provisional auction clearance rate of 58% was recorded from 436 auctions reported to the REINSW. This compares to a provisional clearance rate of 63% recorded last weekend on


QLD mortgage lodgements surged in July

By Leith van Onselen Late last week, the Queensland Department of Environment and Resource Management (DERM) released data on housing transfers and mortgage lodgements for the months of July and August. According to DERM, the number of mortgage transfers and mortgage lodgements surged by 32% and 35% respectively in July, before retracing -21% and -25%


NSW drives dwelling construction bounce

By Leith van Onselen The ABS has just released dwelling commencement data for the June quarter, which registered a 4.6% (1,497) increase in the number of dwellings that commenced construction over the quarter. Below is a time series chart showing the split at the national level: The construction of units & apartments drove the lift,


Vested interests squeal at FHOG changes

By Leith van Onselen As expected, vested interests have slammed the sensible changes to Queensland’s First Home Owners’ Grant (FHOG), in which the $7,000 grant on all dwellings will be replaced by a $15,000 grant on the purchase of new dwellings only. The REIQ strongly opposes the changes, arguing that first home buyers prefer established homes,


Housing finance falls in July

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of July, which registered a seasonally-adjusted -1.0% fall in the number of owner-occupied finance commitments over the month. June’s results were also revised down by -3.4%. Arguably, the most important figure in the release is the


First home buyer grants bite the dust

The late-1990s and early-2000s were full of housing policy blunders, which helped fuel the explosion of Australian home prices. In 1999, the Federal Government halved the rate of Capital Gains Tax, which encouraged (in concert with negative gearing) a surge of negatively geared property investment. This blunder was followed by the introduction of the $7,000


Auction clearance rates dip on low volumes

By Leith van Onselen Auction clearance rates fell slightly over the weekend in Australia’s two major markets, with both states also recording low volumes. In New South Wales, a provisional auction clearance rate of 63% was recorded from 396 auctions reported to the REINSW. This compares to a provisional clearance rate of 64% recorded last


Victoria continues to deleverage

By Leith van Onselen The Victorian Department of Sustainability & Environment (DSE) released transfer and mortgage data for the month of August, which shows continued weakness in the number of housing transfers and finance commitments. First, below is a chart showing the rolling annual number of housing transfers from February 2003 to May 2012: According


Stock on market lifts in August

By Leith van Onselen From SQM Research comes the news that the number of homes listed for sale nationally increased by 1.5% in August to be up 3.0% from a year ago: From the media release: Canberra, Sydney and Melbourne all recorded substantial monthly increases – 8.8%, 5.9% and 5.9% respectively. Canberra’s large monthly increase


Construction downturn hits the capital

By Leith van Onselen Last month, I noted how Canberra had recently experienced a mini-construction boom, particularly in units & apartments, which is starting to unwind, threatening jobs in the construction industry: Now, it appears the chickens are coming home to roost, with the Canberra Times reporting a swathe of building company collapses as housing


Auction clearance rates hold firm

By Leith van Onselen Auction clearance rates held firm over the weekend in Australia’s two major markets. In New South Wales, a provisional auction clearance rate of 64% was recorded from 430 auctions reported to the REINSW. This compares to a provisional clearance rate of 61% recorded last weekend on 314 auctions, and a year-to-date