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.


Charting new home sales

By Leith van Onselen Following on from Houses & Holes’ earlier post today summarising the Housing Industry Association’s (HIA) new home sales data for the month of July, which recorded a 4.7% fall over the month, below are a series of charts plotting the series since its inception in the mid-1990s. First, the below chart


New home sales fall sharply in July

From the HIA: New home sales fell for the first time in five months in July 2013, said the Housing Industry Association, the voice of Australia’s residential building industry. “There has been strong upward momentum to new home sales since the record lows plumbed in 2012. One monthly fall, while disappointing, does not really change


Affordability, investors reduce home ownership

By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released its biennial Housing Occupancy and Costs Survey for 2011-12, which provided some interesting insights, including the sharp fall in homeownership since 1994-95, from 71% to 67%. Sydney University housing expert, Judy Yates, attributes the slide in home ownership to declining affordability and increasing


MB Members’ August Report: Where to for Sydney property?

Find below the August Member’s Report in which we continue our detailed look into the prospects for national city housing markets. To subscribe for this and other monthly member reports visit ——————————————————————————————————- Sydney’s housing market has sprung to life recently after a prolonged period of underperformance since the second half of the 2000s, which saw


Mortgage affordability continues to improve

By Leith van Onselen The Housing Industry Association (HIA) today released its quarterly housing affordability index for the June quarter of 2013, which registered another improvement. From the Media Release: The cyclical improvement in housing affordability continued in the June 2013 quarter… The HIA-Commonwealth Bank Housing Affordability Index increased by 4.4 per cent in the


Rural housing grants rorted

From the SMH: City renters will be offered $7000 to buy property in rural areas as part of an overhaul of the NSW government’s underperforming regional relocation grant scheme. The Deputy Premier and leader of the Nationals, Andrew Stoner, will announce new rules for the scheme on Wednesday, including a minimum relocation distance of 100


Why isn’t housing an election issue?

Cross-posted from The Conversation The high cost of housing in Australia’s cities is denying most aspiring first home buyers the opportunity to purchase a home. The current high dwelling prices reflect the long boom of the 2000s, when across all Australian metropolitan centres dwelling prices doubled or tripled, with the sharpest escalation being for dwellings


Auction clearances still strong

By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets were once again strong over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 82% on 573 auctions reported to the REIV, although a massive 108 auctions were listed as “no result”, which should result in


RP Data weekend market summary

Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 25 August 2013. This week’s report includes: Latest weekly dwelling value results; Auction results & clearance rates; Latest median house & unit prices; Average time on market & vendor discounts; Mortgage market activity; and


Where have the first home buyers gone?

Westpac has released an interesting report (below) examining why first home buyer (FHB) demand is so weak, which appears to be driven primarily by “the ‘shadow effect’ of earlier pull-forwards in activity associated with changes in government assistance [which] have effectively depleted the pipeline of potential FHBs [and] could take over a year to rebuild”.


HIA calls for supply-side reform

By Leith van Onselen The Housing Industry Association (HIA) has today released a paper examining the role and performance of residential construction during economic downturns and recoveries, namely: A: The early 1980s B: The early 1990s C: The introduction of the GST [mid 2000] D: The Global Financial Crisis [from 2008] The early-1980s: Prior to


The great land price inflation

Cross-posted from David Collyer at Prosper Young academic Philip Soos has developed a unique Australian property database that allows us to inspect the entrails from many angles and in detail. Some data dates from as early as the mid-1800’s. We owe him thanks for this selfless public service. You can access his spreadsheets here. There


What construction bounce?

By Leith van Onselen As noted by Houses & Holes earlier, UBS has today come out with a note upgrading its housing forecasts. It now expects 10% price growth this calendar year and 5% the next, as well as the following pick-up in dwelling construction: In this detailed note we reiterate our forecast for dwelling


Building suppliers warn on housing recovery

By Leith van Onselen Australia’s building products manufacturers have come out today warning that the hoped-for recovery in housing construction required to fill the void left as the housing boom unwinds is proving patchy. From the AFR: Boral, Fletcher Building, CSR and Adelaide Brighton have been forced to cut thousands of jobs, close plants, write


Gotti: Highrise Harry fights the bubble

Sometimes there are some pretty interesting interpretations of Australian business activity in our media. From Gotti: The efforts to stop “the mother of all housing booms” are intensifying. Australia’s biggest apartment builder and owner, Harry Triguboff, has seen a seven per cent rise in the price of Sydney apartments in recent months. He understands the


New home buyers: the forgotten people

Cross-posted from Ross Elliott at The Pulse. Sir Robert Menzies wrote his speech ‘the forgotten people’ about middle class Australia in 1942. Much of it remains relevant today, especially for the generation of new housing buyers who seem increasingly disregarded in public policy debates. It occurred to me recently that with all the various lobby


Auction clearances strong again

By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets were strong again over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 75% on 555 auctions reported to the REIV, although 75 auctions were listed as “no result”, which should result in some downward revision


Rental vacancies steady

From SQM Research comes its rental vacancies statistics for July, which shows no change in the rental vacancy rate at the national capital city level, but a small reduction in the actual number of vacancies: According to the Media Release: …this figure still represents a 0.3% increase in vacancies since this month last year, with


RP Data weekend market summary

Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 18 August 2013. This week’s report includes: Latest weekly dwelling value results; Auction results & clearance rates; Latest median house & unit prices; Average time on market & vendor discounts; Mortgage market activity; and


Navigating the house price maze

Australia’s four main housing data providers – the Australian Bureau of Statistics (ABS), Australian Property Monitors (APM), RP Data-Rismark, and Residex – have provided their capital city house price indices results for the June quarter of 2013. The ABS, APM and Residex reported that national capital city house prices rose by 2.4%, 2.8% and 2.1%


Weekly RP Data house price update

By Leith van Onselen In the week ended 15 August 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.10% increase. It was the tenth consecutive weekly rise in values (see next chart). Results were mixed, however, with three of the capitals experiencing value increases


Will property investors turn to Brisbane & Adelaide?

RP Data’s Cameron Kusher has released a new report (below) examining whether buyers may soon turn their attention to more affordable housing markets, like Brisbane and Adelaide: Today’s Property Pulse looks at median house prices across Australia’s capital cities and uses the differences as a measure of affordability. Mr Kusher said that while median prices


The Drum does housing affordability

ABC’s The Drum last night screened a short segment on housing affordability, featuring Joel Pringle from Australians for Affordable Housing. In the segment, Pringle argues: Houses across Australia are mostly unaffordable for young Australians and, despite very low interest rates, first home buyer (FHB) demand has tanked. A major reason why FHBs are missing out


Cameron: Negative gearing a “huge issue”

By Leith van Onselen From JJJ’s Hack radio program comes the above extract of a segment aired yesterday on housing policy, which featured Labor Senator Doug Cameron and the Liberal’s Marise Payne. When asked why the Government won’t look at abolishing negative gearing, Senator Doug Cameron responded: “Negative gearing is a huge issue that is