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.


Auction clearance rates going sideways

By Leith van Onselen Auction clearance rates over the weekend were 59% in Australia’s two major markets – Sydney and Melbourne. This compares to a year-to-date average of 62% and 61% respectively, according to the Real Estate Institutes of New South Wales and Victoria. In Victoria – usually the auction capital of Australia – the


Defending the housing shortage

By Leith van Onselen Last week’s revelation that the number of households disclosed in the 2011 Census was some 900,000 less than that assumed by the National Housing Supply Council (NHSC) appears to have prompted a rear guard action from one of Australia’s key housing shortage proponents – the ANZ Bank. Over a number of


Low doc pain

From Banking Day: Borrowers with low-doc loans, who tend to be self-employed, may be experiencing a greater than the usual level of difficulty paying their loans. Fitch Ratings said that delinquencies in the low-doc segment tend to be between two times and two and a half times those of full-doc loans. In the year to


Wakelin’s Eureka moment on Melbourne property

By Leith van Onselen It seems everyone is turning on the Melbourne housing market. Earlier this week, the Real Estate Institute of Victoria (REIV) capitulated, noting that Melbourne would see no house price growth in the short-term and, at best, only moderate price growth over the medium-term. The REIV’s analysis was joined by the generally


Flipping a thing of the past

By Leith van Onselen As noted previously, the Budgets of Australia’s state governments are suffering badly from a sharp drop in stamp duty receipts on housing transfers, which in 2011-12 are expected to be -20% below the levels of 2007-08 (see below chart). In addition to lower housing prices, a key driver behind the fall


Auction clearance rates lacklustre

By Leith van Onselen Auction clearance rates over the weekend remained lacklustre in Australia’s two major markets. According to the REIV, Melbourne recorded an auction clearance rate of 56% over the weekend, which was the same as the previous week (revised down from 57%) but below the year-to-date average of 61%. The number of reported


REIV capitulates

By Leith van Onselen The release of the 2012 REIV State of the Victorian Property Market report (below) provides a sobering assessment. According to the REIV, transaction levels – both private sales and auctions – are well down on the five-year average (see below table). Which, given that transaction volumes typically drives prices, suggests that


Rental vacancies flat in May

By Leith van Onselen SQM Research has released its rental vacancies report for the month of May, which revealed that the vacancy rate nationally has remained flat at 1.8%, with Melbourne (3.1% vacancy rate) once again leading the nation. Year-on-year however, vacancies have risen by 7,270, with the national vacancy rate increasing by 0.2% since


Auctions clearance rates weak

By Leith van Onselen The recent 75 basis points of cuts to official interest rates since early – May appears to have done little to reinvigorate the auction market, which turned in a lacklustre performance over the weekend, particularly in Melbourne. According to the Real Estate Institute of Victoria (REIV), Melbourne recorded an auction clearance


QLD mortgage volumes off the canvas

By Leith van Onselen Last week, the Queensland Department of Environment and Resource Management (DERM) released data on housing transfers and mortgage lodgements. Like the Victorian Department of Sustainability and Environment statistics analysed last week, which showed ongoing deleveraging, the DERM data is current to May 2012, so it leads the Australian Bureau of Statistics


RP Data June market update

By Leith van Onselen RP Data has released its June wrap of the Australian housing market (video below) which, as always, makes for some good viewing. The video covers housing market conditions and prices as at end-May 2012, where dwelling values fell by -1.4% over the month, which was the worst result since 2008 at


Victoria deleverages

By Leith van Onselen Last Friday, Victorian Department of Sustainability & Environment (DSE) released ransfer and mortgage data for the month of May, which showed 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 May 2003 to May 2012:


NSW moves to stimulate housing

The Reserve Bank may be happy to watch housing burn but right on cue government intervenes to ensure the dream lives on. The chosen weapon? Grants! From the AFR: The centrepiece of the O’Farrell government’s budget, delivered on Tuesday, is a package to encourage new housing developments, including a $5000 “New Home Grant” for all non-first


May AFG mortgage data seasonal adjustments

Please find below a guest post from Nathan Webb on the latest AFG mortgage finance data. Enjoy! The AFG mortgage sales came in almost right on expectations, with 7635 against expectations of 7562.  Their headlines were almost as good, with AFG proclaiming, “BIGGEST MONTH FOR MORTGAGE SALES IN 3 YEARS – MAY FIGURES”.  While that


Weekly RP Data house price analysis

By Leith van Onselen After seven consecutive weeks of declines, the RP Data-Rismark daily home values index has registered a weekly rise, with national capital city home values registering a 0.1% increase in the week to 6 June 2012 (see below chart). The rise was driven by Sydney, Perth and Brisbane, whose values rose by


Property slump seen in volumes

By Leith van Onselen Any one seeking an answer as to why Australia’s real estate agencies, state governments, and housing construction industry are under pressure only needs to look at the below charts from RP Data, showing the marked slowdown in home sales and dwelling approvals relative to long-run averages. The first chart shows that


RP Data May home price indices release

By Leith van Onselen Please find below the RP Data-Rismark press release on May’s -1.4% decline in capital city home prices, which was covered on MacroBusiness yesterday. Below is the summary table showing the monthly, quarterly, and yearly results by region: And here are the charts showing the declines by capital city and nationally: The