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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Rental vacancies flat in October

By Leith van Onselen SQM Research has just released rental vacancy data for the month of October 2012, which revealed little change over the month: The key points from the release are: Nationally, vacancies stagnated during October, with a mere difference of 560 vacancies, coming to a total of 49,104 and a national vacancy rate

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When demand ain’t what it used to be

By Leith van Onselen ‘Underlying demand’ (or ‘pent-up’ demand) is the common methodology used in calculating whether there is a housing shortage. Put simply, underlying demand estimates what the demand for newly-built housing might be given the growth in population, trends in household size, demand for second (or holiday) homes, and economic conditions (e.g. employment,

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First home buyers turning grey

From Banking Day: The Mortgage Choice Future First Homebuyer Survey found that the proportion of people aged 30 and over has increased from 54 per cent in 2011 to 61 per cent in the latest survey, and that the proportion aged 40 and over has increased from 17 to 20 per cent over the same

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Genworth sees bipolar mortgage industry

Find below Genworth’s latest mortgage industry survey which shows very depressed lenders combined with a very enthusiastic brokers, among other discussion worthy factoids: Lending slows in 2012, with most lenders expecting continued reductions in credit growth ahead • The majority of lenders have experienced slow credit growth over the past year. • Queensland lenders have struggled over

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The house and land value trap

By Leith van Onselen Last month, I wrote an article in MacroInvestor entitled Beware the house and land value trap, which examined the pitfalls of buying new house and land packages on the fringes of Australia’s capital cities. The article was particularly critical of measures adopted by Australia’s property developers aimed at reinvigorating new home

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QLD home transfers & mortgages blast off

By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) has released data on housing transfers and mortgage lodgements for the month of October. According to DERM, the number of housing transfers and mortgage lodgements rose by 21.2% and 18.7% respectively in October 2012, and were up 35.9% and 23.9% respectively on

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RBA bets houses can save the economy

Find below a speech this afternoon by Jonathon Kearns, Head of Economic Analysis at the RBA, on the outlook for dwelling investment. The Outlook for Dwelling Investment Jonathan Kearns* Head of Economic Analysis Address to the Australian Business Economists’ Lunchtime Briefing Sydney – 13 November 2012 Housing is important to all of us as a place to

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Housing construction data worsens

By Leith van Onselen While housing finance data continues to improve, housing construction data is weakening, with the release of quarterly construction materials volumes by the Australian Bureau of Statistics on Friday showing further weakness in volumes of concrete blocks, clay bricks and roof tiles – materials typically used in housing construction (see below chart).

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Housing finance hits two-and-a-half year high

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of September, which registered a seasonally-adjusted 0.9% increase in the number of owner-occupied finance commitments over the month. August’s results were also revised up by 0.4%: Arguably, the most important figure in the release is the

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Housing high flyers move to macroprudential rules

By Leith van Onselen Goldman Sachs last week released an interesting report (below) on the stark differences that have emerged across developed country housing markets. The report essentially seperates the preformance of various housing markets into two distinct categories: ‘housing high-flyers’:where real house prices have increased strongly and are up cumulatively since Q1 2009; and

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Mortgages, transfers blast off in Victoria

By Leith van Onselen The cash-strapped and stamp duty-addicted Victorian Government might breathe a sigh of relief after Department of Sustainability and Environment (DSE) released data revealing a big surge in housing transfers in the month of October. It was the highest number of October transfers since 2009, with 15,336 homes changing hands, up 26%

6

NAB commercial property index deteriorates

NAB’s quarterly commercial property survey continued to deteriorate in the September quarter, not that you’d know it from A-REIT prices: NAB Commercial Property Index hits new low of -19 points in Q3’12 as domestic economy passes through a soft patch with business conditions weaker and forward indicators concerning. Retail participants least optimistic, but expectations soften most in

17

Auction clearance rates dip on lower volumes

By Leith van Onselen Auction clearance rates fell slightly in Australia’s two largest markets, with the number of auctions held down significantly on last weekend’s “Super Saturday” volumes. In New South Wales, a preliminary auction clearance rate of 60% was recorded from 563 auctions reported to the Real Estate Institute of New South Wales (REINSW).

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Housing prognosticators offer their visions

By Leith van Onselen Yesterday afternoon, I attended the Forecasting the Future  session at the Property Council’s annual Property Congress, held in Sydney. The session was moderated by Peter Verwer (Chief Executive of the Property Council) and included a number of high profile property industry analysts, namely: Nerida Conisbee: National Director of Research for Colliers

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Bigger houses, smaller blocks

By Leith van Onselen The Australian’s Bernard Salt has provided an interesting breakdown from the 2011 Census of the shift by Australian home buyers towards larger houses on fringe housing estates, as well as smaller studio apartments in the inner city: The 2011 census specifically asked the number of bedrooms in each dwelling. There are

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A view from the housing top

By Leith van Onselen I was lucky enough to be invited to speak yesterday at the Property Council’s annual Property Congress event at Sydney Town Hall. My topic was Super Trends, and the format was a panel discussion between James O’Loglin (moderator), Rachel Botsman (social innovator and author), Rebecca Huntley (Director, Ipsos Research), Tim Harcourt

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RP Data: House prices fell in October

By Leith van Onselen RP Data yesterday released its daily home values indices for 31 October, which revealed that dwelling values in Australia’s five major capitals fell by -0.91% over the month of October, partly reversing September’s 1.52% gain. All capitals, except Perth, experienced value losses, with Adelaide and Melbourne fairing the worst: Capital city

7

Genworth delays IPO again

From the AFR: Genworth Financial has warned of further delays to a partial float of its Australian operations, despite reporting an improvement in third-quarter local operating earnings and a drop in mortgage insurance delinquencies. Genworth put its mooted $US800 million second quarter 2012 initial public offering on ice earlier this year, after posting first-quarter losses

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New home sales plunge to new low

Well, it’s early days, but the RBA campaign to lift new home sales hasn’t begun overly well. From the HIA: A third consecutive fall in new home sales in September highlights the persistent lack of confidence towards housing in 2012, said the Housing Industry Association, the voice of Australia’s residential building industry. The HIA New Home Sales

6

Falling house sales crimp WA stamp duties

By Leith van Onselen From Landgate comes the below spectacular chart plotting Western Australian (WA) property transactions against population growth since 1954: As you can see, WA experienced one almighty boom in house sales in 2006, whereby the number property transactions shot well above trend. Since then, the WA housing market has been in the

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Residex: House prices rose in September

By Leith van Onselen Following Australian Property Monitor’s lacklustre result last week for the September quarter, Residex has released its house and unit price results for the month of September. According to Residex, house prices nationally rose by 0.94% over the month, although results were mixed across the capital cities: Results were worse for the

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Saul skewers negative gearing…again

By Leith van Onselen The Business last night ran a great segment (video above) questioning the merits of negative gearing – a question that I have posed many times over the past two years on MacroBusiness and my old blog. The transcript is provided below, along with key charts extracted from the video (the original