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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Australia fifth in global property bubble list

From the WSJ: The work by DeutscheDPB.XE +0.22% economists Peter Hooper, Torsten Slok and Matthew Luzzetti ranks different countries’ housing markets according to an average of two ratios: home prices to income and home prices to rent. Those metrics are calculated for each country on the basis of how far or below they are from their historical norms

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errr…RBA…we have a Sydney problem

By Leith van Onselen Yesterday’s Housing finance figures from the Australian Bureau of Statistics (ABS) revealed a blow-off in investor demand, with investor finance commitments jumping by 8% in October, 29% over the year, and hitting the highest level on record (see next chart). When looking at the state-by-state breakdown of investor mortgage demand, which

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SQM climbs aboard Sydney house price rocket

SQM Research released its weekly newsletter last night in which managing director, Louis Christopher, embraced Sydney’s rapid house price inflation: Each Tuesday, SQM Research updates our vendor asking prices index, which was released earlier this year. So far, we have been happy with the way the index has been tracking compared to the ABS house

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It’s called a “bubble”, Callam

Today at Business Spectator, noob Callam Pickering does another creditable job on housing: It is clear that low interest rates have gained some traction in the Australian housing market. However, this has resulted in two undesirable developments. First, first home buyers are effectively priced out of the market in most states; and second, speculation and

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New home finance accelerates again

By Leith van Onselen Today’s housing finance data for October, released by the Australian Bureau of Statistics (ABS), registered a 1.9% seasonally adjusted lift in mortgage demand for new homes in October, to be up by 12.4% over the year and tracking 13% above the 5 year moving average (see below charts): Looking at at the

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Investors still dancing on first home buyers’ grave

By Leith van Onselen One of the most notable aspects of the recent uplift in home prices is the prevalence of investor activity, which appears to be crowding-out first home buyers (FHBs). Today’s housing finance data, summarised earlier, continued this trend, with first home buyer (FHB) demand failing to launch, despite nominal mortgage rates at

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Speculators run wild in housing finance

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of October, which registered a seasonally-adjusted 1.0% increase in the number of owner-occupied finance commitments over the month: The number of owner-occupied housing finance commitments excluding refinancings registered a seasonally-adjusted 2.0% increase over the month to

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MS: SMSF property next “economic wreck”

From the AFR: Morgan Stanley Australia chief executive Steve Harker has renewed alarm over the vigour with which investors are borrowing money in their self-managed super funds to buy property, saying it’s sowing the seeds of a future economic wreck. Harker also predicts Australia is “going to be in a low-growth, low interest-rate environment for

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Parents, children pay for expensive houses

By Leith van Onselen The Productivity Commission has released new research on childcare in Australia, which is estimated to cost families around 9% of their disposable income across the income scale, despite $5.2 billion of subsidies from the Federal Government every year: Families across the income scale with one child in full-time long daycare spend

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Auction clearances weaken in Melbourne

By Leith van Onselen Reported auction clearance rates weakened in Melbourne but were broadly flat in Sydney over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 66% on 1,237 auctions reported to the REIV, with 262 auctions listed as “no result”, which should result in some downward revision

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RP Data weekend property market update

Click to view  RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 24 November 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 New

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What’s motivating property investors?

Cross-posted from DFA blog. There is an interesting story to be told about how investors are tapping into the property market. First from our household survey we know that investors are widely spread across household groups. Down Traders for example, are quite likely to add an investment property into the mix when they release capital.  However, there are about

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Housing’s rise won’t stave-off downturn

By Leith van Onselen The Masters Builders Australia (MBA) have delivered a stark warning today that the expected acceleration in residential construction won’t be anywhere near enough to offset declining engineering construction and the once-in-a-century mining investment boom unwinds. From The AFR: Apartment and other residential building will strongly recover in the next three years

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FHBs held back by credit cards

Cross-posted from Digital Finance Analylics. Each month the Reserve Bank publishes Credit Card data as part of its statistical tables. DFA incorporates this data into the market models we maintain, and we use a cards specific segmentation to analyse it. But this time, we also overlaid our property household segmentation to draw additional insights with this lens. So

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Population pressures require housing rethink

By Leith van Onselen Bernard Salt has published an interesting take in The Australian on Australia’s growing population and what it means for the housing market, particularly residential development: THE populations of Sydney and Melbourne have been summarily upped by another million by mid-century, which means that prevailing strategic plans intended to accommodate urban growth

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Will house prices flatten and fall in 2014?

Business Spectator’s newb, Callam Pickering, argues the case today: Investors have jumped on board the Sydney bandwagon but if they have invested in other cities recently then they would be disappointed in the results. The state national accounts, released last week, provide information on the average gross disposable income in each state. This data can

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Households burdened by longer mortgages

Cross-posted From Martin North’s Digital Finance Analytics blog. Last week when we published our mortgage industry report we had a number of requests for additional trend data. Specifically, is it true that more households are holding mortgages for longer and how does this align to age cohorts? So we ran some additional detailed analysis on

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Cut stamp duties to improve labour mobility

By Leith van Onselen The Productivity Commission has released its Draft Report into Geographic Labour Mobility, which identifies Australia’s high stamp duties as a key impediment and recommends a shift towards more efficient revenue sources, such as broad-based land taxes: The most common impediments to geographic labour mobility raised by stakeholders are insufficient housing supply

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What’s behind the East Coast “apartment boom”?

By Leith van Onselen The bluster over Australia’s nascent apartment construction boom has shifted into overdrive, with The AFR’s Rebecca Thistleton declaring that apartment living could become the new norm nationally as Australia’s population surges towards 37.6 million by 2050: …apartment living could become a nationwide trend if the population reaches 37.6 million by 2050, as

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Apartment boom!?

By Leith van Onselen Several investment banks are out today calling a housing construction “boom” following yesterday’s release of dwelling approvals data for October by the ABS. According to UBS, approvals averaged 2oo,000 on a seasonally adjusted annual rate in the two months to October, which is the highest level recorded since 1994. As regular

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Empty words as FHBs sold out on housing policy

By Catherine Cashmore, a market analyst and journalist with extensive experience in all aspects relating to property acquisition. Follow Catherine on Twitter or via here Blog. Since I started writing about housing policy and citing the growing concerns many are having with the rising price of accommodation, it’s been somewhat heartening to see a greater