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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Stockland warns again on new home sales

The RBA campaign to lift housing investment takes another blow this morning with Stockland warning again, especially about Victoria: Stockland today updated investors on the current state of the market at its first quarter investor briefing in Townsville, highlighting in particular that there has been no improvement in the challenging Victorian residential market since the

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Auction clearance rates dip again

By Leith van Onselen The Real Estate Institute of Victoria (REIV) reported a provisional auction clearance rate of 6o% on 853 results reported to the REIV. This compares to a provisional clearance rate of 61% recorded last weekend on 886 auctions, which remained steady once late results were chased-up. With 950 auctions initially planned over

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High-rise Harry sees an FHB strike

Gotti has an interesting take from High-rise Harry Triguboff this morning: In the last two months it has become apparent that the current generation of first home buyers is different from the generations that have dominated post-war Australia. The lower interest rates are not causing them to rush into new dwellings. Australia’s largest apartment builder,

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Comparing housing credit growth post rate cuts

By Leith van Onselen The release Friday of the October private sector credit aggregates by the Reserve Bank of Australia (RBA) revealed ongoing weak credit growth across the three broad categories: housing, personal, and business credit (see next chart). Total private sector credit grew by only 0.11% over the month of October and has risen

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RP Data November dwelling price breakdown

By Leith van Onselen Following on from yesterday’s post on the RP Data-Rismark November home price results for the five major capital city markets, which revealed a slight (-0.05%) decline in home values over the month at the 5-capital index level, RP Data has today published on its website a detailed breakdown of results for

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RP Data: Melbourne pushes house prices lower in November

By Leith van Onselen The RP Data-Rismark daily home values indices for 30 November has just been released, which has allowed me to calculate the change in dwelling values across the five major capital city markets over the month of November. At the national capital city level, dwelling values declined marginally, falling by -0.05% over

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New house sales fall again, units boom

From the HIA: New home sales climbed off the mat in October following a very weak period in mid-2012, said the Housing Industry Association, the voice of Australia’s residential building industry. “A 3.4 per cent increase in new home sales in October is a modest result, but at least it is a move in the right direction,”

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Sales crash in Melbourne housing estates

By Leith van Onselen The Age’s Chris Vedelego continued his fine form in a report yesterday on the looming disaster facing new housing estates on Melbourne’s fringe. Below are the main extracts, although I highly recommend that you read the full article for yourself: Melbourne’s outer-suburban property market is facing a serious slump as distressed

9

Banks call the housing construction bottom

By Leith van Onselen The release yesterday of quarterly construction data by the Australian Bureau of Statistics (ABS) seems to have piqued the interest of Australia’s banks, who were quick to call the bottom of Australia’s housing construction downturn and proclaim the beginning of an upswing. From Property Observer: Westpac says the September quarter figures

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Finally some much needed auction reform

By Leith van Onselen This week’s SQM Research Newsletter contained some welcome news for those that believe Australia’s property auction system is rigged and in dire need of reform. Here’s SQM’s managing director, Louis Christopher, explaining the changes taking place: “There have been some big developments in recent days over auctions, which I think is

19

HIA housing affordability jumps

The HIA has released its quarterly housing affordability index and it has jumped above the brief moment enjoyed by the handful of buyers that bought in the months during the GFC: The good news on housing affordability continued in the September 2012 quarter with improvements evident across all geographical areas, said the Housing Industry Association, the

4

Deloitte’s Australian Mortgage Report 2013

Deloitte has released its annual Australian Mortgage Report 2013 today and the news is that it expects an intensification of competition in the year ahead: Australia’s mortgage industry shifts up a competitive gear 26 November 2012: The heads of mortgages and home lending CEOs and CFOs in this year’s Deloitte Australian Mortgage Report 2013, expect

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Auction clearance rates dip in Victoria

By Leith van Onselen The auction clearance rate in Victoria remained just above 60% over the weekend on large volumes, although there were once again a significant number of unreported results that are likely to push the clearance rate lower as late resultsare chased-up. The Real Estate Institute of Victoria (REIV) reported a provisional auction

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Land values deflate across Australia

By Leith van Onselen Last month, the Australian Bureau of Statistics (ABS) released the annual national accounts, which contained land values data for each of Australia’s states and territories, as well as nationally. This data showed that Australian residential land values relative to GDP had deflated further to 1.90 times GDP in June 2012 from

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How to fix housing for good

By Leith van Onselen Catherine Cashmore published an interesting article yesterday at Property Observer questioning whether house prices in Australia can forever out-pace inflation: …we’re reaching that time of year where real estate pundits will dust off the crystal ball and make some future predictions into 2013 – not that we haven’t had a fair

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New housing index to be launched by SQM

By Leith van Onselen Missed this one yesterday.  SQM Research has revealed via the AFR that it will shortly release a new vendor asking price index that will track housing market sentiment by tracking how optimistic sellers are about selling prices. SQM will monitor a number of major real estate classifieds websites, and chart the

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Doubts rise around uplift in housing construction

By Leith van Onselen Following on from yesterday’s post questioning whether housing construction can recover enough to fill the void left as the mining investment boom unwinds from 2013, Bank of America Merrill Lynch has written an interesting report also arguing that the recovery in building construction will be “relatively moderate” as interest rates are

11

Auction clearance rates bounce back in Victoria

By Leith van Onselen The auction clearance rate in Victoria rebounded over the weekend on large auction volumes, although the high number of  undisclosed results is likely to see the clearance rate downgraded over the week as late results are chased-up. The Real Estate Institute of Victoria (REIV) reported a provisional auction clearance rate of

7

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