By Leith van Onselen The 9th Annual Demographia International Housing Affordability Survey has just been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed. This year’s report assesses 337 markets in seven countries: Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom,
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.
Please find below analysis from Nathan Webb on the December AFG housing finance data released last week. It was another good month for AFG, with December figures coming in at 5912 versus expectations of 5262. This continues the trend that has been building up throughout 2012, and provides a good indication that house prices will
Yesterday’s letter from APRA to ADIs warning of higher risks associated with SMSF mortgages has been clarified. From Banking Day: APRA said that for the purposes of its capital adequacy standard, APS 112, SMSF loans are “relatively more complex” than standard mortgages. “As such, SMSF loans may have a different and potentially higher loss profile in
By Leith van Onselen Last August, I wrote an article, The forgotten boom, about the apartment construction boom taking place in the Australian Capital Territory (ACT). Yesterday’s dwelling completions data released by the Australian Bureau of Statistics (ABS) suggests that this construction boom might be coming to an end, with overall dwelling completions falling by
By Leith van Onselen From SQM Reserach today comes news that the rental vacancy rate spiked in December, rising by 0.4% to 2.3% nationally: According to SQM, much of this increase in rental vacancies is due to seasonality, “with many rental properties becoming vacant during this period due to possible reasons such as university students
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released building activity data for the September quarter, the highlight of which is the fall in the total number of dwellings completed on the back of a big fall in apartment building. According to the ABS, the total number of dwellings completed over
The ANZ’s quarterly property industry survey is out and shows a nice bump for this quarter Property industry confidence strengthened in the March quarter, increasing on a more stable outlook for the global and Australian economy, compared to the previous quarter. Looking ahead, the mining investment boom is approaching a peak and the Australian economy
By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) yesterday released data on housing transfers for the month of December. However, for some reason, DERM did not update its mortgage lodgements data, which it usually releases at the same time. Anyway, according to DERM, the number of Queensland housing transfers fell
By Leith van Onselen In November last year, I wrote an article entitled The house and land value trap, which described the extraordinary incentives being offered by Australia’s housing developers in order to stimulate sales of house and land packages. Today, Property Observer has provided a comprehensive list of incentives being offered by developers in
By Leith van Onselen The AFR quotes Wayne Swan this morning confirming that the Government’s budget strategy has been driven by the objective of lowering interest rates: “We’ve . . . engineered a macro rebalancing from fiscal to monetary policy…Our spending restraint has given the RBA scope to reduce interest rates over the past year or so, which is
Australian Finance Group released its December mortgage sales numbers yesterday and the reading was sobering for the housing recovery. The AFG focused on the annual aggregate growth in mortgage issuance for the year, which looked good: The volume of mortgages arranged increased by 15% in 2012 over 2011 according to AFG, Australia’s largest mortgage broker. AFG’s
By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday published an article claiming that Victorian residential property values surpassed $1 trillion for the first time in 2012: Property is a significant part of the Victorian economy and holds a large portion of the state’s overall wealth. This is documented every two years
By Leith van Onselen Yesterday’s housing finance release from the Australian Bureau of Statistics (ABS) revealed a sharp contraction in first home buyer (FHB) mortgage demand following the October 2012 expiry of first home buyer grant subsidies on pre-existing dwellings in New South Wales and Queensland, as well as the 1 July 2012 expiry of
By Leith van Onselen I am perhaps stating the obvious in saying that the last few years have not been kind to your typical Melbourne property investor, with real house prices falling and rents stagnating since June 2010 (see below chart). Now, the Real Estate Institute of Victoria (REIV) is predicting a continuation of the
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of November, which registered a seasonally-adjusted -0.5% decrease in the number of owner-occupied finance commitments over the month. Analyst’s had expected a seasonally-adjusted rise of 0.5%: Arguably, the most important figure in the release is the
By Leith van Onselen Over the weekend, the Australian Financial Review (AFR) ran an article suggesting that a recovery in first-home buyer (FHB) new home sales is afoot following the changes to FHB grants in New South Wales and Queensland, which in October 2012 ended the FHB grant on pre-existing dwellings in return for more
By Leith van Onselen New home sales and dwelling approvals data released this week has been hailed by some commentators as signs that Australian housing construction has finally turned the corner after experiencing recessionary type conditions over the past few years. While the uptick in both sales and approvals over the past few months is
By Leith van Onselen In a clear broad-side to the Reserve Bank of Australia (RBA), which argues that Australian housing values are not out of line with many comparable countries, Fitch credit ratings agency claims that Australian housing remains amongst the most expensive in the world. From Property Observer: Australian housing affordability has improved markedly
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of November. At the national level, the number of dwelling approvals rose by a seasonally adjusted 2.9% to 13,307, driven predominantly by a 10.1% increase in approvals for private sector units and apartments. Consensus was
By Leith van Onselen SQM Research has released its Stock on Market figures for the month of December, which revealed a -6.0% decline in the number of homes listed for sale nationally over the month and a -5.1% decrease in listings over the year: As you can see from the above table, all capitals recorded
By Leith van Onselen From the Housing Industry Association (HIA) today comes news that new homes sales are staging a tentative recovery, particularly in the detached house segment. Total new home sales rose by 4.7% in November driven by 7.7% lift in detached house sales, whereas sales of multi-unit homes (apartments) fell by 6.9% following
By Leith van Onselen On 7 January, Today Tonight provided a surprisingly good report on the outlook for the Australian housing market in 2013. The video, which is provided below, provides a good summary of the year end RP Data-Rismark house price results and contains interviews with Professor Steve Keen, RP Data’s Cameron Kusher, APM’s
The performance of construction index for December is out this morning and, as expected, it’s not the best. Despite some encouraging signs, the national construction sector finished 2012 in negative territory according to the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®). The seasonally adjusted index was 1.8 points stronger
By Leith van Onselen The Real Estate Institute of Victoria (REIV) has released preliminary data on the overall number of home sales in Metropolitan Melbourne in calendar year 2012. According to the REIV, 69,000 homes were sold in 2012, which was nearly -3,000 less than 2011 and the lowest volume of sales since 1996 when
Our own Unconventional Economist was warning of the coming trouble with the Victorian real estate market throughout 2012 due to delayed supply response that is seeing large amounts of new product coming into the market as prices begin to fall. In addition, sales in new housing developments have fallen rapidly and the bearish trend in mortgage data
RPData just released their end-of-year housing data for 2012 and it confirms what many MB readers already knew. 125bps over the last 12 months still hasn’t been enough to get traction under the market and as we roll into the “fiscally responsible” new year 2013 isn’t looking all that great either. The latest uptick in
By Leith van Onselen Residex CEO, John Edwards, on Monday gave an interesting video interview on Switzer where he discussed the outlook for the Australian housing market in 2013. In a nutshell, Edwards does not believe that the overall housing market will rebound next year (rather it will mirror 2012’s performance) because housing affordability
DEEWR’s job vacancy report is out for December and it makes some pretty doomy reading for those New Year job prospects. The Internet Vacancy Index (IVI) decreased by 3.5% in November 2012 in trend terms. Over the year, the IVI has fallen by 23.0% and is now at its lowest level since the series began
By Leith van Onselen SQM Research has just released rental vacancies data for the month of November, which showed a big pick-up in rental vacancies in Melbourne, but continued extreme tightness in Perth: The key points from the release are as follows: Nationally, vacancies rose slightly during the month of November 2012, increasing by 0/1%