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.

5

Sydney rental vacancies continue to trend higher

By Leith van Onselen SQM Research has released its rental vacancy series for January, which revealed a mostly seasonal 0.3% decline in the national vacancy rate over the month but also a 0.1% decline over the year: Over the year, increases in vacancies were recorded in Sydney (+0.9%), Melbourne (+0.1%), Darwin (+0.7%), and Hobart (+0.1%),

37

UBS doubles house price crash despite rate cuts

And quite rightly. Mortgage finance is getting slaughtered: Investors -28% y/y; but owner-occupiers also -16%; while developers weaken The accelerating fall in home loans shows tighter credit is playing out. Looking ahead, while the Royal Commission didn’t make material changes, we downgrade our long-held forecast peak-to-trough drop in home loans from ‘20% with risk of

3

NSW rolls out piss weak social housing fund

By Leith van Onselen The NSW Government has reportedly rolled-out the second phase of its $1.1 billion Social and Affordable Housing Fund (SAHF), which aims to build another 1,000 homes for primarily older residents. The roll-out is part of the Government’s aim to deliver 27,000 social and affordable homes over ten years. From The AFR: The

11

Owner-occupied and investor mortgage lending crashes

By Leith van Onselen The ABS has replaced its housing and lending finance series with a singe new Lending to households and businesses release, which shows that lending to households has crashed on the back of plummeting owner-occupied and investor mortgage lending: According to the ABS: In seasonally adjusted terms, lending commitments to households fell 4.4%

11

Winner! The dumbest ever negative gearing defence

By Leith van Onselen We’ve hit peak stupid in the negative gearing debate, with Starr Partners CEO, Douglas Driscoll, claiming Labor’s policy will magically lead to an influx of Chinese investment, thereby locking-out first home buyers. From Yahoo Finance: Instead of boosting the volume of first-home buyers in the market, the changes could lead to a

24

Corrupt mortgage brokers launch absurd banking devils ads

This is a new low in political economy stupid: Mortgage brokers are a con. Their brand of competition is simply to destroy lending standards and fuel absurd property prices out of which they take massive and conflicted trailing commissions. UBS research found that brokers “a statistically significantly higher level of factual inaccuracy via the broker

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Property Council PM backs mortgage broker locusts

By Leith van Onselen Prime Minister Scott Morrison gave a National Press Club address yesterday, where he defended the mortgage broking industry against the Hayne Royal Commission’s recommendation to overhaul mortgage broking from a commission-based to a user-pays system: “The mortgage brokers understand, with the cautious way we’ve responded to the report, that we understand

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Domain: Sydney landlords crushed by falling rents

By Leith van Onselen Domain research analyst, Eliza Owen, has published a report showing that Sydney’s rental vacancy rate is rising at the same time as rents are falling: The Sydney rental vacancy rate has been trending higher. In January 2019, the rate was 2.8 per cent, up from 1.8 per cent in the previous

43

Policy makers knew about flammable cladding but did nothing

Cross-posted from The Conversation: The fire at the Neo200 building on Spencer Street in the Melbourne CBD this week has eerie similarities to the Grenfell Tower disaster. Fortunately, instead of 72 people dead as at Grenfell, only one person was hospitalised for smoke inhalation. Nevertheless, the building industry has responded straight from the Grenfell song sheet. Rydon, the

14

AV Jennings joins housing smash

By Leith van Onselen House and land developer AV Jennings has released its first half results for 2019, which revealed sharp falls in both revenue and profit: The report also pointed to further weakness, and blames “saturated, extreme media coverage”: As previously flagged, market conditions were expected to soften, particularly in Sydney and Melbourne: ➢Price

5

CoreLogic leading indices signal more housing falls

CoreLogic’s leading indices are out and they continue point to further house price weakness. After barely retracing over the Christmas break, listings are ready to rocket into the Autumn not-selling season: As shown above, stock levels are at levels not seen since February 2012, and could see record potential stock levels this year. SQM Research’s

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Gerard Minack: “A recession in Australia is becoming more likely”

By Leith van Onselen Independent economist Gerard Minack has released a report explaining why he thinks “a recession in Australia is becoming more likely”. In the report, Minack notes a number of downside risks, including: The accelerating decline in dwelling values; The accelerating decline in building approvals; Leading indicators of employment are weakening; and The negative

42

Alan Kohler: Let mortgage brokers die

By Leith van Onselen The mortgage broker locusts continue to swarm the Hayne Royal Commission’s recommendation to overhaul mortgage broking from a commission-based to a user-pays system. Mark Bouris – executive chairman of Yellow Brick Road – claims that the reforms will kill the mortgage broking industry, erode competition, and drive mortgage rates up: Buying

25

The epic twin crashes of Perth and Darwin property

By Leith van Onselen The boom and bust of Perth and Darwin’s housing markets have been well documented on MB. Prices have fallen sharply since 2014: Population growth cratered just as dwelling construction boomed: Leading to surging rental vacancies: Now, CoreLogic has released research showing that Perth’s and Darwin’s dwelling values have fallen by more

18

NSW belatedly cracks down on high-rise slum towers

By Leith van Onselen The Opal Tower farce, which saw residents evacuated from the 34-storey structure after huge cracks were discovered, has forced the NSW Government to undertake a major overhaul of high-rise construction. From The Australian: The changes… will ensure that every party to the construction process, from drafting a design to the final build, is

34

Melbourne property losses smash through 9%

By Leith van Onselen According to CoreLogic’s daily house price index, Melbourne dwelling value losses smashed through 9% over the weekend: The below chart shows how Melbourne’s price decline compares against prior price corrections: As you can see, Melbourne’s current property losses are both the second steepest and deepest in nearly 40 years of data.

33

Are auction clearances rebounding?

By Leith van Onselen Family homes are reportedly “flying” at auctions “as pent-up buyer demand sparks competition”, according to Domain. The fist pumping comes as Domain’s weekly auction report showed a preliminary clearance rate of 52.8%, although there was conveniently no mention that the final result for the week prior was a disastrous 36.9% –

9

Experts slam Labor’s dud NRAS 2.0

By Leith van Onselen A conga-line of “experts” have slammed Labor’s $6.6 billion affordable rental scheme, which is aimed at facilitating the construction of 250,000 ‘affordable’ rental dwellings over the next decade. From The Australian: The Grattan Institute’s John Daley said the policy, announced by Bill Shorten at Labor’s national conference in December, would be

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Thousands of Victorian buildings have flammable cladding

By Leith van Onselen The fallout from Monday’s fire at the 41-storey Neo200 building on Melbourne’s Spencer Street continues, with Victoria’s Planning Minister, Richard Wynne, reportedly seeking a nationwide ban on combustible cladding, which is present in “thousands of Victorian buildings”. Wynne says the federal government has a major role to play in ensuring that building

25

Australia’s housing bust continues to broaden

By Leith van Onselen CoreLogic’s dwelling values results for January reported that losses have been driven by the premium end of the market, whereas values across the most affordable 25% segment has held up relatively well: While this is true when viewed on an annual basis, growth rates are negative and trending down across virtually

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CoreLogic weekly Australian house price update: universal falls

By Leith van Onselen In the week ended 14 February 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, tanked another 0.24%: Values fell across all major markets: The quarterly decline has steepened to 3.57%, with Sydney, Melbourne and Perth suffering heavy losses: Over the past 12 months, home

55

Aussies still deluded about property outlook

By Leith van Onselen Australian’s faith in Australian property remains unshakeable, according to the latest ME Bank Household Comfort report. This revealed that only 13% of homeowners and 11% of investors expect the value of their properties to fall this year, versus 38% of homeowners and 52% of investors that believe property prices will rise either

9

Final auction clearance rate stuck in low-40s

By Leith van Onselen Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a large 5.0% decline in the national auction clearance rate to 42.8%: As you can see, Sydney’s auction clearance rate fell by 4.2% to 49.5% whereas Melbourne’s actually