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.

11

Housing correction broadens to ‘affordable’ end of market

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

49

Curing the curse of negative equity

Via Martin North: As home prices fall, the risk of households with mortgages falling into negative equity is rising. This has the potential to have significant economic consequences for households and the community more generally. I discussed this with Frank Chung from new.com.au yesterday who posted an article based on the DFA analysis. As house

16

Half of Australian renters are living in squalor

By Leith van Onselen The 2018 Household Income and Labour Dynamics in Australia (HILDA) survey revealed that ‘housing stress’ – defined as when “housing costs are more than 30% of income and household income places the household in the bottom 40% of the income distribution” – is particularly high for renters: Whereas the proportion of

43

Pascometer calls the house price bottom

Weeoo, weeoo, weeoo. The Pascometer has sifted through the bearish data until he’s finally found  tidbit with which to call the house price bottom: …here’s a little indicator worm that’s turned: The Sydney/Brisbane house price ratio has returned to normal. As previously reported, Sydney house prices tend to be 1.7 times more expensive than Brisbane

7

How Australia’s housing correction compares with history

By Leith van Onselen With Australia’s housing correction now dragging on for 14 months, and peak-to-trough declines totalling 5.5% at the capital city level, it’s an opportune time to compare this correction to prior episodes. The below chart shows the various dwelling corrections over the past 30-plus year at the 8-city level, as measured by

9

Mad Macquarie sucked into mortgage crackdown

Via the AFR: Suncorp is attempting to improve insights on living expenses and lending on mortgage borrowers by requiring a minimum of three months statements for all credit liabilities, including home and personal loans, overdrafts, lines of credit and any other loan facility statements. …Macquarie Bank customers will need to be able to demonstrate they

41

Dire warnings for Aussie property mount

More folks turning uber-bearish. Yesterday it was Deutsche: At best, mortgage growth will continue to slow as deleveraging works its way through the economy constraining house prices and discretionary spend, but it’s unlikely to be beautiful. At worst, we confront the Irish-like scenario. However, we think it’s unlikely to reach the Irish heights of 25

14

Are Brisbane house prices about to “take off”?

By Leith van Onselen Place Advisory residential research director, Lachlan Walker, claims that Brisbane house prices are about to take-off: BRISBANE home prices are about to take off at a time when the nation’s overall housing market is in its biggest slump since the global financial crisis. The Queensland capital was the only major state

67

Deutsche: Australian property to crash like Ireland

Via Deutsche’s new banking analyst Matthew Wilson: At best, mortgage growth will continue to slow as deleveraging works its way through the economy constraining house prices and discretionary spend, but it’s unlikely to be beautiful. At worst, we confront the Irish-like scenario. However, we think it’s unlikely to reach the Irish heights of 25 per

23

CoreLogic: Unsold properties stockpile in Sydney/Melbourne

CoreLogic’s weekly housing indicators continue to show broad weakness. Dwelling values have fallen heavily, led by Sydney and Melbourne: Auction clearances have crashed, again led by Sydney and Melbourne: Whereas mortgage credit is stillborn: At the same time, listings are exploding upwards to 2012 highs as unsold ‘stale’ stock accumulates across Sydney and Melbourne: The

3

High-rise apartment pipeline finally passes its peak

By Leith van Onselen A month ago, UBS’s George Theranou reported that there was still a huge pipeline of apartments to be constructed: “[In the June quarter there were] 229,000 dwellings under construction, including 156,000 private multi-dwellings,” UBS says. “There is still a huge supply pipeline yet to come, which was likely purchased ‘off-the-plan’ around

25

ANZ admits to HEM abuse in mortgage approvals

By Leith van Onselen Appearing before the banking royal commission in its seventh and final round of hearings, ANZ CEO, Shayne Elliott, admitted to being a serial abuser of the Household Expenditure Measure (HEM) – a relative poverty measure – in lieu of a comprehensive credit assessment, but also vowed to significantly wind-back its use to

1

Downturn in dwelling approvals gathers pace

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of October. At the national level, the number of dwelling approvals fell by a seasonally adjusted 1.5% to 17,070. The overall fall in approvals was driven by the volatile unit & apartment segment (-4.8%), whereas the detached

4

Melbourne becomes a city of shoebox and postage stamp homes

By Leith van Onselen As Melbourne’s population has ballooned by an insane 1.2 million people over the past 13 years, and with the city projected to grow to more than 10 million people by 2066 under the ABS’ ‘medium’ projection: Melbournian’s have already experienced the proliferation of high-rise ‘shoe box’ apartments, which have long been

38

Apartment owners slugged millions to replace flammable cladding

By Leith van Onselen It was recently reported that the owners of the 328 apartments in Melbourne’s Lacrosse tower are facing an estimated $10.7 million to replace dangerous flammable cladding. These owners have also lost around $1 million in rent and emergency accommodation costs, and over $500,000 in insurance premium hikes. Now, Sydney apartment owners are also

13

CoreLogic: Australia’s housing market plunges to GFC lows

By Leith van Onselen Following Friday’s post on CoreLogic’s daily dwelling values index results for November, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table). As you can see, Sydney (-1.4%), Melbourne (-1.0%) and Perth (-0.7%) drove a heavy 0.9% decline in dwelling values across the

13

Chris Joye climbs aboard the Big Australian Short

In the movie The Big Short, hedge fund manager Michael Burry (played by Christian Bale) is the man that looks inside sub-prime RMBS and discovers nothing but a mess of toxic assets. Chris Joye did something similar on Friday: One of our best “short” (as opposed to “long”) ideas this year has been to bet

45

Will there be a negative gearing reform property boom?

So says Domain: In the wake of Labor’s landslide victory in the Victorian state election, which followed a string of polls showing federal Coalition trailing Labor, Wakelin Property Advisory director Jarrod McCabe said he had been contacted by a number of prospective investors spurred into action by the increased likelihood negative gearing reforms will become

23

Crashing auction clearances to drive house prices lower

CoreLogic released its auction report yesterday, which reported another pathetically weak round of auctions, with auction clearances remaining near 2011 lows. The preliminary national auction clearance rate was just 47.0% versus 46.9% last weekend (later revised down to 41.9%). The preliminary clearance rate was also way below the 60.3% recorded in the same weekend of

13

Negative Gearing ‘pushes up rents’

By Leith van Onselen The latest Rental Affordability Index report – commissioned by the community housing sector – has taken a swipe at negative gearing and its partner-in-crime, the capital gains tax (CGT) discount, claiming they are forcing-up rental costs for lower income households: In Australia, this shift towards renting and increased rental costs, is

1

Housing finance takes another leg down

By Leith van Onselen The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of October 2018: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.2% MoM; -0.5% QoQ; -1.6% YoY) is still in the gutter, whereas business credit growth (0.6%

22

TAS Liberals hoisted on own population ponzi petard

By Leith van Onselen A few months back, the Hodgman Liberal Tasmanian Government rejoiced at the recent acceleration in the state’s population growth: Tasmania’s population is growing at its fastest rate in five years and the State Government wants to see more of it… “There’s no doubt that Tasmania has ample room for additional intake of