From Craig James on today’s Westpac Consumer Sentiment: Aussies have got the message. Consumers believe that now is not the best time to be putting extra money into real estate. Since 1973 consumers have been surveyed on what they believe is the wisest place to put new savings. In the latest quarter, the share of
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.
By Leith van Onselen Australia’s speculator frenzy has continued its resurgence, according to today’s Lending Finance data for January, released by the ABS. As shown below, the annual value of investor loans in New South Wales (read Sydney) rose for the sixth consecutive month, with Victoria (read Melbourne) – the second hottest market – also
By Leith van Onselen Australia’s superannuation industry has signaled it will fight hard against any move to permit first home buyers (FHBs) to access their superannuation to fund a housing deposit, as speculation mounts that the Turnbull Government will include such measures in the upcoming May Budget. Late last month, Industry super funds chief economist, Stephen
By Leith van Onselen SQM Research yesterday released its weekly newsletter, which included some interesting analysis on the Brisbane rental market, where strong dwelling construction is pushing-up rental vacancy rates: According to the Australian Bureau of Statistics (ABS), population growth for Brisbane increased by 1.72% in 2015 to arrive at an estimated total population of 2,084,850
From the Q and A yesterday in following the speech by Assistant Governor Michele Bullock: “We are watching it because investors can be the first ones to get out if things turn down,” she said, warning that a rush for the doors could make a slump “much bigger than it would otherwise be”. Invited to repeat
By Leith van Onselen It’s becoming hard keeping up with the Turnbull Government’s housing affordability gimmicks. So far, we have received indications that the Coalition may include in the May Budget the following measures: Allowing first home buyers (FHBs) to access their superannuation for a housing deposit; Giving APRA the power to adjust the rules
By Leith van Onselen The Australian’s Adam Creighton has joined me in decrying the Turnbull Government’s proposed housing gimmick of allowing retirees to downsize from their large family homes without affecting the assets test for the Aged Pension or their superannuation caps: A new piece of feel-good idiocy is about to emerge, it seems. The
By Lindsay David, cross-posted from the LF Economics Blog: Australia has a gigantic housing bubble, fuelled by two decades of reckless debt issuances by our deregulated, yet highly protected, banking and financial system. Indeed, the latest international data from the Bank of International Settlements demonstrates Australia has the world’s second-highly household debt to GDP ratio
By Leith van Onselen As Sydney home values continue to hyper-inflate: A Freedom of Information (FOI) request has revealed that foreign buyers have hoovered-up 11% of home sales. From The AFR: Figures released under Freedom of Information laws from the NSW Office of State Revenue show that foreign nationals accounted for 11 percent of the
By Leith van Onselen The Turnbull Government’s defacto housing spokesman, Michael Sukkar, has given the strongest indication yet that the Budget will allow first home buyers (FHBs) to access their superannuation to fund a housing deposit. From The Age: Assistant Treasurer Michael Sukkar, who is spruiking housing affordability as a key platform of the May
By Leith van Onselen In scenes reminiscent of when former treasurer Joe Hockey told those looking to buy their first home to “get a good job that pays good money… [so] you can go to the bank and you can borrow money”, Australia’s real estate treasurer, Scott Morrison, has echoed Barnaby Joyce’s recent call for
From Moody’s: Looking ahead, Moody’s expects delinquency rates for Australian prime residential mortgage-backed securities (RMBS) will continue to rise moderately in 2017. “Weaker economic conditions in states reliant on the mining industry, rising underemployment, weak wage growth and less favorable housing market conditions will drive delinquencies higher,” says Alena Chen, a Moody’s Senior Analyst. “Nevertheless,
By Leith van Onselen Speculation continues to build that the Turnbull Government will allow first home buyers (FHBs) to access their superannuation to fund a housing deposit. From The AFR: The question is how the federal government will now use its May budget to… create the impression it is doing more to help curb foreign
By Leith van Onselen The Victorian Government over the weekend released a new plan to deliver “affordable housing” to Melbourne’s rapidly growing population [my emphasis]: There will no longer be a cap on how many dwellings can be built on a block, but new requirements mean developments must have a mandatory percentage of garden space.
Via the AFR: The federal Treasury has effectively confirmed it has been modelling reductions in the capital gains tax concession for investors, as the government continues to debate internally whether to adopt any change in the budget. In a series of email exchanges with the federal Labor Party, which lodged a freedom-of-information request, Treasury said
By Leith van Onselen Scott Morrison’s most recent “crackdown” on illegal foreign buyers of Australian residential property revealed that “the ATO has issued 388 penalty notices to foreign nationals in breach of the rules, attracting penalties of more than $2 million”. Thus, the average fine issued under this “crackdown” was just over $5,000, with the
While recent rumours that Scott Morrison has been sidelined by Do-nothing Malcolm probably owe more to the latter’s predilection for betrayal than anything that the Treasurer has done, he really isn’t doing himself any favours with this sort of clangor: Speaking on radio 2GB, the Treasurer said the idea that curbing negative gearing would ease
From Deutsche Bank: Total housing finance (ex-refinancing) up 1.3% mom in January (+15.6% yoy), driven by a 4.2% mom surge in investor commitments Investor housing finance commitments have surged 27.5% over the past year, with a dramatic turnaround in trends here evident following the RBA’s two rate cuts last year (with investor finance, for example,
By Leith van Onselen Last month, RBA assistant governor, Luci Ellis, tried to argue that Australian housing was not that expensive intentionally, claiming that “Australia is somewhere around the middle of the pack of mid-sized countries” on the metric of dwelling price-to-income ratios, and that “similar comparisons of household debt-to-income ratios across countries also put
By Leith van Onselen According to The Australian, the Turnbull Government is planning to allow retirees to downsize from their large family homes without affecting the assets test for the Aged Pension or their superannuation caps: Retired Australians would gain new incentives to save the proceeds from selling their houses to move into more practical
CoreLogic released its auction report yesterday, which revealed another weekend of strong auction conditions, with the national auction clearance rate rising to 80.8% from 77.8% last week, and remained well above the 64.9% recorded in the same weekend last year: However, auction volumes nationally (1,402) were slightly below the same weekend last year (1,488). As
By Leith van Onselen Today’s housing finance data for January posted a 1.0% fall in the number of new home finance commitments (both construction and new), with commitments also down by 0.4% over the year: Looking at the state-by-state breakdown, which is presented below on a rolling annual basis since it is not seasonally adjusted,
Hello, APRA, anyone at home? And the driver? 27.5% year on year growth in investor loans, out today: The bubble is back, APRA, and you need to tighten right away. There is no reason for the RBA to tighten vis inflation. It should actually be cutting. The economy also needs lower rates. But you can’t
By Leith van Onselen Today’s housing finance data for January, released by the Australian Bureau of Statistics (ABS), posted another strong monthly increase in investor finance commitments, but weaker demand from owner-occupies, most notably first home buyers (FHBs). According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) fell by a seasonally
Not much good news for GMA lately: Recall that the lenders mortgage insurer is still trading at its float price: And today it’s going to sink a long way below it. Thankfully APRA has been busy securing the cracking keystone in the Australian mortgage arch by letting it run its capital in extraordinary dividends since