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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Rental listings collapse across Australia

CoreLogic has released rental data, which shows that listings have collapsed across the combined capital cities, down around 40% from their pre-pandemic level: This decline in listings has helped drive strong rental price growth, with rents soaring 8.3% across the combined capitals and 9.0% nationally in the year to April: CoreLogic’s data accords with SQM

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Aussie dwelling approvals collapse

New data released today by the Australian Bureau of Statistics (ABS) shows that dwelling approvals fell by 2.4% in April and were down 32.4% year-on-year. The fall was driven by unit approvals, which fell 6.1%, whereas house approvals rose 0.5%. Over the year, houses approvals fell 33.7% whereas unit approvals fell 28.7%. The next chart,

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Australian mortgage demand slumps as rates rise

The Reserve Bank of Australia (RBA) has released mortgage growth data for March, which reveals that mortgage demand continues to fade. Quarterly mortgage credit growth slowed further to 1.8% – down 0.3% from January’s 12-year high: Owner-occupiers continue to drive mortgage growth, rising by 1.9% over the quarter versus 1.7% growth for investors: However, annual

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Aussie banks tighten clamps around leveraged mortgage borrowers

The latest mortgage risk data from the Australian Prudential Regulatory Authority (APRA) showed that an unprecedented 24% of new mortgages originated in the December quarter of 2021 were at a debt-to-income (DTI) ratio of six or above: Indeed, the percentage of loans undertaken at high DTI ratios snowballed over the prior five quarters, which partly

14

Buying a new home is not worth the risk

With Australian home builders falling like flies amid soaring materials costs, as well as the prospect of soaring interest rates and falling property prices, Justin Lawrence – a partner with Henderson & Ball Lawyers – believes a “perfect storm” fraught with danger now faces buyers of off-the-plan properties: “We could have a crunch where some

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Australian home builders are dropping like flies

The crisis facing Australia’s residential construction industry continues to worsen. So far this year, we have witnessed several high profile residential builders collapse. These include major players like ABG Group, Privium, Probuild and Condev, alongside smaller firms like Home Innovation Builders, Next and Hotondo Homes Hobart. Yesterday it was reported that one of Queensland’s biggest

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The reason behind Australia’s record tight rental market

One of the strangest phenomena arising from the pandemic is how Australia’s rental vacancy rate plunged to a record low at the same time as net overseas migration turned sharply negative. According to the Australian Bureau of Statistics, Australia has lost around 180,000 migrants over the pandemic – a sharp turnaround from the circa 225,000

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Western Sydney migrant enclaves baked under concrete

Recall that the incoming premier brief from top bureaucrats within the NSW Department of Premier and Cabinet told Premier Dominic Perrottet that Australia needs an “explosive” surge of 2 million migrants to boost the economy. “Ponzi” Perrottet then proceeded to lobby the federal government for a big immigration increase. Yesterday, we also witnessed fake green

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“Nervous” home builders confront “worst ever” conditions

So far this year, we have witnessed several major Australian residential construction firms fall into liquidation, including ABG Group, Privium, Probuild and Condev. Multiple smaller construction firms have also gone bust, including Home Innovation Builders, Next and Hotondo Homes Hobart. Building giant Metricon is also reported to be on the verge of collapse following the sudden

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EMERGENCY! Trigger the ADGSM now

Here’s what the Australian Industry Group said yesterday: “The cessation of gas trading by Weston Energy plunges hundreds of businesses across Eastern Australia into uncertainty around their energy bills and is a warning of more pressures to come on business and households from high energy prices,” Innes Willox, Chief Executive of national employer association Ai

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Half of Australian building companies trading insolvent

Recently we have seen multiple major residential construction companies go into liquidation, including Probuild, Condev, ABG Group, and Privium, alongside several smaller players like Hotondo Homes Hobart, Home Innovation Builders and Next. Construction giant Metricon is also reportedly on the verge of collapse following last week’s sudden death of founder and CEO Mario Biasin. Russ

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Australia headed for rental market calamity

CoreLogic’s latest housing affordability report showed that the proportion of household income required to meet rental costs has surged over the pandemic, led by Australia’s regions: Another report from CoreLogic, released yesterday, showed that unit vacancy rates are plummeting, in part due to “increased rental demand thanks to the return of overseas migration”: Rent values

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Sydney’s house price bust gathers steam

CoreLogic’s daily index shows that Sydney is leading Australia’s nascent housing market downturn, record a 1.0% decline in dwelling values over the quarter to be down 1.3% from mid-February’s price peak: Westpac’s latest Housing Pulse shows a “sharp deterioration” across NSW housing indicators, suggesting there is “more to come near term” for Sydney’s house price

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Home buyers are still flocking to Queensland

While Sydney’s and Melbourne’s property markets are sliding into the red, Queensland’s continues to rise on the back of strong interstate demand. PropTrack’s Potential Buyers Index, which measures the number of people seriously interested in buying, shows that demand nationally has been trending down since March: But an analysis of the SA3 regions with the

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Auction market plumbs new 2022 low

CoreLogic has reported the lowest preliminary auction clearance rate in 2022; albeit based on volumes that we 41% lower due to the federal election. The national preliminary clearance rate slid to 62.9%, down from from last week’s preliminary result of 64.6%, which was revised to 60.1% at final figures. In the same weekend last year,

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Westpac: crashing buyer sentiment pulls house prices lower

Westpac has released its Housing Pulse for May, which declares that Australia’s housing market is now “entering a broad–based correction phase that will be largely shaped by the speed and extent of the interest rate tightening”. Home buyer sentiment has collapsed to its lowest level since the Global Financial Crisis in 2008, with Westpac tipping