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.

9

Does record low mortgage growth matter for house prices?

By Leith van Onselen Following yesterday’s post charting Australia’s housing finance data against house prices across Australia’s major capitals, below is a chart comparing mortgage credit growth – as reported monthly by the RBA – against dwelling values nationally, since I frequently get requests for this from readers: As you can see, unlike the ABS’

4

Sydney’s ‘ghost tower’ apartment boom

By Leith van Onselen Just a day after ‘Highrise’ Harry Triguboff’s mouthpiece, Robert Gottliebsen, warned that Sydney is facing chronic apartment shortages and escalating rents due to planning restrictions: …chaos reigns in both cities [Sydney and Melbourne] because supply cannot be generated to meet looming demand… In Sydney and Melbourne, with supply unable to be

10

Gottiboff: Apartment market to boom and bust simultaneously

By Leith van Onselen A fortnight ago, The Australian’s Robert Gottliebsen ludicrously claimed that apartment prices across Sydney had surged by 10% in the wake of the Coalition’s shock 18 May election victory: The Chinese realise Australia’s outlook has changed and have created a surge of buying that has skyrocketed Sydney apartment prices by 10

38

Auction rebound stalls

CoreLogic has released its preliminary auction report, which reported a sharp drop in the national clearance rate driven by the smaller capitals. The preliminary national auction clearance rate was 51.3%, well below last week’s preliminary clearance rate of 61.5% and also below the 53.8% final clearance rate recorded in the same weekend of last year:

3

Housing finance stabilised pre-Election

By Leith van Onselen Today’s housing finance data for April from the ABS recorded a small rise in mortgage commitments: As shown above, total finance commitments (excluding refinancings) rose by 0.2% in April, with owner-occupied commitments rising 1.0% and investor commitments falling 2.2%. Over the year, total finance commitments (excluding refinancings) crashed by 19.0%, with investor commitments

19

CoreLogic: House prices to rise slowly next year

By Leith van Onselen ANZ in conjunction with CoreLogic have released a new housing affordability report, which shows that Australian housing affordability remains stretched despite the recent decline in dwelling values: VALUE TO INCOME RATIO In December 2018, the dwelling price to income ratio across the combined capital cities was recorded at 7.0 times, the

36

Labor set to dump negative gearing reforms?

Ah yes, the Australian Labor Party, via The Australian: Labor’s new Treasury spokesman, Jim Chalmers, has signalled a ­decisive break with the past five years of economic policy under Bill Shorten, identifying the need to develop greater controls on spending and wind back high-­taxing measures ahead of the next election. In an interview with The

46

It pays to be a crooked developer in Melbourne

By Leith van Onselen In September 2016, Developers Raman Shaqiri and Stefce Kutlesovski illegally demolished the two-story 1859 Corkman Irish Hotel in inner-city Carlton. The building was under heritage protection, and yet these cowboy developers bulldozed the hotel under the cover of darkness without planning permission. Last year, the same developers pleaded guilty to dumping asbestos

30

Builder insolvencies soar as housing bust bites

By Leith van Onselen Data from the Australian Securities & Investments Commission (ASIC) highlights the impact of the crashing property market on the construction industry. Some 153 building firms across Australia were placed in administration during March, including 64 in New South Wales. From The AFR: Building industry insolvencies have risen to a four-year high

13

For sale listings skyrocket

By Leith van Onselen SQM Research has released its stock on market report for May, which posted a 4.0% rise in listings over the month and a 6.2% increase in listings over the year: Over the year, for sale listings rose across all markets except Darwin (-1.5%), and skyrocketed in Melbourne (+21.1%), Canberra (+25.0%), and

30

Mortgage stress rises to new record high

Via Martin North: Once again, it’s the continuing story of pressure on households as ongoing wages growth is not offsetting costs of living, and mortgage repayments as total debt continues to rise. Moreover, the trends have continued post the election. Across Australia, more than 1,071,829 households are estimated to be now in mortgage stress (last

64

ANZ passes on 18bps of rate cut, CBA and NAB 25bps, WBC 20bps

ANZ has held onto 7 basis points from today’s 0.25% rate cut by the RBA: “In making this decision we have weighed up a number of factors, such as business performance, market conditions and the impact on our customers, including our depositors. “While we recognise some home loan customers will be disappointed, in making this

1

CoreLogic leading mortgage index lifts

Via CoreLogic comes signs of life: Stock is still high: It is also interesting to note that the auction rebound is strongest in inner suburbs with the mortgage belts lagging: This represents an ongoing constraint on any rebound for Sydney as the move-up ladder will be stalled by negative equity. Not so prominent in Melbourne

7

S&P: Australian house prices face further falls

From Standard & Poors: MELBOURNE (S&P Global Ratings) June 3, 2019–Despite some recent positive developments, S&P Global Ratings expects house prices in Sydney and Melbourne to fall further in the next six to 12 months due to weak consumer and business sentiment. Low wage growth, global economic uncertainties, and a realization by market participants that