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’
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.
Via Domain: Gambling is the latest target of banks in the new world of mortgage lending, with many lenders now questioning betting habits great and small. Mortgage brokers are warning prospective home buyers who gamble to rethink their habits or risk being unable to borrow from most lenders. The increased scrutiny even extends to large
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
By Leith van Onselen The SMH reports that the NSW Berejiklian government has forgone almost $850 million in revenue in two years to help first-home owners enter the crashing property market: New figures show the share of first-time buyers purchasing homes in the NSW property market reached 25.3 per cent in April – double the
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
By Leith van Onselen Friday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) stabilised in April, but have tanked by 19% over the year in trend terms, driven by an epic 27% crash in investor commitments, whereas owner-occupied commitments also fell by 16%: As regular readers of
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:
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
By Leith van Onselen Housing Minister Michael Sukkar says the federal government intends to have a greater say on how land it sells is used and developed. Sukkar says the government will be happier to accept a lower price if it makes it easier to impose stipulations on developers to increase housing supply with the
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
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
By Leith van Onselen In the week ended 6 June 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.08%: Values fell across all major markets except Adelaide: The quarterly decline is running at 1.67%, with all major markets suffering losses: Annual losses are running at
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
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
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 3.5% decline in the final national auction clearance rate to 58.0% – above the same weekend last year (54.1%) and above last week’s 57.7%: As you
By Leith van Onselen PwC tax partner Paul Abbey has suggested that state governments could progressively phase out stamp duty on residential property sales in favour of a tax regime based on land values. Abbey has proposed that buyers could opt to pay stamp duty immediately or pay an annual transfer duty replacement tax at
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
By Leith van Onselen Perth’s epic housing bust, where values have fallen for over 59 months with cumulative losses of 19.2%: Has seen values fall to the same level as April 2006, according to CoreLogic: “In Perth values were previously this low in April 2006 and values haven’t been this low across regional WA since July
Welcome back to the good times, via Banking Day: While ANZ bore the full brunt of the public backlash, ING appears to have escaped scrutiny of its move to pass on only a 17 basis point cut to new borrowers. ING’s actions are potentially more egregious than those of ANZ and Westpac because thousands of
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
By Leith van Onselen With Australia’s housing correction now dragging on for 20 months, and peak-to-trough declines totalling 10.3% at the 5-city level, it’s an opportune time to compare this correction with prior episodes. The below chart shows the various dwelling corrections over the past 30-plus years at the 5-city level, as measured by CoreLogic:
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
By Leith van Onselen More than five months after cracks in Sydney’s Opal apartment tower led to residents being evacuated on Christmas Eve, around half of the complex remains unoccupied. From Domain: There are 172 apartments still empty in the Opal Tower, which residents were forced to leave on Christmas Eve after cracks appeared in
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
By Leith van Onselen Back in April, Alucobond supplier Halifax Vogel Group (HVG) and its manufacturer 3A Composites were targeted in a class action by apartment owners in a Sydney building. They are being represented by William Roberts Lawyers in the first combustible cladding class action in Australia. They claim that the cladding on their
Find above a excellent interview with LF Economics’ Phil Soos on the CMC Report. Phil Soos is an independent economist, PhD candidate investigating bank crime and mortgage control fraud and co author of the book, Bubble Economics – Australian Land Speculation 1830 to 2013 with Paul Egan. In the interview, Soos and host Robert Barwick
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
By Leith van Onselen The Australian’s Grace Kelly wrote an article over the weekend attacking Millennials for shunning home ownership. It came after a survey from Deloitte revealed that only 49% of Australian millennials want to own their own home, while only 39% want to have children and start a family. From The Australian: Our
By Leith van Onselen NSW Treasurer Dominic Perrottet has warned of an additional reduction in stamp duty revenue of between $200 million and $300 million over four years. This follows a mid-year economic review downgrade of $2.5 billion over four years, a $747 million downgrade in March, and a $5.5 billion downgrade in the 2018 Budget. However,