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.


Auction clearances and volumes strengthen

CoreLogic released its auction report yesterday, which revealed another weekend of strong auction conditions, with the national auction clearance rate rising to 76.2% from 74.6% last weekend, well above the 69.5% recorded in the same weekend last year: Auction volumes nationally also surged to 2,376, well above the 1,876 recorded in the same weekend last


Coalition’s negative gearing tweak to slug demand

By Leith van Onselen One of the worthwhile and unexpected ‘housing affordability’ measures to come out of last week’s Federal Budget was the minor adjustments to negative gearing, namely limiting plant and equipment deductions to actual outlays incurred and disallowing property investors from claiming travel expenses relating to their property. These Budget measures are presented


Auckland’s median house price falls amid crashing sales volumes

By Leith van Onselen The REINZ has released its house price data for April, which revealed a 0.9% seasonally adjusted monthly rise in the national median house price, with prices up 9.4% year-on-year: In Auckland, the seasonally adjusted median house price fell 2.1% in April, with values up only 3.9% year-on-year. Outside Auckland, house prices


Canary croaks in Brisbane apartment market

Via the AFR: Brisbane apartment builder CMF Projects has called in administrators in what could be the first sign of a shake out in the cooling apartment market. The builder, which has completed at least a dozen high profile apartment projects in Brisbane, is the first builder of any real significance to go into administration in


That cracking sound is the politico-housing complex breaking

For seven years now we at MB have darkly observed that the Australian economy is caught in a growth straight jacket. It is as obvious to us as it is hidden from everyone else. The constraint is very straight forward: Australia earns income by selling dirt to the world; it makes itself rich by leveraging


NSW to bribe first home buyers in Budget

By Leith van Onselen Back in February, NSW Planning Minister, Anthony Roberts, hinted in no uncertain terms that the State Government would offer assistance to first home buyers (FHBs) so that they could benefit from rising wealth: “This is about fairness, and this is about enabling people to get into the Sydney housing market”… “Once


UBS: Bank levy “substantial risk to housing bubble”

Via UBS’ excellent Jonathon Mott: Flat revenue – the theme of 1H17 ‘Subdued’ was the most commonly used adjective through the banks’ 1H17 reporting season with little to get excited about. Following a period of anticipation given mortgage repricing, the banks’ results were a bit of a fizzer. Highlights of the 1H17 Results (sequential): (1)


Chinese investment in Aussie housing explodes

By Leith van Onselen The Foreign Investment Review Board (FIRB) has released its Annual Report for 2015-16, which registered another strong increase in applications from foreigners to purchase Australian real estate. According to FIRB, there was a 9% increase in the number of residential real estate approvals in 2015-16 to just over 40,000, with the


Be grateful the Budget’s housing measures weren’t worse

By Leith van Onselen Domain’s Jenny Duke has penned a piece bemoaning that the Budget did not go to greater lengths to assist first home buyers (FHBs) into the market: …the much-awaited savers scheme for first-home buyers… [allows] young Australians to make contributions into their superannuation for future use as a deposit. The only problem


Property parasites swarm Budget’s foreign buyer measures

By Leith van Onselen The property lobby has been quick to oppose the Budget’s measures targeting foreign buyers. Here’s the Housing Industry Association (HIA) via their Media Release: HIA is concerned about the negative impacts on residential building from the Budget’s measures on foreign investment. Plans to tax vacant homes, limit the share of foreign


Will the Budget break property sentiment?

When regulators launched macroprudential 2.0 a few weeks ago I wrote: To understand what they’re about, we can turn to a similar historical period. In 2003 the RBA confronted a relatively weak economy following the dot-com bust but a runaway property bubble in Sydney. To combat it, the then Macfarlane RBA set about popping the bubble without


Chinese property headed for big adjustment

Via Investing in Chinese Stocks. From a Guotai Junan report: Calculated in December 2016 data. Net assets as a substitute for capital indicators, the securities industry in December net assets of 1.64 trillion yuan, the trust industry net assets of 0.45 trillion yuan, the futures industry has not yet announced, according to the previous data


NAB scorches interest-only with double rate hike

I did warn you about NAB: National Australia Bank is slugging interest-only owner occupier and residential property investors up to 50 basis points, but has cut rates for some principal and interest buyers. NAB’s one to five year fixed rates for owner occupier interest-only loans are rising from between 30 to 50 basis points, while the rate for


The rise and rise of stamp duty

CoreLogic’s Cameron Kusher has produced an interesting analysis of property taxation across Australia, which reveals that state and territory governments collected a record high 51.9% of taxation revenue from property in the 2015-16 financial year, driven primarily by surging stamp duty receipts in New South Wales and Victoria: The value of property taxes collected was


East Coast highrise approvals continue to unwind

By Leith van Onselen Yesterday’s dwelling approvals data for March from the ABS reported a stabilisation in unit & apartment approvals following recent sharp falls: To add more colour to this series, I have once again plotted the breakdown of approvals by type for each of the states and territories, which are presented below in


How big is the dwelling glut now?

By Leith van Onselen With the ABS yesterday releasing its dwelling approvals data for the March quarter, it’s an opportune time to once again examine how dwelling construction is tracking against population growth at the national and state and territory levels. The below charts track the following, which are based on the latest available quarterly


Loon Pond horrified at Dastayri bubble bashing

At Loon Pond central: Coalition frontbencher Angus Taylor says the mocking of a western Sydney family home by Sam Dastyari is “tasteless” and a “shocking indictment on the state of the modern Labor Party”. Senator Dastyari, a NSW senator and deputy opposition whip in the Senate, posted a Facebook video on the weekend that shows


Dwelling approvals hammered in March

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of March. At the national level, the number of dwelling approvals fell by a seasonally adjusted 13.4% to 16,484. The overall decline was broad-based, with both unit & apartment approvals (-22.5%) and detached house approvals (-4.3%) falling.


Property parasites swarm Coalition’s first home buyer bribe

By Leith van Onselen The Turnbull Government’s Budget measures to address housing affordability are expected to include extending salary-sacrificing to first-home buyers (FHB), which has drawn praise from the property lobby. From The Australian: Chief executives of two of Australia’s biggest housing developers have welcomed an expected federal budget initiative that will help first-home buyers save


CoreLogic: “By every measure, housing affordability has worsened”

By Leith van Onselen CoreLogic has released its Perceptions of Housing Affordability report, which “compares current property data to the cost concerns and housing aspirations across Australia’s generations, families, states and income brackets”. According to CoreLogic, residential real estate is by Australia’s largest asset class valued at $7.0 trillion – far outstripping superannuation at $2.2