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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Australian property values surge another 1.2% in February

CoreLogic’s dwelling price results have for February were released over the weekend, which revealed another 1.2% increase in values over the month at the 5-city level, driven by more strong rises across Sydney (1.7%) and Melbourne (1.2%): It was the eighth consecutive monthly acceleration in home values at the 5-city level: Over the February quarter,

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“Super Saturday” delivers auctions boom

The first “Super Saturday” of the year delivered another booming auction market, with both Sydney and Melbourne delivering high preliminary clearance rates off very strong volumes. At the national level, the preliminary rate was 77.1%, down marginally from 77.7% last weekend, but way above the 50.4% recorded in the same weekend last year: Sydney’s preliminary

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Owner-occupiers drive mortgage growth off the canvass

The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of January 2020: A chart showing the long-run breakdown in the components is provided below showing broad-based weakness: In particular, the flow of personal credit has fallen by 5.0% year-on-year. A long-run breakdown of owner-occupied credit (0.44% MoM;

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AMP: House prices to surge 10% in 2020

AMP Capital has forecast 10% growth in house prices nationally in 2020, but growth is expected to slow to around 5% in 2021. Senior economist Diana Mousina says factors such as the interest rate cuts in 2019 and the potential for further monetary policy easing in 2020 should offset any impact that rising household debt

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Renting much cheaper than buying in Sydney and Melbourne

CoreLogic’s head of residential research, Eliza Owen, has penned interesting research comparing the cost of renting versus buying across Australia’s capital cities. This research finds that renting is generally cheaper in Sydney and Melbourne, whereas the reverse is true in Darwin and Hobart: Methodology: Mortgage serviceability is based on an 80% loan-to-value ratio loan (i.e.,

51

Welcome to the COVID-19 Financial Crisis (CFC)

Economic forecasters are amusingly trying to pay catch-up, via Domain: Mr Morrison said the government was preparing to help the areas of the economy most at risk from the breakdown of supply chains and the absence of tourists and university students. “It’s a health crisis, not a financial crisis. But it’s a health crisis with very

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CoreLogic weekly house price update: Booming

In the week ended 27 February 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.38%: The rise in values were again fairly broad-based: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are still rocketing: The strong rebound across Sydney

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Sydney and Melbourne final auction clearance rates stay strong

Earlier this week, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 5.0% decline in the final national auction clearance rate to 72.7% – well above the same weekend last year (49.4%): As you can see, Sydney’s final auction clearance rate

14

Lord Mayor paints Sydney with high-rise “ghettos”

Last year, Sydney’s Lord Mayor, Clover Moore, warned of high-rise “ghettos of the future” arising from the Berejiklian Government’s proposed higher-density targets: “This is a planning disaster and a significant threat to Sydney’s future economic growth and livability. “The reality is that the pretty pictures in the government’s brochures will turn out to be the

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ASIC takes responsible lending case back to federal court

In yesterday’s appeal to the Full Court of the Federal Court, the Australian Securities and Investments Commission (ASIC) slammed last year’s landmark Federal Court ruling in favour of Westpac that validated the bank’s automated home loan approval process for hundreds of thousands of mortgages: The corporate watchdog has slammed parts of the Federal Court’s now-famous

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Perth housing has never been cheaper

As has been well documented on this site, Perth’s housing market has experienced an epic crash with dwelling values falling by over 21% from their June 2014 peak: Moreover, while Sydney’s and Melbourne’s housing markets have rebounded strongly, Perth’s has only managed to stabilise. This divergence has driven Perth’s relative valuation – i.e. Perth’s median

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Australian houses ranked world’s second most expensive

A new data set comparing house prices across countries has ranked Australia as the second most expensive on a per square metre basis: A new data set called HouseLev put together by Jean-Charles Bricongne, Alessandro Turrini and Peter Pontuch fills the gap. It provides the average price per square meter of housing in 40 countries,

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Wall St fundie: Aussie property, banks in path of virus

Via the AFR: The coronavirus could trigger the next financial crisis but the underlying cause will be subprime corporate loans, contrarian investor and chief stock picker for the $19 billion Ariel Investments Rupal Bhansali warns. …”We did not know if the economic shock would come from coronavirus or something else [but] in the worst-case scenario

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NSW Liberals wedged on anti-corruption measure

A fortnight ago, we reported that the NSW Government is attempting to block developers from running for local councils, however, the motion was blocked by Prime Minister Scott Morrison’s representative, Alex Hawke. Now, the NSW Labor Opposition is attempting to wedge the Liberals by introducing legislation to ban property developers and real estate agents from

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HIA forecasts meek housing rebound

The Housing Industry Association (HIA) has released dwelling start forecasts, which forecasts a modest rebound in 2021: “The number of homes that commenced construction in Australia fell from 225,061 in 2018 to just 174,770 in 2019. This is the sharpest contraction experienced by the industry, with only the exception of the contraction caused by the

8

How to swap stamp duties for land taxes

The Australian’s Judith Sloan has questioned economists’ near universal agreement that property stamp duties should be replaced by a broad-based land tax: So let’s consider the latest faddish proposal to replace stamp duties with land taxes. This is being raised in the Thodey review of federal financial relations commissioned by the NSW government. (Another review

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NSW tells flammable building owners to fix it themselves

After experiencing an unprecedented boom in high-rise apartment construction over the past decade: And with flammable cladding and structural faults proliferating across Sydney, the NSW Building Commissioner has told apartment owners not to expect a ‘bail-out’: The NSW Building Commissioner has warned that owners of buildings with defects will not be bailed out by the

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Another FIRB failure: Chinese land bank Melbourne property

The paucity of Australia’s foreign investment laws have been exposed again, with Chinese nationals land banking Melbourne property: Nearly $60 million worth of real estate in one of Toorak’s most-exclusive streets has been reduced to a patch of dirt, with mystery surrounding what’s going to happen to it. On well-heeled St Georges Road, where two

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Tiny house propaganda mushrooms as housing policy fails

The sadists at Domainfax have published another propaganda article on how so-called ‘tiny houses’ are an innovative and sustainable solution to Australia’s housing affordability problems [my emphasis]: Ms Paton discarded many of her belongings before moving into her tiny house, which is just over 20 square metres in total… Port Phillip Council believes the tiny

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Auction clearances go boom!

Auction clearance rates boomed over the weekend, driven by Sydney and Melbourne whose preliminary clearance rates were around 80% off strong volumes. At the national level, the preliminary rate was 77.7%, down marginally from 78.6% last weekend, but way above the 49.4% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 81.5%,

7

ASIC orders mortgage brokers to clean up their act

In September 2019, the Australian Securities & Investments Commission (ASIC) reported that one in 10 consumers who took out a home loan via a mortgage broker were finding it hard to meet their repayments within 12 months. ASIC’s research also found that although consumers generally expect a mortgage broker to secure the most suitable home

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Brisbane’s apartment market no longer oversupplied

CoreLogic’s head of residential research, Eliza Owen, has penned interesting research on Brisbane’s apartment market, which appears to be no longer oversupplied: The narrative of over-supply and under-performance in Brisbane units has dominated conversations around south-east Queensland property for almost 5 years. At January 2020, Brisbane unit values remain 11.5% below their 2010 peak to

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CoreLogic weekly house price update: More rises

In the week ended 20 February 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.25%: The rise in values was again fairly broad-based: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are still rocketing: The strong rebound across Sydney

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What’s the point, Jess?

It has to be said. Jess Irvine today: This week, three of Australia’s leading housing academics, Hal Pawson, Vivienne Milligan and Judith Yates, released a book, Housing Policy in Australia: a case for system reform, which pulls together decades of research into what they see as a systematic failure of Australian policy when it comes

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Sydney and Melbourne final auction clearance rates surge

Earlier this week, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 5.3% decline in the final national auction clearance rate to 73.3% – well above the same weekend last year (51.2%): As you can see, Sydney’s final auction clearance rate