By Leith van Onselen WA’s Labor Government has announced that it will follow the other states and hike stamp duties on foreign buyers in today’s State Budget, and this has the property lobby spitting chips: A plan to slug foreign property buyers in WA with a 7 per cent surcharge will damage recovery of the
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.
The Budget contained recommendations from the Black Economy Taskforce which will be implemented targeting sectors where there is higher risk of under reporting of income, which is expected to reap $5.3 billion in additional revenue over four years. These measures include outlawing large cash payments of greater than $10,000 in the Australian economy. The most obvious place to start for
It is often said of the USA that it is stiflingly patriotic but that it’s most redeeming feature is that its strongest critics are, in fact, Americans. This captures something about a great democracy. It may gets things wrong, disastrously so at times, but it does have a natural mechanism of self-correction in the national
By Leith van Onselen With the release last week of Australia’s dwelling approvals data for the March quarter of 2018, it’s once again time to examine how Australia’s dwelling supply is tracking against population growth. The below charts track the following, which are based on the latest available quarterly data: Dwelling approvals to March 2018;
Via Jonathon Mott at UBS who has hosed off the AFR’s WBC “demolition” muck with aplomb: 1H18 Result – Cash NPAT $4,251m, Basic EPS 125cps, Dividend 94cps, ROE 14% WBC result was 2% above expectations. Highlights (H/H): (1) NIM rose 7bp to 217bp (+3bp ex Markets) given mortgage repricing and lower funding costs; (2) Average
By Leith van Onselen CoreLogic has released its Quarterly Review, which contains some interesting data on Australia’s housing market. First, CoreLogic estimates that Australia’s housing stock is valued at $7.5 trillion – by far the most expensive asset class: This means that the national housing market is valued at an insane 4.2 times Australia’s GDP
Via The Guardian: Every person in Britain should receive £10,000 when they turn 25 to help fix the “broken” intergenerational contract between millennials and baby boomers, an influential thinktank has proposed following a two-year study. The payment, described as a “citizen’s inheritance”, is intended to redistribute wealth at a time when young people need it
By Leith van Onselen MB has frequently argued that the best immediate predictor of the future direction of Australian house prices is the growth in the value of housing finance commitments (excluding refinancings), since they are the fuel driving the housing market and have displayed a very strong correlation with house prices for decades: Yesterday,
Recall the UBS take on the Westpac mortgage book via the Royal Commission data dump: Royal Commission releases APRA’s ‘Targeted Review’ into mortgage books In recent days the Royal Commission into Bank Misconduct has released hundreds of subpoenaed exhibits including: internal reviews; board papers; and correspondence with regulators. Given the Royal Commission’s focus on Responsible Lending it
CoreLogic has produced an interesting analysis of the rivers of gold flowing to the states from Australia’s property bubble, whereby the tax take has doubled in just 11 years: Over the 2016-17 financial year, state and local governments collected $52.5 billion in taxes from property with the figure climbing by 5.9% over the year. The
By Leith van Onselen Last month, the Australian Housing and Urban Research Institute’s (AHURI) released a report calling for “inclusionary zoning” policies to force developers to supply housing for lower income earners. Now, Community Housing Limited (CHL) CEO, Steve Bevington, has called for a subsidy of $13,000 per unit in Tuesday’s Federal Budget, arguing that
From SQM Research: SQM Research today has revised down its forecasts for 2018, following recent market evidence that dwelling prices have been falling in Sydney and to a lesser extent in, Melbourne so far this year. Leading indicators such as auction clearance rates, total aggregated property listings and asking prices suggest further deterioration in market
By Leith van Onselen The Real Estate Institute of Western Australia (REIWA) has released its rental data for the March quarter, which shows that Perth’s median rents have rebounded, with the rental vacancy rate also declining: As shown above, Perth’s median house rent rose by $5 to $360 per week in the March quarter, whereas Perth’s
By Leith van Onselen The Australian ran a article over the weekend warning that Labor’s own heartland will bear much of the brunt of the party’s plan to curb negative gearing and capital gains tax (CGT) concessions: Voters in Labor’s heartland seats — including those held by the party’s most senior frontbenchers — are among
Two factors determine mortgage availability. One is the price or interest rate. The second is distribution or lending standards. Both are under mounting pressure. The MSM lending standards crunch panic is building nicely. It was headline news at Domainfax over the weekend: To get a home loan, most people would know they might have to make
CoreLogic released its auction report yesterday, which reported a small rebound in the preliminary national auction clearance rate to 63.5% from 62.5% last weekend (later revised down to 60.3%). However, the preliminary clearance rate was still well below the 73.0% recorded in the same weekend of last year: Auction volumes nationally were 2,280 – above
By Leith van Onselen The deflation of Sydney’s housing market rolls on, with values falling another 0.09% in the week ended 3 May, according to CoreLogic: Sydney home values have now declined by a cumulative 4.5% over the past 34-weeks, with values also down 4.4% over the past 39 weeks. Sydney’s quarterly growth rate remains firmly
The AFR has gone full blown bear: …buyers without deposits of between 25 to 35 per cent are being squeezed out of the market by the tougher lending conditions, agents claim. …Borrowers with pre-arranged credit limits are also being reviewed by lenders before a deal is settled and lending limits being lowered, following tougher analysis
By Leith van Onselen In the week ended 3 May 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.08%: Values fell across all major markets except Perth: So far in 2018, home values have declined by 1.25%, with only Brisbane recording a value increase: Over
By Leith van Onselen Yesterday’s dwelling approvals data for March from the ABS reported a 2.6% monthly rise in unit & apartment approvals, which followed February’s sharp fall: 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
By Leith van Onselen Australia’s youth are really coping it in the neck when it comes to housing. Not only are many unable to afford a home in the big cities, but now available rental supply is being gobbled-up by Airbnb as well. From Roy Morgan Research: Australians are increasingly choosing to stay in rented
Via Martin North: Digital Finance Analytics (DFA) has released the April 2018 mortgage stress and default analysis update. Across Australia, more than 963,000 households are estimated to be now in mortgage stress (last month 956,000). This equates to 30.1% of owner occupied borrowing households. In addition, more than 21,600 of these are in severe stress,
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 rose by a seasonally adjusted 2.6% to 19,603. The overall rise was driven by the unit & apartment market (+6.1%), whereas house approvals rose by 1.1%.
By Leith van Onselen With the release last week of capital city population data for the 2016-17 financial year, it’s an opportune time to plot capital city population change against dwelling approvals. At the outset, please note that dwelling approvals does not account for demolitions, thus it does not represent actual dwelling additions and overstates
Here comes the interest-only crunch, via AFR: Mortgage brokers, who act as intermediaries between lenders and borrowers, claim lenders are “throttling back” amid increased pressure from regulators and fear of exposure by the Hayne royal commission. “Lenders are making sure they dot every ‘i’ and cross every ‘t’ from borrowers and putting the ruler across
From Shane Oliver has been fully macrobated: Will Australian interest rates ever go up? While the global economy is seeing its fastest growth in years and the US Federal Reserve has increased rates five times since December 2015 and is on track for more hikes this year, the Reserve Bank of Australia (RBA) has now left
By Leith van Onselen Perth property sales reportedly hit a 25-year low in the 2017 calendar year, according to the REIWA: Real Estate Institute of WA figures show just 26,223 sales of houses and units in Perth last year — the lowest number since 27,601 dwellings changed hands in 1990 during Paul Keating’s “recession we
My favourite pre-nationalisation mortgage dog is out today with stellar results: Collapsing profit and a massive buyback. Nice. Amusingly, GMA did not even release its gross written premium number this quarter, no doubt to keep it from nosey bloggers. It was 369bn at the end of 2017 so it’s still trading on a spectacular capital