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.


Sydney’s apartments are riddled with defects

Last month, NSW Premier Dominic Perrottet declared himself “someone who believes in a big NSW” and promised to lobby Prime Minister Scott Morrison to significantly lift the migrant intake: “We’re going to have a real discussion [about] catching up some of those numbers that we’ve lost during this pandemic,” Mr Perrottet said… “I’m someone who


Highrise Harry celebrates migrant meat for property grinder

Earlier this week, the Morrison Government announced that Australia will re-open its international border to overseas students, skilled visa holders and working holiday makers, with Home Affairs Minister Karen Andrews expecting that at least 200,000 migrant workers will arrive in Australia by July 2022: “We are working on a figure of 200,000, it may well be


Property investors the “key swing factor for housing” in 2022

Westpac has released its monthly housing market report which sees investors driving the property market forward in 2022: Generally speaking, where investors go, housing markets usually follow. The recent revival – led by owner occupiers – is a rare counter-example with owner-occupiers leading the way. However, as already noted, affordability pressures are starting to weigh


Gottiboff: ‘Big Australia’ immigration needed to juice housing market

Last week, Robert Gottliebsen claimed Australia was running out of migrants to buy houses: This week, Gotti has repeated the dose, calling on Australia to compete heavily to attract migrants to juice the property market, serve coffees and drive Ubers: The aftermath of world war two taught Australia that if it was to grow and


Coalition declares itself “the party of home ownership”

Data from the federal government shows that more than 112,000 grants were approved for new homes under its HomeBuilder scheme. Other government programs such as the First Home Loan Deposit Scheme and the First Home Super Saver scheme have also boosted home ownership. Prime Minister Scott Morrison says the government’s policies have helped 320,000 Australians


Kohler: Pollies pretend to care about housing affordability

Alan Kohler on Monday night hosted a terrific segment on the ABC’s 7.30 Report exposing politicians pretending to care about housing affordability: ALAN KOHLER: For a start the average block is now a ninth of an acre, no backyard and prices have been expanding faster than block sizes have been shrinking. The typical Australian dream


Aussie mortgage stress plummets to record low

A new survey from Roy Morgan Research has revealed that mortgage stress has plummeted to record lows on account of rock bottom mortgage rates and government stimulus: New research from Roy Morgan shows an estimated 584,000 mortgage holders (15.8%) were ‘At Risk’ of ‘mortgage stress’ in the three months to September 2021… ‘Mortgage stress’ dropped


MB Subscriber’s Report: The great Australian land bubble

The Australian Bureau of Statistics (ABS) has released annual national and state accounts for the 2020-21 financial year, which contains insightful data on house and dwelling values across Australia’s major jurisdictions. Land values underpinning the Australian housing market experienced turbo-charged growth over the 2020-21 financial year, which land values also hitting their highest level on


Links 23 November 2021

Global Macro / Markets / Investing: Oil selloff intensifies on Covid fears and risk of US-China intervention – CNN Semiconductor chip shortage issue now in the rearview mirror, says Morgan Stanley; auto stocks surge 3% – CNBC Surging shipping costs will drive up prices for some consumer products by 10%, new UN report finds. –


Developers cry as Victoria passes windfall gains tax

On Friday, the Victorian Parliament passed a windfall gains tax for properties whose value is boosted by council rezoning. The new tax will apply to properties where the value is boosted by more than $100,000, with a 50% tax on windfalls above $500,000 — unless they are subject to a Growth Areas Infrastructure Contribution. As


CBA: Higher interest rates will drive property market correction

By Gareth Aird, head of Australian economics at CBA: Key Points: Australian dwelling price growth is forecast to moderate over the first half of 2022 on higher fixed mortgage rates, affordability constraints and natural fatigue after a period of extraordinary price gains. A further tightening in macro-prudential policy looks unlikely in our view given higher


Auction clearances slip further as homes flood market

Auction clearance rates continue to trend lower as listings flood the market. The national preliminary clearance rate was 74.5%, down from the 75.5% recorded the prior weekend. This was off 3,725 auctions, up from the prior weekend’s 3,562. Sydney’s preliminary clearance fell to 73.4% from 75.1% the prior weekend, whereas Melbourne’s was 72.7% versus 74.1%


Higher wage growth could crash the property market

CoreLogic’s head of research, Eliza Owen, has published interesting research comparing the growth of Australian property prices against wages: This month, the ABS posted a 2.2% annual increase in the Australian wage price index (WPI)… The 2.2% uplift represents wages growth getting back to pre-pandemic levels, and is just shy of the decade average growth


Auction deluge floods property market

Australia’s auction market continues to fatigue after weeks of high listings. Last weekend’s final auction clearance rate was 73.0%, up slightly from 73.0% the prior weekend off 3539 auctions (up from 3,292 the prior weekend): As noted by CoreLogic: With capital city auction volumes in excess of 3,000 for the fourth consecutive week, last week


The rise and rise of property stamp duty has published interesting data showing the rapid rise in stamp duty costs as property prices have inflated: “Buyers now are paying more in stamp duty as a proportion of their income than they were in the past,” [PropTrack economist Anne Flaherty said]. Grattan Institute economic policy program director Brendan Coates said average rates of


ANZ forecasts end of Australia’s property boom

ANZ economists have released research forecasting that Australia’s once-in-a-generation property boom will end in 2023, with price nationally tipped to fall 4%. However, this fall will follow price rises of 21% this year and 6% in 2022: First, ANZ notes that affordability is becoming stretched, which combined with macro-prudential mortgage restrictions and rising listings will


CoreLogic weekly house price update: Brisbane blowoff

In the week ended 18 November, the CoreLogic daily dwelling values index increased another 0.25%: All major markets except Perth recorded rising values, led by Brisbane and Adelaide: So far in November, dwelling values have risen by 0.72%, led by Brisbane (1.53%) and Adelaide (1.28%): Quarterly price growth remains turbo-charged but slowing at 4.11% across


Dr Cameron Murray shreds Coalition’s fake housing affordability inquiry

In August the Morrison Government launched another housing affordability inquiry – this time examining ‘supply-side impediments’. In the marketing spiel accompanying the announcement, Coalition committee chair Jason Falinski cited “limitations on land and restrictive planning laws as the major causes of shortages in supply”. Falinski also cited the RBA as claiming that “regulatory settings are


HIA: construction boom “will be sustained throughout 2022”

The Housing Industry Association (HIA) has released dwelling construction forecasts, which tips ongoing strong activity in 2022: HIA released its economic and industry Outlook Report for Australia today. The Outlook Report includes updated forecasts for new home building and renovations activity for Australia and each of the eight states and territories… “Leading indicators of demand


Economists: Rebooting immigration will destroy housing affordability

Economists have warned that rebooting immigration back to pre-COVID levels will inflate property prices and rents, exacerbating Australia’s housing affordability woes: Economists say about one extra home is required for every three migrants. If Australia’s annual immigration intake lifts, beyond federal budget forecasts, to reach about 250,000 people in 2023, that would turn predictions of


Falling homeownership a threat to retirement system

With home ownership rates falling, especially among younger and poorer cohorts, CoreLogic’s head of Australian research, Eliza Owen, has raised concern that the retirement system is unprepared for a future where a large proportion of Australians rent: “[If you consider] policies that preserved high values of homes in order to secure Australian wealth, you have to


Why there is no housing supply crisis

By Prosper Australia Housing supply is often touted as the one and only solution to unaffordable housing. It is a favourite topic of both the development industry and many government inquiries (including the current Inquiry Into Housing Affordability and Supply). The problem, according to the private sector, is always Government planning regulation, and the “solution” is


Rental vacancy rates fall to 10-year low

SQM Research has released rental vacancy rates for October, which reveals that the nation’s vacancy rate has fallen to 1.6% – down 0.5% year-on-year and the lowest rental vacancy rate since March 2011: The next chart plots the national vacancy rate on a three-month moving average basis to smooth volatility: According to SQM: Sydney, Melbourne’s


RBA demolishes fake Coalition housing affordability inquiry

In August the Morrison Government launched another housing affordability inquiry – this time examining ‘supply-side impediments’. In the marketing spiel accompanying the announcement, Coalition committee chair Jason Falinski cited “limitations on land and restrictive planning laws as the major causes of shortages in supply”. Falinski also cited the RBA as claiming that “regulatory settings are