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.

21

Mortgage growth now a poor indicator for house prices

Yesterday, we received two contradictory indicators on the Australian housing market. First, Australian dwelling values rocketed 1.1% in September, according to CoreLogic, with quarterly values surging by 2.3%: On the same day, the RBA’s credit aggregates were released, which showed that both quarterly and annual mortgage growth crashed to the lowest level on record in

29

Housing dream a distant memory for Aussie millennials

The latest Perceptions of Housing Affordability report by CoreLogic has revealed that 83% of would-be first home buyers (FHBs) are worried about being able to afford their first homes, with 63% still living with their parents claiming they cannot afford to move out: The household income to dwelling value ratio today is 6.5 times. So,

37

RBA: Mortgage growth crashes deeper into abyss

The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of August 2019: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.2% MoM; -0.6% QoQ; -3.4% YoY) has plunged, whereas business credit growth (0.2% MoM; 0.5% QoQ; 3.4% YoY) and housing

14

Australian property prices rocket 1.1% in September

CoreLogic’s dwelling price results have been released for September, which reveals a strong 1.1% increase in values recorded over the month at the 5-city level, driven by surging values across Sydney (1.7%) and Melbourne (1.7%): It was the third consecutive monthly rise in home values at the 5-city level: Over the September quarter, dwelling values

14

Fasco-housing complex parties on FHB “blank cheque”, liar loans return

Heil houses! Get outta the way. The fasco-housing complex tanks are rolling in, at Domain: Sydney’s property market is set for a new boom with an undersupply of homes predicted to fuel a spike in house prices. …CoreLogic’s Asia Pacific research director Tim Lawless said the period of improved housing affordability caused by cheaper house

6

Auction clearances stay strong

Auction clearance rates remained strong over the weekend, with the preliminary rate nationally coming in at 74.4%, up slightly from 74.0% last weekend: Auction clearances were also way above the 45.8% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 77.7%, up from 76.6% last weekend, and way above the 43.8% recorded

3

Fasco-housing complex deploys “affordable supply” figleaf

As mass immigration runs amok across Sydney and Melbourne, and is projected to roughly double both cities’ populations over the next half-century: Yesterday’s AFR rent-seekers’ Property Summit demanded looser planning rules to “boost affordable supply”: Governments need to step up their efforts to release land faster to solve the housing affordability conundrum, property industry leaders

3

Housing turnover stabilises as conditions improve

From CoreLogic’s Cameron Kusher: Housing sales activity slumped during the housing downturn, however the recent trend shows turnover has levelled out as home values rise and mortgage rates reach the lowest level since the 1950’s. While housing sales activity slumped during the housing downturn, the recent trend shows turnover has levelled out as home values

32

CoreLogic weekly house price update: Sydney/Melbourne boom!

In the week ended 26 September 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.15%: The rise in values was again driven by Sydney and Melbourne: Quarterly dwelling values are now rising strongly, again driven by Sydney and Melbourne, where prices are rocketing: The rebound

5

Fasco-housing complex summit: Property shortages coming

The AFR’s property rent-seeking summit is underway, with attendees warning that housing shortages are set to re-emerge as manic population growth outruns falling dwelling construction: Treasurer Josh Frydenberg has taken the stage. He says population growth has been a major driver for housing demand in Australia, noting the population grew by 1.7 per cent between

6

ABS job ads fall

The Australian Bureau of Statistics (ABS) has released job vacancies data for the August quarter, which recorded a 1.9% seasonally adjusted fall in the number of vacancies over the quarter and a 1.3% decrease in trend terms: Over the year, job vacancies fell by 2.0% in seasonally adjusted terms and by 1.4% in trend terms.

11

Final auction clearance rate holds above 70%

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 3.3% decline in the final national auction clearance rate to 70.7% – well above the same weekend last year (52.4%) but below last week’s 72.8%: As you can see, Sydney’s

24

Mascot Tower owners demand ‘bailout’ as bankruptcy looms

Owners of apartments in the Mascot Tower, which was evacuated in mid-June after experiencing severe cracking, claim they are facing bankruptcy because they cannot afford to pay a special levy to fund remediation works, and are demanding a ‘bail-out’ from NSW taxpayers: The Berejiklian government has accused evacuated Mascot Towers residents of devising a “deliberate

22

Fasco-housing complex guts ASIC HEM push

Yesteray Generalissimo ScoMo ordered more mortgages, at the AFR: Scott Morrison says Australia’s banks must not shy away from lending after the Hayne commission as he pushes back against what he calls an “instinctiveness” in society towards responsible lending standards that are too onerous. Speaking to the Australian American Association in New York, the Prime Minister

15

Housing crash to lift rents in 2020

Last week, the ABS has released two crucial pieces of data for Australia’s housing market. First, the June quarter residential property data was released showing the total number of dwellings in each state. Although this series only dates back to September 2011, it is arguably the best data to use when assessing actual dwelling supply,

10

PC: Low-income renters drowned by population deluge

The Productivity Commission (PC) has released a new paper, entitled Vulnerable Private Renters: Evidence and Options, which shows that Australia’s low-income renters have been squeezed hard as public housing supply has failed to keep pace with strong population growth: Australia’s private rental market works well for most people, most of the time. The market has

2

Sydney rental yields remain sunk

SQM Research has produced an interesting chart looking at rental yields across Australia’s capital city. The interesting story here is that Sydney rental yields have barely increased despite dwelling values remaining some 12% below their 2017 peak: This week’s chart of the week is on capital city gross rental yields. A revealing chart as it

7

Dodgy certifiers blamed for flammable apartments

Earlier this month, companies involved in the certification of building products claimed they had been inundated by fraudulent certificates for unsafe building products imported from China: Key certifiers used to determine whether building products are compliant say they are still being inundated by dodgy certificates for unsafe products, which are being imported into the country

0

Lenders shun high-rise property developers

Loan-to-value ratios (LVRs) employed by Australia’s larger non-bank lenders when advancing funds to property developers have fallen from a high of 72% in 2017 to an average of 65%, according to law firm Ashurst. Whereas the major banks have also reduced their exposure to residential apartment developers by more than half over the past three

36

Corrupt APRA reflates housing bubble in record time

Via Grattan: Spring has sprung in the Australian housing market, at least in Sydney and Melbourne. Why have house prices started rising again? There are a few candidate explanations. The first theory is that the Coalition’s surprise victory in the May 18 federal election  boosted prices. Labor’s policies to reform negative gearing and halve the

19

Australia’s housing market to tighten in 2020

With last week’s release of Australia’s population data for the March quarter, 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 June 2019; Dwelling commencements to March 2019; Dwelling completions to

25

Apartment crisis mushrooms as lenders tighten mortgage restrictions

The proliferation of faults and flammable cladding across Australia’s high-rise apartment market has prompted lenders to tighten mortgage requirements: Apartment buyers could be forced to stump up higher deposits as nervous lenders consider tightening mortgage restrictions due to Sydney’s oversupply of apartments and fears about building defects… …”some lenders are considering setting some restrictions to

10

Council of Financial Regulators busy “monitoring”

Always watching, watching watching, never doing: At its meeting on 18 September 2019, the Council of Financial Regulators (the Council) discussed risks facing the Australian financial system, regulatory issues and developments relevant to its members. The main topics discussed included the following: Financing conditions and the housing market. Council members discussed credit conditions and recent developments in

21

McGrathmageddon starts renting

Never listen to what he says, watch what he does, via Domain: John McGrath, the man once dubbed “Mr Real Estate,” has quietly sold his last remaining property asset. The prominent real estate figure has reputedly offloaded his harbourside penthouse for an estimated $8.5 million. However, for a man who is known to demand loyalty

13

Auction clearances still strong

Auction clearance rates remained strong over the weekend, with the preliminary rate nationally coming in at 74.0%, down slightly from 75.7% last weekend: Auction clearances were also way above the 52.4% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 76.6%, down from 80.3% last weekend, but way above the 51.1% recorded