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.

9

More than 5,000 Vic properties may have flammable cladding

By Leith van Onselen With high-rise apartments having sprouted like mushrooms throughout Melbourne: The ABC reported yesterday that more than 5,000 Victorian buildings may contain combustible cladding, similar to that used on the Grenfell Tower in London, which killed at least 80 people: In the wake of the Grenfell deaths, the Victorian Government announced it

10

Rob Burgess turns house price spruiker

More confusion today from Rob Burgess: Those hoping for a property market slump next year to allow them to ‘get into the market’ need to be careful what they wish for. Some may be offering little prayers to the god of the real estate sector, Mammon, that the slowdown in Sydney house prices in last week’s CoreLogic

29

Has sentiment turned in the inner-city bubbles?

Via Citi:  Key highlights — Property trends remain positive with premium ad volumes for both REA & Domain tracking ahead of expectations supported by improving listings volumes in Sydney & Melbourne. SEK ad volumes also remain strong with growth predominantly seen in the mining and construction industries. CAR ad volumes have been solid, showing

7

Australia’s idiotic land bubble has turned radioactive

By Leith van Onselen The HIA-CoreLogic Residential Land Report has been released for the March quarter, which reveals a dramatic increase in vacant lot prices amid rapid population-driven demand and dwindling supply. The below chart, which is presented on a national basis, summarises the story: The price of residential land hit an all-time high $253,525

18

CoreLogic: Affordable housing vanishes in Sydney and Melbourne

By Leith van Onselen From CoreLogic’s Cameron Kusher comes the following data illustrating the disappearance of affordable housing across the immigration hot spots of Sydney and Melbourne: Over the five years to June 2017, there has been a significant decline in the number of suburbs with a median value below $400,000 while there has been

38

Mortgage stress continues to rise

By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released mortgage stress and default modelling for Australian mortgage borrowers, to end August 2017.  Across the nation, more than 860,000 households are estimated to be now in mortgage stress (last month 820,000) with more than 20,000 of these in severe stress.

29

Nation embraces a permanently high house price plateau

Far be it for me to spoil the permanently high plateau party. OK, if you insist. Via Domain: The national conversation on housing affordability is ignoring renters, who continue to make up a growing proportion of the housing market. That’s according to experts speaking at the Committee for Economic Development of Australia’s launch of its Housing

30

Four Corners: Straya chock-o-block with flammable cladding

By Leith van Onselen In the wake of June’s Grenfell tower disaster in London, which claimed the lives of around 80 people, ABC’s Four Corners has conducted an investigation into the widespread use of similar flammable cladding that has been knowingly used across Australia’s medium and high-rise apartment developments. With the segment airing tonight, Four Corners

28

Did APRA already relax macroprudential 2.0?

Via Macquarie: Following the introduction of APRA’s 30% interest-only cap there has been a material reduction in interest-only flow and assuming current trends continue banks will be well below the cap by the required timeframe (Sep-17). This was achieved by a combination of aggressive repricing, tightening of credit standards and some concessions from the regulator.

51

Sydney, national house prices grind to a halt

Via CoreLogic: National dwelling values remained flat during August, with capital city values edging 0.1% higher. Simultaneously, regional dwelling values slipped 0.2% lower. According to CoreLogic head of research Tim Lawless, this steady result provides further evidence that the housing market has moved through its peak growth phase. He said, “We’re seeing capital gains in

6

One belt, one road away from Western realty?

A couple of recent developments out of China shows a big shift is underway in its capital outflows. First, it was the great global realty clamp: The Chinese government has moved to halt “irrational” overseas investments by restricting purchases of real estate and entertainment assets, a decision which could dent demand for Australian assets. The move,

17

Land bubble bulges

Yey! The HIA: “The substantial increase in the price of residential land continues to be the single biggest factor behind recent deteriorations in housing affordability” stated HIA Senior Economist, Shane Garrett. The HIA-CoreLogic Residential Land Report, Australia’s leading report on the residential land market, shows that a typical vacant lot of land for housing increased

6

Annual growth in mortgage debt hit all-time high in July

By Leith van Onselen The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of July 2017: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.1% MoM; -0.3% QoQ; -1.4% YoY) is still in the gutter, whereas business credit growth (0.5%

13

McGrathmaggeddon to go private?

Via the AFR, the failed float is mulling it options: It’s action stations at beleaguered real estate group McGrath. Street Talk understands a handful of private equity firms are circling the company and some heavy hitters are helping founder John McGrath to consider his options. It’s understood Anchorage Capital, Adamantem Capital, Advent Partners and Crescent

36

Gurner: Chinese property buyers have “stopped, not just slowed”

From Tim Gurner via the AFR: The Australian Financial Review Rich Lister Tim Gurner has cut out more than half the apartments from a $65 million Toorak development, replacing them with penthouse-style three and four-bedroom residences to tap into the growing demand from wealthy local downsizers With demand from investors having “stopped, not just slowed” following the recent

44

The miracle of build-to-rent

Via the AFR today: For a pretty boring sounding phrase the “build-to-rent” model for housing is getting huge attention across Australia’s property investment community. Super funds are talking about it, the big developers – Lendlease, Mirvac, Grocon, Stockland – are all talking about it publicly and spending money working it out. Lawyers are positioning themselves,

14

Daily Rob Burgess fail update

Australia’s most delicate housing bubble snowflake is at it again today: The dire state of housing affordability revealed earlier this week surely confirms the harm caused by Australia’s badly designed capital gains tax. The Housing Australia 2017report, published on Tuesday, comes from perhaps Australia’s least partisan think-tank – the Committee for the Economic Development of Australia – which draws its

46

McGrathmaggeddon: Sydney/Melbourne property done

From McGrathmaggeddon today: The founder and executive director of McGrath Estate Agents has said that the Sydney real estate market is “at least 95 per cent through its current cycle”. Speaking at the AussieThink conference in the Gold Coast on Monday (28 August), John McGrath emphasised that there are “two housing markets” in Australia, and that

2

Apartments push dwelling approvals down in July

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of July. At the national level, the number of dwelling approvals fell by a seasonally adjusted 1.7% to 18,299. The overall fall was driven by the volatile unit & apartment market (-6.7%), whereas house approvals were dead flat. In