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.


Housing finance records dead cat bounce

By Leith van Onselen Today’s housing finance data for February from the ABS recorded a small bounce after a long period of declines: As shown above, total finance commitments (excluding refinancings) rose by 2.7% in February, with owner-occupied commitments rising 2.4% and investor commitments rising 0.9%. Over the year, total finance commitments (excluding refinancings) crashed by


More AFR negative gearing fake news

By Leith van Onselen The AFR’s lobbying against Labor’s negative gearing policy couldn’t get any worse: “The numbers shadow treasurer Chris Bowen is quoting for new housing stock created by investors is not just incorrect, it is substantially incorrect,” said Tim Reardon, chief economist for the Housing Industry Association, the nation’s building industry peak body. “Labor’s


Mortgage arrears rise coast-to-coast

Via S&P: Australian prime home-loan arrears rose in January, according to a recently published report by S&P Global Ratings. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages rose to 1.45% in January from 1.38% a month earlier. January is typically the peak of the arrears cycle, reflecting the after-effects of Christmas and


Major capital city property losses hit 10%

By Leith van Onselen Yesterday’s daily index from CoreLogic passed another milestone, with losses at the 5-city level breaching double-digits: Annual declines have also hit 11.0% in Sydney and 10.0% in Melbourne: As shown in the next chart, quarterly losses are running at more than 3% in Sydney and Melbourne and over 2.5% across the


One in five auctions pulled by “under stress” vendors

By Leith van Onselen The small seasonal bounce in auction clearances can seemingly be attributed, in part, to a surge in homes being withdrawn prior to auction. From The AFR: Sydney homeowners are increasingly pulling their homes from auction before the big day while some Melbourne properties are now selling for less than their council


Gotti sheds crocodile tears for Millennials

By Leith van Onselen Baby boomer wolf, Robert Gottliebsen, has donned sheep’s clothing in his latest negative gearing attack, claiming that Labor’s policy will actually hurt millennials: We have just been through a residential property boom partly created by negative gearing, but the main force was loose bank credit often using inflated borrower incomes and


CoreLogic: Sydney rents plummeting

From CoreLogic’s Quarterly Rental Report: In March 2019, rental rates nationally increased by 0.3% which matched the increase over the previous month. The first three months of the year have bucked the trend seen late last year whereby rents were falling. It is important to understand that rental markets are seasonal and the first quarter


Teacher’s Mutual calls for negative gearing for all

Via Banking Day: Drastic measures are called for by one of Australia’s largest mutual banks, in new research on the deep-rooted barriers to housing affordability, and most of all those workers in this mutual bank’s newest target market. Taking a fresh approach to the topic, Teachers Mutual Bank commissioned analysis centred on the consequences for


There’s a boom in negative gearing stupidity

By Leith van Onselen One of my favourite things to do on a Sunday morning is to search the term “negative gearing” and then read the various special pleadings and scare campaigns. This weekend delivered the goods in spades, with a veritable smorgasbord of stupidity served up. First, we got claiming that first home


IMF hits Aussie house price crash panic button

Via the AFR comes the IMF in an unusual break with the tradition of agreeing with whatever the locals say: Australia’s housing market contraction is worse than first thought, says a top IMF analyst, leaving the economy in what he called a “delicate situation” that boosts the need for faster infrastructure spending and even potential interest


Auctions bounce suggests “we’re coming out of the bottom”

CoreLogic released its preliminary auction report yesterday, which reported another weak clearance rate on soft volumes. The preliminary national auction clearance rate was just 57.2%, slightly above last week’s 56.8% but well below the 62.8% final clearance rate recorded in the same weekend of last year: Auction volumes nationally were 1,978, which was actually above


How far will specufestor mortgages fall?

Via the AFR today: As Credit Suisse analysts pointed out recently, investors are genuine net new buyers and invest for capital gains rather than net rental yield. The Labor policies are seen as negative for the investment housing market and sales will slow, leaving residential developers such as Mirvac and Stockland most exposed. On the upside,


Weekend auction preview

Via Westpac: Given the intense focus on Australia’s housing markets at the moment and in light of our recent commentary around the best way to interpret auction market results (see here) we will start putting out short previews each Friday and summary updates the following Monday setting out how results should be viewed. Key points heading into


Off-the-plan “timebomb”: two-thirds of Melbourne apartments underwater

By Leith van Onselen The poison of negative equity is spreading with two-thirds of Melbourne off-the-plan apartment buyers under water, according to BIS Oxford Economics. From The AFR: Two out of three Melbourne apartments sold off the plan during the past eight years have made no price gains, or have lost money upon resale, despite


Stamp duty bust triggers Victorian Budget austerity

By Leith van Onselen Last month we noted how the impending stamp duty bust in Victoria was already crimping public spending, with the Andrews Government forced to tighten its belt ahead of pay negotiations with the public service. The day after, State Political Editor for The Age, Noel Towell, reported that Victorian Treasurer, Tim “Ponzi”


Australia’s housing bust continues to broaden

By Leith van Onselen CoreLogic’s dwelling values results for March reported that losses have been driven by the premium end of the market, whereas values across the most affordable 25% segment have held up comparatively well: While this is true when viewed on an annual basis, growth rates are negative and trending down across virtually


CoreLogic weekly Australian house price update

By Leith van Onselen In the week ended 4 April 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.11%: Values fell across all major markets except Perth: The quarterly decline has moderated slightly to 2.84% – reflecting seasonality – with Sydney, Melbourne and Perth still


70% of investors to shun existing property under Labor

By Leith van Onselen In great news for first home buyers (FHBs), a new survey conducted by Washington Brown Quantity Surveyors has revealed that more than 70% of investors would shy away from established homes if Labor’s reforms to negative gearing are implemented: “With the clear majority of respondents having second thoughts about purchasing a


Flammable cladding crisis a failure of self-regulation

By Leith van Onselen Simon Lockrey – senior lecturer in industrial design at RMIT University – has penned a scathing article on Australia’s flammable cladding debacle, arguing that it has come about because of industry deregulation and has “evolved into a consumer nightmare”: In practice, it appears responsibilities with regard to flammable cladding have entirely


Final auction clearance rate still stuck in gutter

By Leith van Onselen 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 5.9% decline in the final national auction clearance rate to 50.9% – exactly the same as last week’s final clearance rate: As you can see, Sydney’s final


REIWA calls another bottom for Perth property

By Leith van Onselen You’ve gotta love the Real Estate Institute of Western Australia (REIWA). No matter what the data is showing, they are always quick to call an imminent housing rebound. A classic example of this spruiking was given in June 2015 when REIWA chief, David Airey, explained why Perth’s housing market was set


Are FHB grants dead?

Let’s hope so. Even Domain can’t get the quote it really wants today: Experts are hoping for more focus on housing policy from Opposition Leader Bill Shorten’s budget reply speech on Thursday evening than was offered in the budget itself. …Grattan Institute fellow Brendan Coates offered cautious backing for the proposed tax reforms. “Those are


Mortgage stress jumps to new record highs

Via Martin North: Digital Finance Analytics (DFA) has released the March 2019 mortgage stress and default analysis update.  It’s the continuing story of pressure on households as ongoing wages growth is not offsetting costs of living, and mortgage repayments and total debt continues to rise. The latest RBA data on household debt to income to


Is supply or demand driving the property correction?

Obviously. Via the AFR: A sharp fall in property sales across Australia, with record lows in regional Victoria, South Australia and Queensland as well as Darwin over the December quarter, is indicative of a bank-driven credit crunch rather than dampened demand from a Sydney and Melbourne-concentrated downturn, industry experts say. …an analysis by buyers’ agency


How Australia’s housing crash compares internationally

By Leith van Onselen On Tuesday, I produced a chart pack benchmarking Australia’s current housing bust against prior episodes over the past 30-plus years, which showed that: Australia’s current price decline at the capital city level is the third longest since the early 1980s, but the deepest in terms of depth; Sydney’s is the second


Finder: 9% of mortgage holders in severe stress

By Leith van Onselen Finder has released its latest mortgage stress survey, which reveals that 9% of mortgage holders are experiencing severe stress, whereby the are either “barely able to make repayments every month” or are “behind in repayments”: As shown above, another 40% of mortgage holders are experiencing mild stress, whereby they “live month


A message from McGrathmageddon

A message from John McGrathmageddon himself in his 2019 outlook: Firstly, I pointed out that in Sydney (and Melbourne), the 5–10% drop we’ve seen so far followed a growth cycle that added 60–100% to property values overall. Many Australians owned property for the entire duration of this cycle and therefore have enjoyed the full benefit. I


QLD Budget facing $1.3b stamp duty hit

By Leith van Onselen While Brisbane has avoided the type of property price declines seen in Sydney, Melbourne and Perth: Sales volumes have tanked by 27% from their February 2016 peak: Together, this has driven a sharp $1.3 billion downgrade in projected stamp duty receipts for QLD’s Budget. From The ABC: The Queensland budget will


Sydney property value losses crash through 14%

By Leith van Onselen CoreLogic’s daily house price index for 2 April, released yesterday, revealed that Sydney dwelling value losses have pushed through 14%: As shown above, Sydney’s current downturn is the second worst in nearly 40 years of data. Quarterly value declines continue at a swift pace, running at 3.2%: Whereas annual losses are