Back in 2016, David Murray – the chairman of the Financial System Inquiry (FSI) – recommended self-managed superannuation funds (SMSFs) be banned from borrowing to invest because of risks to the financial system: “Superannuation funds should not be leveraged, including SMSFs, because leverage magnifies risk. If the system is unleveraged, then if asset prices rise,
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.
Say what you like about Highrise Harry but he’s a survivor. With Chinese immigration via students and tourists doomed, with the exodus to regional areas as ‘work from home’ embeds, with apartments on the nose worldwide as social distancing becomes the norm, he sees a new apartment boom: People want to move closer in, says
In the week ended 27 May, the CoreLogic daily dwelling values index surged another 0.52%: Sydney’s led the way again, with dwelling values rising another 0.66%. All other major capitals also rose strongly in value: So far in May, dwelling values have risen by 1.97%, led by Sydney (2.57%), with all other major capitals also
The Australian property market continues to rebound hard out of the COVID-19 pandemic. Following a 2.6% decline in dwelling values across the five major capital city markets between 15 March (the unofficial start of the pandemic) and 13 October 2020 (the bottom), values have since risen by 11.4% across the combined five major capital city
There is a common thread between the boom in lumber prices in the U.S. and dynamic models of housing supply. That common element is that lower interest rates make it optimal to both harvest trees slower and to build new homes slower. Let me explain. Take a look at the diagram below representing a forest
CBA latest internal lending data shows a record boom in fixed rate mortgage lending. As shown in the next chart, new lending for housing was up 50% year-on-year in April despite falling over the month: The average loan size has rocketed higher over the past few months. Rising dwelling prices mean that buyers generally need
CoreLogic’s most recent Pain & Gain Report revealed that 16.8% of unit owners sold their properties for a loss in the December quarter of 2020, which was more than double the losses for houses (7.6%): The latest rental data also showed that unit rents fell sharply across Melbourne and Sydney in the year to April
According to the Housing Industry Association (HIA), 2021 will mark a record year of detached house construction. The HIA forecasts that there will be 146,000 detached housing commencing construction in the year to September 2021, which will be 20% higher than the peak of the previous boom in 2018: HIA Economist, Angela Lillicrap, believes “this
CoreLogic’s head of research, Eliza Owen, has released research showing that regional property rents are growing at triple the rate of capital cities, soaring 9.6% in the year to April 2021: The next chart shows the growth in rents at the state and capital city levels. As you can see, regional rents are stronger across
CoreLogic’s preliminary report on the weekend’s auctions reported a slightly lower clearance rate on another big weekend of high volumes. The national preliminary clearance rate fell to 78.2% from 79.0% the prior weekend. This was off 2,845 auctions, down slightly from the prior weekend’s 2892 (which was the third biggest weekend of auctions in 2021).
CoreLogic released its final auction report for last weekend, with the final clearance rate falling slightly to 77.0% from 77.2% the prior weekend. This was off the year’s third strongest auction volumes (2,905). As usual, Sydney led the market recording a final clearance rate of 78.9% (down from 81.4%), whereas Melbourne’s final clearance rate rose
As we know, the Hayne Banking Royal Commission’s first recommendation was to maintain responsible lending laws: The Hayne Royal Commission came to this recommendation after observing multiple cases of predatory lending over its 12 month deliberation. Despite this recommendation, Treasurer Josh Frydenberg is currently seeking to abolish responsible lending laws following pressure from the banking
The Victorian Budget has bailed-out apartment developers by: waving stamp duty on newly completed homes that have been unsold for a year or more; extending stamp duty concessions to new off-the-plan purchases worth up to $1 million from 1 July; and extending the 50% stamp duty discount on new homes in the Melbourne local government
In the week ended 20 May, the CoreLogic daily dwelling values index surged another 0.46%: Sydney’s led the way again, with dwelling values rising another 0.57%. All other major capitals also rose in value: So far in May, dwelling values have risen by 1.44%, led by Sydney (1.90%), with all other major capitals also recording
The biggest driver of the current property upswing has been the sharp decline in mortgage rates, especially fixed rates. This is illustrated clearly in the next chart from CoreLogic, which shows new loan rates falling sharply over the past two years, driven by fixed rates: At the same time, the share of new mortgages taken
The Grattan Institute’s household finances program director, Brendan Coates, has taken aim at the Victorian Government’s stamp duty increase for property transactions above $2 million. Under this change, stamp duty will increase to $110,000 plus 6.5% for every dollar above $2 million. This is up from the 5.5% rate that currently applies to all properties
A bunch of leading indicators have been released suggesting the Australia’s red hot property market may soon run out of steam. First, the latest REA Insights report shows that weekly for sale searches have fallen sharply from their March peak across every market: Email enquiry to agents has also fallen sharply from recent peaks: Non-investors
The federal government is considering renaming its “Pensions Loan Scheme’ (PLS), which was broadened in the May 2021 Budget . The expanded PLS allows retirees to borrow up to 150% of the aged pension rate against the equity in their home and is open to all retirees over the age of 60, not just those
RateCity has released interesting data via Domain showing how new mortgage buyers are facing growing rates of mortgage stress, especially across Sydney and Melbourne. According to RateCity, the median buyer in Sydney needs to earn around $186,500 with a 20% deposit to avoid ‘mortgage stress’ – defined as spending more than 30% of a household’s
Unbelievably, Australia’s largest listed developer, Stockland, has warned of imminent housing shortages despite negative net overseas migration, the lowest population growth in generations, and record rates of homebuilding: The head of Australia’s largest residential property developer, in the final month of his eight and a half year tenure, has warned that policymakers will have to
The strong rebound in the New South Wales property market has driven an equally strong lift in stamp duty receipts, according to data from Office of State Revenue. In the year to March 2021, stamp duty receipts rose 19% to $6.4 billion; although they remained below the all-time high $7.4 billion in stamp duty collected
Over the weekend, Victorian Treasurer Tim Pallas announced $2.7 billion worth of new taxes that will be levied on property owners in a bid to claw back some of $49 billion spent last year to support the state economy through months of lockdowns. The tax changes are summarised as follows: A premium stamp duty will
CoreLogic’s preliminary report on the weekend’s auctions reported a slightly higher clearance rate on the third biggest auction volumes of the year. The national preliminary clearance rate rose to 79.0% from 78.6% the prior weekend. This was off a whopping 2,892 auctions, down slightly from the prior weekend’s 3,033 (which was the second biggest weekend
Or, at least, take the froth off the top. Chris Joye with the note: RBA TFF expiry in June lift fixed-rate mortgage rates. Low fixed rates were 40% of all new borrowing. Banks will need to refinance $150-350bn of RBA funding at higher market rates. Housing to remain strong for years. Quite right, though I
CoreLogic released its final auction report for last weekend, with the final clearance rate falling slightly to 77.2% from 77.7% the prior weekend. This was off another rise in the number of auctions, from 2,902 to 3,016. As usual, Sydney led the market recording a final clearance rate of 81.4% (up from 80.2%), whereas Melbourne’s
In the week ended 13 May, the CoreLogic daily dwelling values index surged another 0.69% – the strongest growth since the week ended 18 March: Sydney’s dwelling values rocketed by 0.93%, whereas the other major capitals recorded slower (albeit still very strong) price growth: So far in May, dwelling values have risen by 0.97%, led
New home sales are falling back to earth after the expiry of the HomeBuilder subsidies, according to the HIA: “New Home Sales fell in April 2021 to be 54.4 per cent lower than March as HomeBuilder came to an end,” stated HIA’s Economist, Angela Lillicrap… “This sales result for April 2021 is an encouragingly strong
ME’s latest Quarterly Property Sentiment Report shows that “investors are set to jump back into the market in a big way as their positive sentiment jumped to 52 per cent – the highest for any buyer group this quarter”: “They’re trying to capitalise on the predicted property prices. People are determined to get in now
If I had to pick the safest major capital city market to purchase an investment property, I would choose to buy a detached house in Brisbane. My reasoning is straightforward. First, Brisbane’s relative cost against Sydney and Melbourne is running near the lowest level in almost 50 years. As shown in the next chart, a