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.

19

Westpac: Lockdowns to hit property turnover not prices

Westpac has released its Housing Pulse for August, which examines the impacts of lockdowns on the property market. Westpac believes that recent hard lockdowns across Sydney, Melbourne and elsewhere will impact property turnover rather than prices: On balance, we expect the situation to see a temporary loss of momentum rather than a correction – even

21

Property lobby begs for migrants to fill empty homes

According to the Housing Industry Association (HIA), 2021 will mark a record year of detached house construction: However, HIA Economist Angela Lillicrap has called on the federal government to reboot pre-COVID levels of extreme immigration to ensure that housing demand remains strong: “Australia is experiencing a building boom with a record level of detached homes

3

Melbourne’s auction market collapses on lockdown

The nation’s auction market dived over the weekend on the back of a massive fall in Melbourne’s clearance rate. CoreLogic recorded a preliminary national clearance rate of 63.3%, down from the prior weekend’s 72.3%. Sydney’s preliminary clearance rate remained rock solid at 81.7% versus 82.9% the prior weekend, whereas Melbourne’s collapsed to just 48.6% from

6

Lockdown listings collapse will protect property values

CoreLogic’s head of research, Eliza Owen, has released a research not examining the likely impact of lockdowns on the usually buoyant spring selling season: Less than two weeks out from the spring selling season of 2021, lockdown conditions are in place across the ACT, Greater Melbourne and NSW. More recently, major centres across the Northern

0

Homebuilder drives up construction costs

CoreLogic has released its latest Cordell Housing Index Price (CHIP) results, which shows that construction costs are rising on the back of HomeBuilder stimulus. Residential construction costs increase 1.4% in the three months to June 2021, outpacing the Consumer Price Index (CPI) of 0.8% for the same period. It was the largest quarterly change since

11

Coalition’s fake housing affordability inquiry is for developers

It’s official. As alluded to last month, the Morrison Government has launched another housing affordability inquiry – this time examining ‘supply-side impediments’. Below is the marketing spiel from Coalition committee chair Jason Falinski: “As data provided by the Reserve Bank of Australia (RBA), the Treasury and the Australian Bureau of Statistics (ABS) shows, home ownership,

14

Tight vacancies triggers rental boom

SQM Research has released its July rental report, which recorded the equal lowest national rental vacancy rate since May 2011 at just 1.7%: The next chart plots the time series at the national level and shows clearly the sharp reduction in the vacancy rate over the past year: The next chart plots vacancies across the

9

Banker: Rapid house price growth “fantastic”. Don’t regulate.

Bendigo & Adelaide Bank’s net profit for 2020-21 rose 172% to $524 million, with its cash earnings rising 51% to $457.2 million. Deposit growth increased by 14.2% whereas applications for loans surged by 36.2%. Commenting on the current heat in the housing market, MD Marnie Baker said that rapid price growth is “fantastic” and claimed

25

Blame the demand-side for soaring property values

The housing industry and policy makers tend to blame a ‘lack of supply’ for soaring property prices. They claim that unaffordable housing is caused primarily by restrictive planning and sluggish construction rates, and if these were eased then prices would fall and homes would become affordable. A new paper from the Federal Reserve challenges this

29

“Extraordinary” exodus from Sydney and Melbourne to continue

The latest internal migration data from the Australian Bureau of Statistics (ABS) showed that thousands more Australians had left Sydney and Melbourne and moved to Queensland. As shown in the next table, 8,169 residents left Sydney and 8,273 residents left Melbourne over the March quarter of 2021. By contrast, Brisbane gained 3,274 residents from the

4

Mortgage stress rises on Sydney lockdown

Digital Financial Analytics (DFA) has released its July mortgage stress data, which shows stress levels rising on the back of Sydney’s hard lockdown: There is a significant correlation between mortgage stress hot spots and COVID hot spots… Fairfield and South Western Sydney are the epicentre of COIVD, and mortgage stress. The reason is simple, more

4

Melbourne’s auction market tanks

The nation’s auction market softened over the weekend on the back of a big fall in Melbourne’s clearance rate. CoreLogic recorded a preliminary national clearance rate of 72.3%, down from the prior weekend’s 76.4%. Sydney’s preliminary clearance rate strengthened to 82.9% versus 80.4% the prior weekend, whereas Melbourne’s tanked to 63.0% from 73.5% the prior

15

CoreLogic weekly house price update: slowing

In the week ended 12 August, the CoreLogic daily dwelling values index increased another 0.29% – the slowest weekly rise since February: All major markets recorded rising values: So far in August, values have risen by 0.55%, with all major capitals recording rises: Quarterly price growth remains turbo-charged at 5.64% across the five major capitals.

12

Australia’s property market hurtles toward $9 trillion

CoreLogic’s Monthly Housing Chart Pack, released earlier this week, shows that the total value of Australia’s housing stock has risen to a whopping $8.8 trillion dollars: This dwarfs other asset classes, with real estate valued at more than Australia’s total superannuation wealth ($3.1 trillion), listed stocks ($2.8 trillion) and commercial real estate ($978 billion) combined.

20

Why macro-prudential mortgage curbs are needed now

REA’s Cameron Kusher believes that now is not the time for the Australian Prudential Regulatory Authority (APRA) to implement macro-prudential restrictions on mortgage lending: While prices have risen rapidly since the onset of the pandemic, growth has been much more benign over recent years having increased by 33.2% in total over the past five years,

7

New home sales dive amid lockdowns

From the HIA: “New Home Sales fell by 20.5 per cent in July, with declines experienced in almost all major states,” stated HIA Economist Tom Devitt… “With lockdowns in multiple states restricting trade and eroding confidence, it is not surprising that fewer people were able to visit display homes,” added Mr Devitt. “Despite this poor

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Australia’s housing market is unbelievably tight

CoreLogic has released its Monthly Housing Chart Pack, which shows that new listings were running 2.6% below the five-year average in July 2021: More importantly, the total number of homes for sale is running 27.1% below the five-year average: At the jurisdictional level, annual stock levels have fallen across every market except Melbourne, which was

12

Rental vacancies near record lows across most of Australia

Domain has released its rental vacancy report for July, which shows that rental vacancies are tracking near record lows across most of Australia. The notable exceptions are Melbourne and Sydney, which have been hit hardest by the collapse in immigration and international students: According to Domain: The National vacancy rate holds at a multi-year low.

6

Auction market firm despite lockdowns

Despite Sydney, Melbourne and Brisbane all being in lockdown, the nation’s auction market delivered another strong clearance rate over the weekend. CoreLogic recorded a preliminary national clearance rate of 76.4%, down from the prior weekend’s 79.2%. Sydney’s preliminary clearance rate remained strong at 80.4% versus 80.8% the prior weekend, whereas Melbourne’s was solid at 73.5%,

20

APRA readies to drop hammer on mortgage market

For months we have been warning that the Australian Prudential Regulatory Authority (APRA) would impose macro-prudential mortgage restrictions to cool the market by the end of the year or early next, such as loan-to-value ratio (LVR) restrictions, debt-to-income (DTI) restrictions, increased mortgage buffers, or restrictions on interest-only lending. These types of restrictions were imposed by

12

Charting the high-rise apartment bust

The Australian Bureau of Statistics (ABS) this week released its dwelling approvals data for June, which revealed that apartment approvals have fallen 49% below their November 2017 peak, while detached approvals are running near record high levels: Below are a series of charts that track approvals by housing segment in rolling annual terms nationally and