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.


Weekend reading from RPData

RP Data‘s latest market wrap came out on Friday. It’s Sunday, so you’re on your own with it. RP Data, along with Rismark International, launched two world firsts this week: the first daily ‘real time’ index tracking changes in housing values and the first housing market index that tracks the performance of the entire ‘portfolio’


R.P.Data’s missing January

Given that RPData gave the housing market a little shock yesterday with the launch of their new daily index it appears that there is no data for January to report. In fact it appears to have received barely a passing mention in most media reports: Melbourne led a rebound in capital city dwelling prices in February,


Correction: AFG was not so hot

Right…straight out I’m a dunce , and a huge apology all round.  Yesterday I made a pretty serious error while transposing data from the AFG reports to the spreadsheet I use to generate my charts. In doing so I mixed February’s data for Victoria and Queensland which produced results which were … well completely incorrect.


Did falling LVRs drive a mortgage surge?

Below is a report produced by interest rate aggregator, Is this where the February mortgage surge came from? More doors open to potential home owners in 2012 69% of home loans offering LVR 95% and higher Lowest number of home buyers in over a decade But borrowers need to be careful: bigger mortgage means


Building approvals rise in January

The shock and awe continues, with building approval numbers up nationally, mainly thanks to NSW. Private sector house approvals fell 0.1% (i.e flat) overall, and residential building values only rose 1.1% for the month: ABS Building Approvals show that the number of dwellings approved rose 0.9% in January 2012, in seasonally adjusted terms, following a


House prices by state

Above, find the house price movements for February. There are a few eye-popping numbers, not least being Melbourne up 1.84% on the month and Perth down 1.8%. It’s possible to construct a favourable narrative for Sydney given the recent FHB activity, but some of these others look in need of smoothing. I know these are February


House prices rise in February

From BS: Home prices in capital cities rose in February, offsetting a weaker period in January, according to a leading survey. The RP Data-Rismark hedonic home value index showed capital city house prices rose 0.8 per cent in February. The result follows a fall in values of one per cent in January. RP Data-Rismark have


More on the new home sales rout

There are some very significant not to mention familiar divergences in todays very weak new home sales result from the HIA. Here’s a little more on the state by state breakup, as well as houses versus units. The weakness in houses is especially apparent in VIC: And NSW: QLD and SA are moderately depressed and


Mortgage aggregates hold up

Earlier today the RBA released its credit aggregates, which includes the closely watched housing credit series of data. On a month by month basis, January was an improvement on December but both owner occupiers and investor credit remain within the bounds of the last 12 months, which saw house prices fall: The current year on year


Chris Joye responds to Jeremy Grantham

Given yesterday’s post on the ongoing stoush between Chris Joye and Jeremy Grantham I thought it only fair that Mr Joye be given the opportunity to respond so here it is: “The $100 million challenge”. Today I want to talk about our $100 million housing challenge to the US fund manager, Jeremy Grantham, and a


Jeremy Grantham vs Christopher Joye redux

Regular readers will be more than familiar with my friend and fellow blogger Christopher Joye, emeritus General Manager at Rismark and creator of Australia’s leading house price measure, the R.P.Data/Rismark Home Value Index. We might also recall Mr Joye as Australia’s leading bullhawk, that curious breed of animal that simultaneously embraces both higher interest rates


Housing affordability rises to 2003 trough!

The HIA released its quarterly housing affordability index and it’s good news, with four staright quarters of cheaper house buying: A lift in housing affordability in the December 2011 quarter marks four straight quarters of improvement, meaning conditions are steadily getting better for those trying to enter home ownership says the Housing Industry Association, the


The RBA takes the credit

Find below a speech today by the RBA’s Head of Financial Stability, Luci Ellis, with commentary. PRUDENT MORTGAGE LENDING STANDARDS  HELP ENSURE FINANCIAL STABILITY  Good morning, and thank you to RFi for the opportunity to speak to you today. Property markets and financial stability are both topics that are dear to my heart, and I hope to


RP Data: Real estate listings remain elevated

By Leith van Onselen On Friday, RP Data released its weekly Industry Market Wrap, which contained two interesting tables showing changes in the number of homes advertised for sale and rent. The first table of homes for sale is below: According to RP Data: The number of newly advertised properties for sale continued to increase


A housing bull slows up

SQM Research‘s newsletter was earlier this week and began with a bearish maul of Queensland: SQM Research has long been predicting turmoil for the Queensland property market and over the past several months we have seen this come into being, with certain pockets of this northern state suffering substantial house price declines. This week’s (as


Lending finance mixed

The Australian Bureau of Statistics (ABS) has just released the Lending Finance data for December and the results are mixed: The total value of owner occupied housing commitments excluding alterations and additions (but including refinancings) rose 2.0% in seasonally adjusted terms [see Monday’s housing finance data release for further information]: The seasonally adjusted series for


Two speed rents

Australian Property Monitors (APM) has released its Rental Market Report for the December quarter and it is a mixed bag. Canberra (+6.4%), Brisbane (+2.7%) and Perth (+2.6%) registered strong growth in house rents over the quarter, whereas Melbourne, Hobart and Darwin registered no growth: Over the year, Canberra (+6.4%), Perth (+5.3%) and Sydney (+4.2%) registered


NSW FHB blowoff drives housing finance bounce

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the December Housing Finance data this morning and unlike the Reserve Bank of Australia (RBA) credit aggregates, released earlier in the month, it points to increasing demand for mortgages. According to the ABS, in seasonally adjusted terms, the number of commitments for owner occupied


Residex: House prices fall in January

Almost missed this one. Residex on Friday released its house price index for the month of January. According to Residex, national median house prices fell by 1.2% over the month and units fell by 0.7%. Of the major capitals, Melbourne and Sydney recorded the largest price falls, declining -1.7% and 1.2% respectively (see below table).


Real estate agents feel the housing chill

By Leith van Onselen Over the past year, I have written extensively on the economy-wide implications of Australia’s slowing housing market including, amongst other things, worsening government finances, slowing retail sales, and lower jobs growth. On Friday, RP Data posted an interesting blog about the pain being felt by the real estate industry from falling


Housing stock on market falls

The latest SQM research newsletter came out yesterday and as usual it contains some interesting data and predictions: Figures released this week by SQM Research reveal that residential sales listings decreased during the month of January 2012, coming to a national total of 368,510. This is the second consecutive monthly decrease in sales stock, coming


REIWA’s desperate plea to boomers

By Leith van Onselen Last week, the Real Estate Institute of Western Australia (REIWA) made the following plea to Perth’s baby boomers: THE head of the Real Estate Institute of WA has warned “scared” baby-boomers being lured to the safety of cash against selling their investment properties, particularly in Perth’s western suburbs. REIWA president David


Behind the numbers: AFG seasonal adjustments

Please find below another guest post from MacroBusiness reader, Nathan Webb. Enjoy! The monthly AFG Mortgage Index has been actively followed by Delusional Economics, owing to their extremely timely releases.  They manage to get their numbers and analysis out to the public within a week of the end of the month.  Impressive stuff!  But what’s


PSI rises

I don’t place a lot of stock in the AIG PSI. Its registry of service sector activity never seems to correlate with broader economic data. Note, for instance, the weakness throughout 2010 and then greater strength across 2011 which is the opposite to what you’d expect as the post-GFC services sector stimulus of 2010 faded


AFG – WA housing demand recovering?

Once again it is time to look at the the AFG mortgage index report as the data for January was released yesterday. As per usual, if you are new to this, here is the blurb on why I look at this data every month. I use the AFG lending volumes as a leading indicator of the


Building disapprovals

The Australian Bureau of Statistics (ABS) has just released dwelling approvals data for the month of December and while it’s a laclustre result overall, there are significant variations across states. The number of dwellings approved fell -1.0% in December 2011, in seasonally adjusted terms, following a rise of 10.1% in November. The number of approvals


Comparing the big three house price indexes

By Leith van Onselen It’s been a busy week, with Australia’s three main housing data providers – Australian Property Monitors (APM), the Australian Bureau of Statistics (ABS), and RP Data-Rismark – each providing their capital city house price indices results for December 2011. Those unfamiliar with these indices would be forgiven for being confussed, with


ABS: House prices continue to fall

The last of the major house price data providers, the Australian Bureau of Statistics (ABS), today released their capital city house price indices for the December quarter 2011. The price index for established houses for the weighted average of the eight capital cities decreased -1.0% in the December quarter, with  Melbourne (-1.6%), Adelaide (-1.6%), Darwin (-1.4%),


Hope springs eternal in NAB housing survey

NAB’s quarterly survey of housing insiders shows an improvement in sentiment. And here’s why: Moderating house price declines and stronger rental growth saw NAB’s Residential Property Index move just back into positive territory in the December quarter (+1 point) after two consecutive quarters of negative results. Although conditions improved in all states, there is considerable variation