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.

34

More dour news from R.P.Data

Just some additional information that was released today by RPData but wasn’t in their media release. Stock on market looks to be heading back up again: Across the combined capital cities the current volume of property listings is 36.9% higher than at the same time last year, while new listings are just 2.1% higher than

114

The not so slow melt of housing

Further to the charts posted earlier today on the latest RP Data-Riskmark house price indices for August, something I have been following is the comparison between the current pace of house price declines in Australia to the slide we experienced during the GFC and the fall in prices experienced in the US. As you can

59

Housing’s steady melt continues

The monthly RPData stats are out today and the slow melt continues. The value of homes overall fell 0.4 per cent during August. Perth down 2 per cent, Canberra down 1.8 per cent, Adelaide down 0.6, Melbourne and Brisbane down 0.2 per cent, Sydney flat, Darwin up 0.2. Charts below. From Bloomberg Australian home values fell

22

Mortgage delinquencies by postcode

Moody’s has produced its annual report into Australian mortgage arrears. Below is their findings. Below that find the reports themselves, including a list of the 300 most delinquent post codes. For a bit of fun you can surf around and compare the newspaper reports that have reproduced the press release with…ahem…very little alteration. These are

50

Sinking into negative equity

The spectre of negative equity is creeping across the Australian housing market. According to RP Data’s first Equity Report (below) Queensland leads the way with 6.3 per cent of homes in negative equity, while the Australian average sits at 3.7 per cent. On the good side 41.3 per cent of homes in Queensland are more than

6

NAB housing survey dour

Since April 2010, NAB has been conducting the Quarterly Australian Property Survey: …with the aim of developing Australia’s pre-eminent survey of market conditions in the Commercial and Residential Property market. The large external panel of respondents comprised of Real Estate Agents/Managers, Property Developers, Owners/Investors, Asset/Fund Managers and Valuers. Here is the split of the surveyed:

75

Sydney housing ripples

Sydney is different. Since 2003 rents have risen faster than prices. I imagine the rest of the country would find that hard to believe, given their experience. But this is just one piece of evidence to show that the property cycles in Australian cities are non-synchronous. The past 25 years data shows that the Sydney

64

Abolishing stamp duty

Last week, Treasury Secretary, Dr Martin Parkinson made a convincing case for why state stamp duties should be abolished: Treasury boss Martin Parkinson has backed a move to wind back or abolish real estate stamp duties saying they make it hard for workers to move west and north to take advantage of the mining boom.

28

Residex sees soft August for housing

AFG may have seen a jump in their data for August but if Residex is anything to go by then, as our astute readers mentioned, it may have only been a seasonal mirage. Below is the Residex’s update for August and it looks to be a continuation of the downwards trend: Houses Area Median Value

82

Real estate agent hysteria

A few weeks back, I published a post highlighting how real estate agents seem to have turned from ‘talking-up’ the housing market to ‘talking it down’ in order to boost sales. I provided some recent email reports from a Ray White real estate agent that set a new benchmark for bearishness. Well, today I want

2

RMBS arrears stabilising

The latest Fitch Rating fair dinkum report is out in what looks to be a few more streams of sunlight for the economy. Arrears on RMBS are still high by historic standards, but flat interest rates look to be providing some stability. Fitch Ratings said that the decision by the Reserve Bank of Australia (RBA)

16

Home buyer confidence etc.

I was going to ignore today’s Genworth Home Buyer Confidence Survey. I saw the press release this morning and it was so loaded with positive spin that I didn’t think it credible enough to report upon. However, I’ve noticed that both Bloomberg and Fairfax are now running the release so I thought I’d better take

62

WA first home owner’s grant revealed

Back in March one of MacroBusiness’s gold star recipients, Saul Eslake, penned a stinging review of first home buyers grant schemes in the Sydney Morning Herald: It’s hard to think of any government policy that has been pursued for so long, in the face of such incontrovertible evidence that it doesn’t work, than the policy

130

Look to Texas to solve Australian housing supply

Following on from my recent articles on land-use regulations and housing affordability, I want to take readers through Texas’ deregulated and innovative urban planning system, and how this system has assisted in providing Texans with housing that is among the most affordable in the Western world despite very high population growth and easy access to

108

The housing production line

As regular readers would know, the debate continues about the role of planning regulations on housing supply and the resulting price implications.  Yesterday our favourite Unconventional Economist elaborated his views in an exploration of town planning and the UK housing market, so I feel it is an opportune time to elaborate the opposing argument – why the

49

Politico-housing complex goes on tour

There’s nothing like a breath of honesty. From the SMH today: As global investors curb their exposure to Europe’s troubled banks and governments, Australia’s biggest issuers of bonds plan to step up their marketing efforts in a meeting with key US fund managers this week. In the first co-ordinated roadshow of Australian credit market players,

39

Lending standards and the CAD curse

Australian banks’ reliance on foreign funding has lead to the alarming situation whereby we (as a nation of households) have borrowed from the rest of the world to buy existing houses from each other at inflated prices.   As I once said it makes me quite frustrated to even suggest that a fair portion of

68

“Experts” circle wagons to repel Dent

Look, I know the Unconventional Economist has already covered Mr Dent’s visit to Australia and I have to agree with everything he said in that regard. But I feel the need to bring our reader’s attention to the hilarious debacle that was the “expert” Australian response to Mr Dent’s accusations as presented by Koshie on Sunrise yesterday morning. Craig James’s “expert” response: Australia’s population

75

Harry leaves a dent on Australia

Harry S Dent is a well known author and founder of HS Dent Investment Management, an investment firm based in Tampa, Florida. Dent writes a regular economic newsletter and has written seven books analysing demographic trends and their affect on the economy and asset markets. I first stumbled across Dent’s work early last year at my

2

How the CPI hid the housing bubble

Recent discussions about the CPI have brushed over a key change that occurred in the construction of the index in 1998. In its 13th Series the CPI became a pure price index utilising an acquisitions approach, rather than a cost-of-living index utilising an outlays approach. One feature of this change is that it removed land

22

SQM reports falling listings

The latest SQM research newsletter contains some more rays of sunshine for the property market. Figures released this week by SQM Research revealed that residential property listings have actually declined during the month of August 2011, coming to a total of 362,793 nationally. Falling by 14,522 listings since July 2011, total amount of stock on

8

A bizarre oversight of national financial prudence

  The liberties available to the real estate industry over other purveyors of financial goods is a constant source of angst for me. The fact that a real estate agent is able to spruik to his or her hearts content about the virtues of the “never declining” housing market with impunity while your local bank teller has

60

WTF APRA

All markets need a price floor, Australian housing is no different. Without entry level buyers the next level of the market struggles to move up the property ladder and as the churn rate of the market falls so do prices. In areas that are at the tail of the inelastic supply response house prices are

46

Another bearish serve from RPData

RPData’s latest newsletter is out and, as expected, is once again fairly bearish. Canberra is bucking the trend on the back of the public sector, everywhere else is struggling in degrees from a little to a whole lot. It must also be noted , because I find most people struggle with the idea, that a

19

Bear porn

My readers will know that I am bearish on housing and have been for over a year. In June 2010 while I was predicting the coming house price falls the media was busy providing real estate industry propaganda to the contrary. Now that there has been an obvious change in both sentiment and the market,

47

Do variable mortgages prevent crashes?

Last month, the Federal Reserve Bank of Richmond published a report, Foreign Housing Finance, which highlights a number of problems with the US mortgage financing system and proposes a number of reforms based largely on the financing systems employed in other developed nations. While the entire report is interesting, the below chart, in particular, grabbed my

57

A ray of sunshine for housing?

Well it looks like housing finally got some good news yesterday with a bit of a Queensland driven rise in housing finance. This was a predicted event. I had this to say back in July: I am actually expecting to see a bit of an uptick in median values in July as people bring forward their property transactions to

56

Insiders turn bearish on housing

You know the housing market has taken a turn for the worse when industry groups renowned for ‘taking-up’ the housing market change track and start conditioning sellers to lower their price expectations in order to promote sales. A reader, last week sent me the below email report from Ray White, which I think you will

22

Australia’s MIA politicians

Don Brash, leader of the New Zealand ACT Party and former governor of the Reserve Bank of New Zealand (1988 to 2002), has delivered some stirring speeches recently lamenting the declining level of housing affordability in New Zealand.  On 25 August, Dr Brash gave a speech in which he noted the role played by regulatory

41

Improving the house price and income debate

Please find below a guest post by fellow blogger, Cameron Murray. We are pleased to announce that Cam will be joining the MacroBusiness team later in the week. While the RBA has warned of the risks of leveraging into the housing market on national television, they, and other analysts, have also presented a stable picture