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.

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Crash testing

As mentioned by Delusional Economics yesterday, the bastion of the Aussie punter, David Koch, has issued a warning that Australian home values are on the slide. The question now is how far will prices fall and over what time period? SQM Research’s Louis Christopher recently issued a newsletter predicting falls of 5-10%, whereas many bank

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Koshee’s news

David Koch is an interesting chap. Not because I think he is able to provide valuable economic insight, but because I feel he is the average Aussie’s TV economist. So once Koshee says something it means two things to me. Whatever it is happened six months ago. Everyone in the country now knows about it.

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Buy a house because I said so!

It seems the ah…fans…of housing are getting nervous. I’m not sure if there has been recent guild meeting but last week saw a number of bullish property pieces. It’s worth assessing their merits. In the latest Eureka Report, Monique Sasson Wakelin penned an attack on the “bubble brigade”. In it she argued the real question

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Weekend Musings: AFG, Turning bearish, Budget and Greece

Another weekend, another dive into what is rumbling around my thought box. AFG Mortgage Index. AFG’s latest mortgage report came out this week. Their overview of the lending market was fairly bearish. AFG, Australia’s largest mortgage broker, has called on the Government to address weak consumer confidence, after figures for April showed mortgage sales fell

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Noosa continues to “Keen it”

How do you lose $160,000 over 15 years? Buy a Noosa apartment. Savagely discounted prices fetched by receivers for apartments previously owned by former Sunshine Coast tourism boss Phillip Harding has sent shock waves through Noosa with some estimating the state of the market is now as bad as the Gold Coast. Over the past

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It begins

It was only a matter of time. UBS let the warning out to investors this morning. Arrears rose alarmingly. Early warning sign for consumers? ANZ’s arrears levels have risen sharply. Since September its >30 days arrears have risen 41% to $5.8b, while >90 days are up 26% to $2b. We believe higher arrears are heavily

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What’s that hissing sound?

In today’s SQM Research weekly newsletter, SQM’s Managing Director, Louis Christopher, provides a sobering assessment of the state of Australia’s housing market. Below are the key extracts, together with some charts and data added for additional context. “The housing market’s downturn is now happening at pace and there is no imminent recovery in sight. These

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The bubble formula

What is it that determines house prices? Supply & demand, availability of credit, government subsidies, taxes, or a level of value in the buyers head?  I think it’s time we try to put a little discipline into the debate. Clearly many things go into determining house prices but with a little thought we can perhaps understand

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Broad based house price falls

Find above a snap shot of the ABS eight city house price index released today. Relative to Rismark, falls are a slower than in Brisbane and Perth but much more widespread, and larger in Melbourne and Sydney. Here is a graph of the eight cities since 2002, It is a long way up to the

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Housing falls accelerate

This shouldn’t be a surprise to any daily MacroBusiness readers, but here it is. Capital city home prices continued their downward slide in March, posting their worst slump in at least 12 years as the property market showed more signs of sagging demand. Brisbane and Perth fell the most. National city home values slipped 0.2

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Special Investigation: The Big Spruik

I have previously spoken about my annoyance with the liberties available to the Real Estate industry because their agents are do not have to conform with the Australian Financial Services Licencing Act. I find this a bizarre legal exception, most especially because the housing market represents $4 trillion of national wealth versus $1.2 trillion in

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Westpac’s hidden message

Back on the 31st of March Bill Evans from Westpac presented a talk to the Real Estate Institute of Queensland(REIQ).  However I am unsure whether anyone liked what he actually said, because the only reference I can find to the presentation’s contents is on some obscure websites such as this one. As the Reserve Bank of Australia

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Negative gearing on the nose

Over the past two months, the calls to wind-back negative gearing have grown louder, spearheaded by Fairfax media. In early March, Fairfax’s Michael McNamara wrote a fantastic article arguing to abolish negative gearing. This article was followed up in Fairfax by Saul Eslake, who lambasted Australia’s dysfunctional tax system, especially negative gearing, for the way in which it

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“Negative equity” hits thousands of WA homeowners

Earlier this month, the Western Australian (WA) Chamber of Commerce noted that the WA economy had fallen into technical recession, experiencing two successive quarters of negative economic growth in the last six months of 2010:  Western Australia is generally regarded as Australia’s economic engine room with its booming resources sector, but its manufacturing and retail sectors are struggling. The WA Chamber

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More on NCCP (Updated)

I first mentioned National Consumer Credit Protection back in early January when I suggested it could have an effect on the housing market. This certainly reads like it should improve credit standards, especially if any of these things were actually allowed previous to this new legislation; and we applaud this legislation if this is the

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Triguboff sounds the alarm

I haven’t mentioned Harry Triguboff previously. For those who aren’t aware he is also known as “High rise Harry” and is the head of Meriton. Meriton are the largest developer of apartments in Australia with around 50,000 under their name. Harry is a huge supporter of “Big” Australia and is obviously a person who would

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Negative Gearing for the chop?

I can’t quite believe what I am reading, but here it is from the SMH: The Gillard government has sounded out unions over steps to cool Australia’s housing market, with measures that range from a new sales tax for investors sitting on large property portfolios, to curbing the popular strategy of using negative gearing for

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Queensland heading for recession ?

It would not be a surprise to my readers that Queensland’s economy is in serious trouble. Last week I noted that the Gold Coast’s unemployment has “surprisingly” shot up. Australian Bureau of Statistics figures released yesterday have revealed the Gold Coast unemployment rate climbed to 8.1 per cent last month, up from 6.5 per cent in

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Hooked on property

In January this year, I published the below HIA chart and accused Australia’s governments of being ponzi merchants for attempting to keep the Great Australian Housing Bubble alive by pumping demand and restricting supply in order to preserve government finances. Now RP Data has confirmed my suspicions with a fantastic piece of research entitled Property

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And now the world knows

This isn’t new to anyone who reads MacroBusiness regularly. But the rest of the business world has just been enlightened to the fact that all is not well in Australian Real estate with the front page of Bloomberg looking like this today. Apartment prices in the luxury beachside Australian town of Noosa Heads have tumbled by

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Update: Qld’s Building Revival Forum

Last week I mentioned the Queensland government’s building revival forum and said I was waiting for some outcomes before passing judgement. Now I know it is easy to be cynical about this, but in that post I said. At macrobusiness we have no issue with the industry arguing for more responsive planning and a reduction in

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David Uren takes aim at the housing market

David Uren has been on fire recently, publishing top notch articles in the Australian on conficts of interest within the RBA and Dutch Disease hitting the budget.  Today he followed up with a cracking piece on how RBA and government incentives have hurt the Australian housing market. Below is an extract of the best parts,

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Plunge protection has begun

House prices down! Property market correcting! FHBs Revolt! It’s all happening folks and to many the inevitable asset price correction will gather full speed from here. But be warned and not deluded, the vest powers in every quarter will fight tooth and nail to try and prevent it happening. I had planned to write this

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Lucky they’ve got the government

Real estate agent watching is becoming a bit of a sport in Queensland. As the market turns the level of desperation is slowly rising. I get quite a few e-mails from readers informing me of their local agents antics. It may surprise you just how much your local agent knows about macroeconomics, microeconomics, forex markets,

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Tax stats unmask investors

The 2008-09 Australian Taxation Office (ATO) Taxation Statistics were released yesterday (available here), and the data on property investment was very interesting. First, the number of property investors reporting to the ATO fell by 34,000 or 2% from the previous year (see below chart). Second, after rising steadily since 1999-00, the overall value of net

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AFG – Mortgages bouncing in March

February’s data for housing was obviously terrible. However if we can take AFG’s latest report on mortgage issuance for March the market may still have a bit of a run left in it. Well at least in NSW. Mortgage sales during March saw a recovery from the record lows of January and February, but figures were

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SQM Research on the housing finance data

As my fellow MacroBusiness bloggers have already pointed out, Australia’s housing finance data released today by the ABS was bad, real bad. One of Australia’s few truely independent property analysts, the Managing Director of SQM Research, Louis Christopher, offered perhaps the most damning assessment via a series of Tweets: Home loans drop on weak demand