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.


ABS house price falls moderate

Here are the ABS results for June Qtr house prices. All capitals fell slightly, except Sydney and Canberra, which eeked out small gains. JUNE KEY POINTS ESTABLISHED HOUSE PRICES Preliminary estimates show the price index for established houses for the weighted average of the eight capital cities decreased 0.1% in the June quarter 2011. The


Move over banana smoothie

As the Australian housing bubble lurches, the CBA has launched a new marketing tool for would-be investors, an online game. “Investorville” is “fun and friendly” where you can make choices “just like a real investor”. In time, you’ll get so good at it that you’ll be able to “give it a go in the real


The long kiss goodnight

The Australian housing bubble debate appears to have hit a stalemate, where the dominant view is that home prices will stagnate for an extended period as incomes catch-up (i.e. declining in real terms). It’s a reasonable view with precedent. For example, after the late-1980s house price boom and the strong run-up in house prices between


Melbourne’s Miami connection

A few months back I had dinner with an American hedge fund manager. The fund had made good returns shorting the United States and Irish housing markets, and was undertaking reconnaissance of Australia’s capital city housing markets to determine whether similar shorting opportunities were available. In the days prior to the meeting, the fund manager


June house price analysis

As Data sword stated earlier today the latest RPData media release is out today. As per usual I like to look beyond the headlines. Across the combined capital city housing markets, the rate of home value declines continued to moderate with values in June falling 0.2% in seasonally adjusted (s.a.) terms. The relatively flat June result follows


House prices slide on in June

The RP Data-Rismark house price data for June is out and it’s basically an unchanged trend down. Seasonally adjusted, prices fell 0.2% (compared to 0.3% in May whilst the raw numbers slid 0.6% (compared with a revised 0.6% in May). The slide is looking rather like 2008, before the rescue. Delusional Economics will return later


More rent hawkishness

RP Data a few days back released its June Quarter Rental Review. The report provides a detailed summary of the nation’s rental markets, both at the capital city and regional levels. Consistent with the June Quarter APM Rental Report, released last week, RP Data confirms that rental growth has stalled after a solid run-up between


The vintage of Brisbane real estate

After Wednesday’s CPI announcement I received a phone call from a friend who I consider a perma-bull on houses. We have had many verbal jousting matches in past years about the future of housing and I doubt very much during those discussions whether I was listening to him or he was listening to me. The


Another “affordability” study

  Below find the new National Centre for Social And Economic Modeling (NATSEM) report into housing affordability. The report is both quite good and quite frustrating. It acknowledges the severe unaffordability of the national housing market but never uses the word “bubble”.  As such, it provides some very good overvaluation assessments but fails completely to canvass


BIS chief pushes the housing envelope

Earlier this month, the Chief of BIS Shrapnel, Dr Frank Gelber, gave an interesting interview on Switzer on the outlook for the housing market (click to watch video). The key discussion on the housing market starts from 5.15, where Dr Gelber says the following (paraphrased): The doomsdayers are “discredited”. “That was crazy stuff… they have


Bulls, banks turn pathetic

Yesterday Michael Yardney the director of Metropole Property Investment Strategists penned a property piece in Smart Company that began: I’ve decided that I’m not going to participate in the property downturn and I would like you to join me. By now you are probably sick of hearing about the economic wows of the world and how Australia’s economy has


Moody’s warns on Aussie housing market

Try as I might, I can’t find any reference in the Australian media (could be wrong) to a press release this afternoon by Moody’s warning of trouble ahead for the Australian housing market and a review of RMBS ratings. Thankfully in New Zealand they still seem to breathing (via Alex Tarrant at Sydney, July 26, 2011


Rents going nowhere fast

Last week, in The boys who cried rents, I showed how the private sector housing data providers’ perennial bullish predictions of strong rental growth across Australia’s capital city housing markets is at odds with recent data, which has shown sluggish rental growth nationally since early 2009 (see below RP Data chart). Chief amongst the forecasters


Repossessions rising

In the last Financial Stability Review, the RBA had this to say about the rate of housing repossessions  in Australia: Rates of mortgagees’ applications for property possession generally declined in the second half of 2010; for the year as a whole, these rates were below those seen in recent years. The exception was south-east Queensland (comparable


Residex responds (Updated)

Yesterday I posted on what seemed to be a very large turn around in sentiment from John Edwards the CEO of Residex. I also noted that there were some discrepancies between his claimed length of tenure in two of his own articles, and I also thought Mr Edwards was doing a bit of his own jawboning


A new bullhawkian argument

Today’s bullhawkian charge cannot go without a prod. According to Chris Joye writing in Smart Company: There is mounting evidence to suggest that Australia’s housing market rests at a critical juncture…In my opinion, the near-term destiny of Australia’s housing market very much depends on next week’s second-quarter inflation numbers. If inflation is low, the RBA


Death of a gecko

The effects of the slowing rate of credit issuance (disleveraging) continue to seep into the broader economy. With sales volume charts like this in Queensland it really was a matter of time before something had to give. It therefore shouldn’t really surprise anyone that the Queensland Real estate industry is in for a tough time


Bulls at sea in falling market

As we recorded at the time, it was two months ago that Residex CEO, John Edwards, had the following to say on the falls in Australian house prices: I have been researching the housing markets for more than 21 years and I am sensitive to ensuring we have a properly informed market. Because of this,


The boys who cried rents

Economic forecasting – whether in relation to housing, currency, interest rates, or other markets – is tough. The world of economics and finance is very complex and predictions within a reasonable degree of confidence and accuracy 12 months hence are hard. Yet, the media continually publishes predictions by the nation’s economists and data analysts as


A flood of spruiking for Queensland

After a week being disconnected from the outside world I have returned to Queensland to find that the real estate pushers have turned their attention to the January floods. Let’s start with Terry Ryder in the Australian. Brisbane’s housing price performance is among the worst of the capital cities. It is also, from another perspective, the


Attack of the housing “pessimists”!

Not that we needed another survey to tell us, but the Melbourne Institute Westpac quarterly Consumer House Price Expectations Index is sinking. According to the index, a majority of the house-loving Australian population remains convinced that price rises are ahead. But the number of realists (strangely, Westpac refers to them as “pessimists”!) is rising fast:


Property insiders losing faith

Typically, I don’t take much notice of the NAB quarterly property survey. It’s packed with industry representatives and as such risks reflecting the cognative biases so obvious across the industry. However, for the same reason, it is surely significant that the June quarter survey has printed a negative result, with even the property industry itself


Not in my backyard

In 2002, the Victorian Labor Government launched Melbourne 2030 – a strategic planning policy framework for greater Melbourne aimed at reducing urban sprawl and car dependence by shifting new housing development away from Melbourne’s fringe (“greenfield development”) towards pre-existing urban areas (‘brownfield development’), where public transport is already established. Central to Melbourne 2030 was: the


Melbourne leads supply glut

Following on from today’s post, Avoid Melbourne housing, SQM Research has just released its latest weekly newsletter  again showing Melbourne as the epicentre of the nation’s housing supply glut. According to SQM, Melbourne’s stock on market has increased a whopping 47% since June 2010 (see below table). The only ‘good’ news coming out of the newsletter is


RMBS mortgage arrears rise 25%

Just in, arrears on Australian prime residential mortgage-backed securities (RMBS) rose by 25% in the March quarter and are approaching their historical high reached in January 2009. From The Adviser (via aushousingcrash): Loans underlying Australian prime residential mortgage-backed securities that are greater-than-30 days in arrears jumped to 1.81 per cent in March 2011, from 1.44


AFG’s LVR revisions

As my readers would know I try to follow AFG’s loan reports every month. They claim to be a good leading indicator for the ABS data that doesn’t appear until 6 weeks later. I have however had a long term issue with their LVR data because it made absolutely no sense.  I posted about this


Local bulls vs foreign bears

On Friday, Bloomberg published an article entitled Australia’s home price plunge pits local bank bulls against foreign bears. The article nicely summarises the conflicting views about the Australian residential property market, with foreigner’s pessimism largely tempered by the local bank economist’s rose coloured outlook: Australian home prices in 2011 have fallen the most in three


Block sizes shrinking. Blame government policy

You have heard it before. One of the reasons why Australian home prices are high is because our new houses are supposedly the largest in the world. For example, consider this slide from last year’s infamous CBA investor presentation: Or this explanation from HSBC’s Paul Bloxham: …the quality of the housing stock is high. Australia


RPData – May analysis

As Data Sword posted yesterday the latest RPData report is out. I am running a little behind on this, but as usual I like to do a bit of analysis of the media release to find things that you won’t see reported in the MSM Capital city dwelling values declined by 0.3 per cent (seasonally


RPData Index – Charted

The monthly RP Data – Rismark House Price Index was released this morning for May with the raw data showing a fall of 0.5% after last month’s fall of 0.1% was revised to -0.3%. In seasonal adjusted terms the fall in May was 0.3% after last months 0.3% was revised to a fall of 0.4%.