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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Thanks Gov’

The Urban Development Institute Australia – Queensland division has released its report (available at the bottom of the post ) on its expectations for the building industry in Queensland over the coming year. Their press release summarises the report. While the June report is still dominated by bleak fundamental building activity figures, the Institute has

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Stat battles

The battle for the hearts and minds by the housing data providers has died down a bit since the 3-way skirmish in late May. Since then we have seen the birth of the a new venture that has seen 2 sides of that battle (SQM research and RPData-Rismark) publishing information through the same mouth-piece. It

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Gail Kelly on loan arrears

Earlier today, Delusional Economics published a ripping post, Bad bank provisioning, analysing Westpac Chief Executive, Gail Kelly’s, public reassurances that the Australian housing market is robust and that the recent rise in mortgage delinquencies is not a major concern for the economy or the banks’ profits. Delusional concluded with the following insight into the motivations behind Ms Kelly’s public assurances

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Can super save the housing market?

This blog has talked a lot about government policies that have contributed to Australia’s sky high cost of housing – from supply constraints to the first home buyers grant, negative gearing and implicit and explicit support provided to Australia’s mortgage lenders. One topic that has yet to be discussed is the Government’s recent changes to superannuation laws enabling

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Qld’s budget backfire

Last week I mentioned that Queensland’s tax back-flipping government was introducing some strange new tinkering to the housing market as of August 1st this year. [They are] removing the deduction of primary place of residence stamp duty as of August 1. By removing the stamp duty concession non-first home buyer owner occupiers purchasing a median value

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The two faces of housing data

RPData’s latest newsletter highlights that the housing market is falling unevenly, with the top of the market taking a bigger hit than the rest of the market at this stage. With the premium market underperforming, many of the higher priced capital city regions have recorded a significant decline in median house prices since they peaked

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Yesterday’s hero

Will they never learn? Nearly 11 years on since it was first introduced the federal grant for first home owners still stands at $7000, even though the average house price has more than doubled in that time. That’s led one leading mortgage broker to suggest it is time the scheme was upgraded. The residential housing market

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Shorting houses

Australia’s greatest housing champion, Chris Joye, is back with a new product for housing investment: Tired of the drudgery of finding, buying and managing an investment property? If the Australian Stock Exchange’s plans come to fruition, you will soon be able to get exposure to Australia’s $3.5 trillion residential real-estate asset-class without buying a home, paying

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FHOG bust redux

Back in mid 2010 when I wrote for Business Spectator, I compiled a column on the turning point in Australian housing and the likely shape of the coming bust: This column concludes that the RBA has busted the first home-buyer bailout bubble, as it should. Now, we will see just how strong supply and demand

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Queensland whacks home buyers

3 Months ago the Queensland Treasurer Andrew Fraser had this to say about stamp duty on residential dwellings. One of Queensland’s most despised taxes could be axed to save homebuyers tens of thousands of dollars. Homebuyers have paid more than $12 billion in stamp duty since 2006 but the State Government yesterday said it should be dumped.

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Churn baby, churn (a follow-up)

Following on from last night’s article on the relationship between home sales and home prices, a few readers asked me how the charts looked for the smaller capital cities, namely Canberra and Darwin. I originally left these cities off the original article due to time constraints as well as the fact that annual sales data was not

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Stimulus fallout

My long time readers would know that I was certainly not supportive of the first home buyers grant boost that the government implemented as part of its stimulus packages in response to the GFC. I have previously mentioned my issues with this sort of policy. It is unsustainable It brings forward demand, [so] can therefore

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Churn baby, churn

Last week, Delusional Economics posted an article entitled The market needs churn, which showed that the rate of issuance of new loans is a leading indicator for house prices. A follow-up article was posted by Delusional Economics the next day, confirming their findings (see The secret to house price rises). Delusional’s posts inspired me to

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The Block crumbling

The television hasn’t been to kind to the housing market recently. Sure the constant re-runs of Location, Location, Location, Selling Homes Australia and Grand Designs have been streaming out of the box, but more recently David Koch has been on breakfast TV informing the masses that housing was not going at all well. This was made

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No taxes, cheap houses

Following my recent post, Blame your leaders, in which I explained why high house prices are partly the result of high property taxes I was asked by a voice of sanity in my household: “How can you keep a straight face and propose that one of the demand driven causes of driving up house prices, is

16

AFG sees a bounce

As my long term readers would know I have followed AFG mortgage data for quite some time. I am aware that it is not actual mortgage issuance, is susceptible to variations in AFG’s market share, seems to have a disproportionate spread across the states which doesn’t match their size, and also has a bizarre trend

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Beware the housing elites

If there is one thing in this world that drives me crazy, it is social engineering based on ideology rather than an objective examination of facts. A classic example was on display in two related articles recently published in the mainstream media. Both articles relate to recent work undertaken by Dr Robert Crawford, an academic

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Will Fitch pull the trigger ?

Back in May I noted that Fitch had this to say on their future strategy for dealing with Australian bank’s housing credit issuance. … Australian banks could have their credit ratings cut if they lower standards to boost mortgage sales as demand for home loans slumps. “If we do start to see signs of erosion

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The secret to house price rises

Yesterday I posted my observations that rates of credit issuance are the main driver for housing price adjustments in Australia. I noted that when the rate of credit issuance rose for a month then prices moved upwards soon after, and the reverse was true for the downside. It was therefore important as a housing investor and/or home buyer to

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Ringing a bell at the top

Jonathan Chancellor was the property editor at the Sydney Morning Herald for many years until April this year. The Sydney Morning Herald’s legendary real estate editor Jonathan Chancellor has resigned and is set to launch his own rival property website. It is unclear who his financial backer is but the real estate guru today shocked his bosses

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The market needs churn

There have been a vast number of discussions here and on many other sites about the future direction of the housing market. My own opinion, as I have stated a number of times, is that without some further government stimulus the market will continue its slide. This is mainly based on observations of the market

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Estate agent deflation

Myself and the Unconventional Economist talk a lot about the housing in Australia. But it isn’t really housing itself that I see as the issue, it is the every growing private sector debt that supports it that concerns me. It could as easily be Mars bars, tulips or Nespresso coffee machines because from an economic

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RPData on regions

Earlier in the week I posted on RPData’s press release and queried why the data representation had changed from the previous media releases. You will note that the second chart is suddenly absent in the May press release even though it has appeared in every other release this year. Now I am aware that I could

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Councils flee the carcass

Yesterday Deep T wrote a thought provoking piece about the responsibility of governments at all levels and their part in the ever increasing prices of houses in Australia.  As part of that post he said. It should come as no surprise that the main instigator in this part of the equation is state and local

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Banker makes housing sense!

Today, the ANZ Bank’s CEO of Australian operations, Phil Chronican, gave a superb speech on the state of the Australian housing market to the American Chamber of Commerce in Australia (AmCham). In his speech, Mr Chronican touched on a number of important issues, including: inadequate housing supply; negative gearing; housing’s poor investment fundamentals; and the

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ANZ on arrears

This morning I posted about what I consider to be somewhat perverse logic used by the RBA in their attempt to talk down the systemic banking risk presented by the 2009 first home buyer cohort and what seemed to be a very different view of that risk presented by a recent UBS report. This afternoon

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Blame your leaders

How about we become solution focused? Maybe even think a little outside the paradigm. MacroBusiness has been full of very well researched articles over the last month with data to burn. Accompanied by more often than not, very well thought through commentary and interpretations. It’s been hard to keep on top of the many topics

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RPData’s latest

RPData’s latest monthly round up is out. The near-double interest rate hike in November last year has bitten, with seasonally-adjusted Australian capital city dwelling values down 1.2% in the three months to end April, although in raw terms home values are mostly unchanged (-0.2%). Expensive suburbs have been the poorest performers in line with the