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.


Comparing house price declines

Back by popular demand, here is my chart on the respective rates of decline for Australian housing now versus the 2008 experience (which obviously reversed)  and the US experience in the GFC. Obviously this is a limited sample and is not intended to suggest that local housing is on the same path as the US.


House prices continue to melt in October

R.P.Data results for October are out and it’s an ongoing Spring thaw, 0.5% down for the month seasonally adjusted, with an adjusted figure for September doubling the fall to 0.4%. Here’s the chart: And raw: And the R.P. Data House Price Index over time: As well as, real house prices: And finally, state by state


Recourse mortgages don’t prevent housing busts

Yesterday, Delusional Economics linked a video from Sunday Sunrise showing SQM Research’s Louis Christopher and Sunrises David Koch (‘Koshie’) discussing the Australian housing market. While much of what both commentators said was reasonable, I found one point made by Koshie misleading: From 4.40 of the video, Koshie notes that a major difference between Australia and the


The Economist global housing comparison

The Economist has released its annual house price survey and on most measures Australia remains in the top category for most overvalued. I’ve extracted some charts from the interactive graphics to give you an idea of The Economist’s guide to relative merits. First, a straight comparison of house prices: Australia comes in second behind one


The ‘new normal’ in mortgage growth

There were two new mortgage industry reports released yesterday that painted a picture of an increasingly realistic industry. Genworth released its Home Grown Report, which surveys mortgage industry attitudes and expectations for the year ahead, and Deloitte released its Australian Mortgage Report, which seeks to define conditions for the year ahead. The Deloitte report is


The best way to help first home buyers

Property Observer has a piece today on an effort by the REIA to stimulate housing: The Real Estate Institute of Australia is urging the government to adopt a successful Canadian scheme that allows first-home buyers to tap into their superannuation to assist with making their first purchase. The Canadian Home Buyer’s Plan has been in


Residex: House prices fell in October

Yesterday Residex released its October median house price indexes and, generally speaking, the downward shift in prices accelerated from September as the Spring selling season got going. Here is a chart for Sydney: The housing component fell 1.65% in October. I don’t want to be too alarmist, this is a median index and thus subject


MSM bear porn

From the Herald Sun yesterday: Stamp duty cuts are failing to lure first-home buyers into the market as their numbers tumble to a seven-year low. First-home buyers took out 6488 loans in the three months since the July 1 cut – 5 per cent fewer than the 6824 granted in the same period a year


Move up buyer frenzy!

As I discussed earlier in the week, Domain has recently been trying to get first home buyers excited about the return of a weak pulse to that segment of the housing market. Today they take this conceit to the the next wave queuing up to buy: the “move up” group: Now could be a good


Why are inner city house prices so high?

Australian cities are uniquely monocentric, with a highly dense core of both residential dwellings and commercial activities, and far-flung low-density suburbs.  For the investor, the pattern of growth of the city is important for two reasons. It explains the strong relationship between yields and distance from the CBD for all property types, and it demonstrates


QLD Budget’s housing black hole

Following last weeks article, WA Budget’s housing black hole, reader amdweb82 requested that I undertake a similar analysis of Queensland’s (QLD) budgetary situation to gauge whether it is experiencing similar pressures to WA from falling home prices and lower housing transactions. Thanks to an anonymous reader, who emailed me the data set, I now possess


Housing supply and demand state by state

Last week I put together a few charts comparing ABS owner occupier finance data to AFG‘s data on mortgage applications. As H&H mentioned yesterday the ABS has updated their 5617 dataset which allows me to update the charts with investor finance data for September. The left hand side(LHS) data of the charts below is created by taking


First home buyer frenzy!

With a rate cut, the great Australian bubble machine is coughing into life and its target is first home buyers. DE last week exposed the return of undisclosed real estate agents being touted as happy customers. Over the weekend, Stephen Nicholls, property editor at the SMH, offered a shiny, happy first home buyer assessment supported


The big spruik returns

Back in August this year I highlighted one of my pet peeves, which is the utter contempt the media and real estate industry seem to have for basic ethics by using real estate industry participants in news stories as first home buyers without declaring their interest. Macrobusiness has since been represented in both The Monthly and


AFG vs O/O housing finance

As H&H  mentioned,  the ABS updated housing finance data yesterday. The dataset that was updated is the ABS 5609 which contains the breakdown of housing finance for owner occupiers. In order to get the full picture, including the breakdown of investor financing, we need to wait for the ABS 5671 dataset, but it will not be updated until


Sydney investors drive housing finance

ABS Housing Finance for Spetember is out and shows some recovery in the headline numbers: SEPTEMBER KEY POINTS VALUE OF DWELLING COMMITMENTS September 2011 compared with August 2011: The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.9%. Investment housing commitments rose 1.0% and owner occupied housing commitments


WA Budget’s housing black hole

On Monday, I showed how the Victorian State Budget is likely to get hit hard from declining stamp duty receipts as house prices and transaction volumes fall. Thanks to reader aushousingcrash, I was able to source some interesting data on Western Australian (WA) housing transaction volumes which, when combined with falling home prices, paints a


Limited rate effect

Back in late October Sell on News posted a note from Deutsche Bank explaining that an interest rate cut was unlikely to have much affect on equity values. In a similar vein I note that Gail Kelly said as much about the rest of the economy on the this week’s inside business from the ABC: ALAN KOHLER:


Housing slide to hit Victorian Budget

Back in April, RP Data released some fantastic research showing the increasing reliance of Australia’s state and local governments on property taxes. Two charts from this research stood out. First, the below chart shows how aggregate property taxes rose from around $19 billion in 2000-01 to nearly $32 billion in 2009-10. And the below chart


RPData market update

RPData‘s Australian housing market update for November ( looking at September data ) came out late this week. I recommend watching the entire video, but if you are pressed for time or are only interested in one market then Sydney is @4:10, Melbourne is @ 5:32, Brisbane is @6:50, Adelaide is @8:50 ,Perth is @ 9:58,


Melbourne housing supply going ballistic

Yesterday I looked at the latest AFG data to get some idea of where the demand side of the housing market it headed in the short term. In timely fashion, now SQM Research have released their updated stock on market figures to give us a grasp of the state of the supply side. Firstly, at the


AFG: falling mortgages, rising FHBs

Yes OK,  I know I said I was giving up on AFG last month, but after I posted that piece two readers, Merovingian and Peter Fraser, gave me some feedback that suggested I should take another look at the data to compare its trend with data that is released by the ABS. So I took


Will rate cuts stimulate housing?

Predictably, the usual suspects are on the hustings promoting property in the wake of the RBA rate cut today. And why not? It’s always worked before. Hasn’t it? Well, actually it’s not that easy to tell. Here’s a chart of ABS YOY house price growth graphed against the RBA cash rate since the eighties: The


How fast are house prices falling?

Slow melt, slippery slope or touching bottom? Can’t decide ? Maybe the ABS can help with today’s capital city house price index: ESTABLISHED HOUSE PRICES Quarterly Changes Preliminary estimates show the price index for established houses for the weighted average of the eight capital cities decreased 1.2% in the September quarter 2011. The capital city


R.P.Data gets bullish (Updated)

As H&H mentioned yesterday, RPData stats are out for September and a glance at the data tells you that the slow melt continues. RPData have taken a bit of a bullish stance on the data, which is in line with their latest newsletter. Here are the numbers: The big markets of Sydney and Melbourne deteriorated slightly


House price falls accelerate (by Leith van Onselen)

Housing data provider, Australian Property Monitors (APM), yesterday released its September quarter house and unit price figures. It was another poor result with house price falls accelerating, declining -1.6% nationally in the September quarter compared with a -1.2% fall in the June quarter. Unit prices were more resilient, falling -0.6% in the September quarter, matching


ANZ’s rosy housing report

Yesterday ANZ released its latest housing snapshot report (available below) which appears to be a mix of realistic analysis of the present and optimistic hopes for the future. Despite extreme volatility in global financial markets and plunging equity prices, Australia’s medium-term economic outlook remains favourable, largely due to our exposure to the fast- growing Asian


The RBA housing files

Yesterday the RBA released a set of documents under FOI ( h/t Mav ) containing reports and briefs relating to credit standards in housing lending, residential impaired assets, non-performing housing loans and arrears, applications for property possession and trends in housing prices, between 1 January and 16 August 2011. The FOI comes in three parts (links