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
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.
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
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%.
From the Age this morning. The Future Fund has gone into partnership with a land developer to buy and develop greenfield sites on the outskirts of the major cities. West Australian-based property developer Peet Limited yesterday announced a partnership to buy land in areas of projected population growth and develop master-planned communities. The arrangement is
Fellow econblogger, Cameron Murray, has written a thought provoking post on his Blog about the link between tight rental vacancy rates and home prices. Cameron’s post has been re-produced below for your reading pleasure. A common housing market myth is that low vacancy rates lead to rent increases, which lead to price increases (or at the very
BIS Shrapnel are never afraid of making a bullish property forecast. In July last year, near the peak of the last housing cycle, BIS chief, Frank Gelber, made the following bold prediction on the future direction of house prices in Australia [my emphasis]: Frank Gelber gave members at a Real Estate Institute of Victoria lunch
Once in a while a real estate article gets published in the mainstream media that is so bad that it just has to be dissected. Mark Armstrong, an independent [sic] property analyst, adviser and director of Armstrong Property Planning, published one such article yesterday in Fairfax, entitled Bold investors buy in a softer market. Here
RPData has put out their latest newsletter today and once again it isn’t great news for the housing market. The RP Data-Rismark Home Value Index results for May 2011 will be released next week and there is little evidence to suggest that there will be any significant change to market conditions with values likely to
The battle for the hearts and mind of who’s telling the truth about housing prices in Australia rages on. In the latest installment SQM research’s Louis Christopher has returned serve to Michael Matusik via SQM’s newsletter. I have talked Mr Matusik previously, he is a housing bull , turned bear, who now seems to flip-flop between
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
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
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
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
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
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
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
Courtesy of today’s Fitch report into the geographic distribution of Australian mortgage delinquencies. Here are the top 50 most delinquent regions by dollar amount:
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.
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
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
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
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
Another weekend, another whirling of things around my thunktank. I am pretty busy this weekend so here’s a few short thoughts. FutureBoom! economics One of the things we talk a lot about at MacroBusiness, which tends to spark many “interesting” discussions, is the effect of the mining boom on the economy. I can’t really add
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
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
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
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
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