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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Sydney property prices have gone vertical

Sydney property prices continue to soar into the stratosphere. According to CoreLogic’s daily dwelling values index, Sydney dwelling values have already surged an extraordinary 10.6% this calendar year with prices already up 1.2% in May: Price momentum also appears to be growing. Quarterly dwelling value growth is running at 9.3%, which is the strongest growth

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Federal budget: Increasing home ownership on the Coalition’s terms

CoreLogic’s head of research, Eliza Owen, has released a note explaining the federal budget’s housing policy changes: Housing affordability is becoming an increasing concern for first home buyers and policy makers amid recent, rapid price increases. But the double-edged sword of reducing housing values to make them more affordable, is that housing also makes up

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April Australian property market update

Australian property market prices continued to climb over the last month, and mortgage interest rates stayed constant. There are some extraordinary divergences in affordability. It has never been cheaper in most markets to service a mortgage, but never more expensive to save for a deposit or pay off the loan. In general, housing valuation and

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Rental vacancies tightest in 8 years

SQM Research has released its rental vacancy data for April, which reports a national rental vacancy rate of only 1.9% – the lowest level of vacancies since March 2013. Rental vacancies are zipped tight everywhere except Melbourne and Sydney, which have been hit hardest by the loss of international students, as illustrated clearly in the

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Houses extend their value lead over apartments

Recently, Domain claimed that the price differential between house and apartments had hit 66%, which is the widest gap on record. New data released from CoreLogic’s Tim lawless via Twitter confirms this view, also claiming “the ‘value gap’ between house and unit values [is] the widest on record”, which “could see affordability pressures gradually divert

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CoreLogic: Rents have gone vertical

CoreLogic has released its May housing chart pack, which reports that the nation’s rental growth has gone vertical, soaring by 4.9% in the year to April 2021: As shown in the next chart, rental growth is solid to strong almost everywhere outside of Melbourne and Sydney, which have been hit hardest by the collapse in

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Sub-prime mortgages are back in vogue

As we know, the Australian Bureau of Statistics’ (ABS) latest lending data reported the biggest ever boom in mortgage finance commitments, up a whopping 55% in the year to March 2021: Amid the mortgage frenzy, there are increasing signs that lenders are dropping lending standards. The latest example came yesterday when NAB owned U-Bank announced

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Auction clearances soften off massive volumes

CoreLogic’s preliminary report on the weekend’s auctions reported a softening clearance rate on the second biggest auction volumes of the year. The national preliminary clearance rate fell to 78.6% from 80.4% the prior weekend. This was off a whopping 3,033 auctions, up from the prior weekend’s 2,876. Houses continue to outperform units, with 80.9% of

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Frydenberg summons more home buyer patsies

With demand from first home buyers (FHBs) beginning to wane, Treasurer Josh Frydenberg flagged over the weekend that Tuesday’s federal budget will contain a range of new subsidies to improve ‘housing affordability’ under a so-called “family home guarantee package”. Under the changes reported in the Weekend Australian: A government-guaranteed home loan scheme will be offered

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Mascot Tower owners crumble into bankruptcy

In June 2019, Sydney’s 132-apartment Mascot Tower was evacuated after large cracks were discovered. Fresh cracks then appeared in February 2020, prompting authorities to close shops and set up an exclusion zone around the building. Nearly two years on and 132 families remain locked out of their apartments with many lumped with crippling debts. Today,

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Mortgage brokers run off their feet

RBA Governor Phil Lowe last year endorsed Treasurer Josh Frydenberg’s proposal to axe responsible lending rules, telling the Standing Committee on Economics that Australian mortgage restrictions had become too strict and were constraining the economy: “We can’t have a world in which, if a borrower can’t repay the loan, it’s always the bank’s fault. On a

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Syd and Mel houses grossly unaffordable for ‘middle Australia’

Despite the reduction in mortgage rates to all-time lows, CoreLogic’s head of research Australia, Eliza Owen, has released analysis showing that detached houses are still unaffordable to ‘middle Australia’ across Sydney and Melbourne. At the national level, high income earners could afford to purchase at least 82% of Australian houses as of May 2021, versus

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Inner-city apartment market rising from the dead?

CoreLogic reports that Australia’s inner-city apartment market is beginning to experience value growth; albeit still far weaker than for detached houses. According to CoreLogic, only five out of 59 inner-city apartment markets recorded a decline in value over the month of April, with only 17 recording annual value declines: “This suggests most unit markets are

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Aussies bet it all on the house

Last week, Interest.co.nz’s David Hargreaves posted the below chart showing how Kiwis have pulled back borrowing for everything except property: For the record the figures show us that personal/consumer borrowing is continuing to atrophy… Agricultural lending is continuing to drift lower… Business lending actually increased a little in the month of April (emphasis on ‘little’)

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Are property listings rising or falling?

SQM Research has released its Stock on Market Report for April, which shows that total property listings rose by 2.4% over the month but were down 10.3% year-on-year: The monthly rise in listings was broad-based, with all markets other than Hobart recording increases. However, both new listings and old listing fell in April. New listings,

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HomeBuilder boom begins to fade

Yesterday’s mortgage data from the Australian Bureau of Statistics (ABS) suggests that HomeBuilder and associated stimulus is starting to fade. According to the Housing Industry Association (HIA), first home buyer (FHB) activity in the construction market hit “its highest level since the stimulus associated with the GFC”. These FHBs “were significant beneficiaries of the [HomeBuilder]

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Mortgage market shows coast-to-coast property boom

Yesterday, the Australian Bureau of Statistics (ABS) released data on new finance commitments, which showed booming growth in both owner-occupied and investor mortgages. As shown in the next chart, owner-occupied mortgage commitments rose 55.6% in the year to March 2021, whereas investor mortgage commitments rose 54.3%: As regular readers know, the growth in new mortgage commitments

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Immigration collapse bogs Sydney and Melbourne rents

CoreLogic’s April housing market update shows that Australia’s rental market remains two-speed, with the smaller capital city markets recording strong rental growth, while Sydney and Melbourne flounder. As shown in the next chart, Darwin and Perth’s rental markets are booming, catching up on years of falls leading up to COVID. Across both houses and apartments

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CoreLogic: Aussie property market to slow

CoreLogic has released its official dwelling value results for April (unofficially released on MB on Friday), which recorded 1.8% growth nationally, with every market – capital cities and regional – recording strong growth: However, CoreLogic’s research director, Tim Lawless, contends that the pace of gains will slow in the months ahead as inventory levels rise