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.

17

Domain: Perth set for 2019 housing boom!

The cheering is sure starting to sound a bit hollow at Domain: After a free fall in prices over the past four years, house values in Perth are expected to grow faster than any other capital city in 2019, according to real estate group Domain. Perth house prices are expected to hit rock bottom by the beginning of 2019 and then grow

16

Mainland housing nightmare descends on Hobart

By Leith van Onselen A few months back, the Hodgman Tasmanian Government rejoiced at the recent acceleration in the state’s population growth: Tasmania’s population is growing at its fastest rate in five years and the State Government wants to see more of it… “There’s no doubt that Tasmania has ample room for additional intake of people

18

Final auction clearance rate crashes to new low

By Leith van Onselen Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a large 5.0% decline in the national auction clearance rate to 41.9%, with Sydney’s auction clearance rate diving 7.6% to 44.8% and Melbourne’s falling 2.6% to just

35

Domain: House prices to magically rebound in 2019

By Leith van Onselen With Australia’s housing correction gathering steam: Domainfax has forecast a miraculous rebound in Australian dwelling values starting next year: Domain’s new Property Price Forecast report looks at how prices have changed in response to drivers such as population growth, interest rates, bank lending, unemployment rates and market sentiment. The modelling then forecasts the most

84

Sydney’s house prices are collapsing

By Leith van Onselen It’s been a disastrous month for Sydney’s housing market. With two days left, dwelling values have tanked by 1.3% – the biggest monthly decline since May 2004: Quarterly growth has also deteriorated, down 2.7% – the sharpest decline since July 2008: Whereas annual price falls have steepened to 8.0% – the

48

ATO goes soft on illegal foreign home buyers

By Leith van Onselen Yesterday, a Senate hearing into Managing Compliance with Foreign Investment Obligations for Residential Real Estate heard that Victoria (read Melbourne) is the nation’s hotbed for illegal foreign purchases of Australian property. It also heard that the ATO has gone soft on enforcement. From Domain: Victoria has seen 877 breaches in foreign

32

Australia’s interest-only mortgage time bomb is rigged to blow

By Leith van Onselen About 900,000 mortgage holders are about to see their mortgage repayments rise as they shift from interest-only to principal and interest, according to analysts at finder.com: An estimated 900,00 Australian households could fall into mortgage stress over the next two years, as a $295 billion mortgage bomb begins to unravel… 42

33

Geelong houses boom as Melbournians flee crush-loading

By Leith van Onselen Over the past year or so, I have met a bunch of people that have moved to Geelong to escape Melbourne’s worsening congestion and deteriorating quality of life, as well as to buy an ‘affordable’ home, which has become increasingly difficult to find in Melbourne. MB’s regular contributor, Gunnamatta, lives in

91

Shock! Selling houses to Chinese triggered racism surge

Via Domainfax: When it comes to access to housing in Australia, the playing field is far from even. Our recent research has found that race matters. Many Australians experience racism and discrimination based on their cultural background. This is particularly the case for Asian Australians. They experience much higher rates of racism across a variety

6

Property locusts swarm new Victorian Government

By Leith van Onselen It hasn’t taken long for Australia’s property locusts to swarm the new Victorian Government. Here’s the Property Council: An adjustment to planning controls – particularly those preventing development being approved within the Melbourne CBD – is one of the top priorities for the Property Council Australia – Victoria. Another focus is

33

Fundie: Housing correction “just getting started”

Via the AFR comes T Rowe Price’s head of Australian equities, Randal Jenneke: The fund manager’s base case view sees house prices falling by between 10 and 20 per cent, but outside factors such as the 2019 federal election could escalate the downturn. “The Labor Party wants to change a lot of policies around negative

16

Chris Bowen slams Coalition’s house price hypocrisy

By Leith van Onselen Yesterday, analysis from the NSW Treasury was leaked showing that lowering immigration would significantly weaken house prices: Immigration cuts planned by the Morrison and NSW governments will weaken house prices, according to analysis by the state government and economists. Housing Prices and Migration Flows, a NSW Treasury document obtained by The

20

REIWA: Labor’s negative gearing policy will lower rents

By Leith van Onselen While Treasurer Josh Frydenberg desperately tries to scare voters into believing that Labor’s negative gearing policy would simultaneously smash house prices and force up rents, the Real Estate Institute of Western Australia (REIWA) has admitted that Labor’s policy would actually make rents more affordable: REIWA analysis shows the upward trajectory of

16

Desperado Domainfax goes all-in on realty whoring

Ah yes, Domainfax, quality media: The three-bedroom house in Conroe, Texas, came with a fenced yard, gleaming hardwood floors, and an open-concept kitchen. It would be perfect for a young couple, real estate agent Kristin Gyldenege thought. But for more than a month, hardly anyone even looked at the listing, Gyldenege told the Houston Chronicle.

14

NSW Treasury: Cut immigration and lower house prices

Via the AFR: Immigration cuts planned by the Morrison and NSW governments will weaken house prices, according to analysis by the state government and economists. Housing Prices and Migration Flows, a NSW Treasury document obtained by The Australian Financial Review, shows Sydney and national house prices would be lower than the forecast trajectory due to

43

Why Australia may not be the next “big short”

Via Gerard Minack: There are risks aplenty in Australia, centred on expensive houses, high leverage and low saving.  Some investors are more bearish: they see Australia as the next ‘Big Short’.  That’s a tail risk, but remember both that there are some macro offsets to housing weakness, and that markets this year have already moved

3

S&P: Mortgage arrears rise in NSW and VIC

Via S&P: Australian prime home loan arrears fell in September, according to a recently published report from S&P Global Ratings. The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages, declined to 1.33% in September from 1.36% in August. Arrears typically fall at this point in the annual cycle, though the current arrears level

20

NSW stamp duty receipts jumped $500m in October

By Leith van Onselen The NSW Office of State Revenue (OSR) has updated its stamp duty data for October 2018, which revealed a phantom $500 million-plus lift in stamp duty receipts despite transfer volumes continuing to collapse: As shown in the next chart, stamp duty receipts in October were, by far, the highest on record,

29

RBA warns on non-bank mortgage credit crunch

From Christopher Kent, Assistant Governor RBA (Financial Markets): Introduction Good afternoon, and thank you to the Australian Securitisation Forum for their invitation. It’s a pleasure to be here. Today I’ll provide an update on developments in the markets for housing and housing credit. These markets are closely related and both are of considerable interest to those

22

McGrath: Actual Sydney/Melbourne property falls higher than reported

By Leith van Onselen While CoreLogic’s Daily Index is showing a circa 9% and 6% peak-to-trough decline for Sydney and Melbourne dwelling values: Real estate agent, John McGrath, has today argued that CoreLogic’s index lags the market and that losses in Sydney are more likely already between 10% to 15%, whereas Melbourne dwelling values have

10

Domain: Low auction clearances suddenly not a problem

By Leith van Onselen Back in September, Domain analyst Eliza Owen released research explaining the strong correlation between auction clearance rates and dwelling prices, and predicted further weakening in house prices: Figure 1 shows the rolling annual clearance rate (Australia wide) alongside annual growth in the Domain median dwelling price. Annual movements in the two

16

Gotti swarms with negative gearing scaremongers

By Leith van Onselen High-rise Harry Triguboff’s mouthpiece, Robert Gottliebsen, has joined the scaremongers over Labor’s negative gearing policy: It is now clear that Victoria — the property boom state of the past few years — will lead the Australian home building industry’s downward path, no matter which party had won… Given what’s happening in

5

McKell: Negative gearing critics “either misguided or cynical”

By Leith van Onselen Labor-aligned think tank, the McKell Institute, has vigorously defended Labor’s negative gearing and capital gains tax (CGT) policies, claiming reform is required now more than ever and labelling critics as “either misguided or cynical”. From The Guardian: …an updated report from the McKell Institute has argued that negative gearing reform is