Gottiboff today: This week I was yarning to one of Australia’s top five home builders and he just shook his head as he told me: “Land prices in outer suburbs of Sydney and Melbourne are rising to unsustainable levels”. Because he has large land holdings in both cities he is making a fortune on paper
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.
Via AFR: Many owners of the 1000 NSW buildings identified with possible non-compliant cladding won’t be able to claim against their developer or builder because the two-year window to make such claims will have passed, a property lawyer says. A change in law two years ago cut the window to make such claims from seven years, in
Via UBS: Interest Only loans have fallen to 30.5% of Bank approvals APRA’s cap on Interest Only (IO) lending flow is starting to take effect. During the June quarter the Banks’ reported 30.5% of mortgage approvals were for IO loans – down from 37% over the last 12 months. This is the lowest percentage of
Via LF Economics: Australia has experienced an astounding rise in housing prices over the last two decades which has rendered it one of the world’s most unaffordable. Accordingly, it is worth decomposing the returns to examine how housing as an investment class has fared over the long-term. Housing has two forms of return: price change
APRA is out with its quarterly ADI housing exposures and there are some encouraging signs for macrprudential 2.0. Total loans were still up 7% year on year and interest-only 6%. However, more recently, the trends have shifted sharply. Leading flows for the June quarter were only up 0.4% year on year. And interest only flows
Lot’s of material today from CEDA on the bubble: Historically low interest rates, an unprecedented period of continuous economic growth and strong levels of migration have contributed to ever escalating real housing prices in Australia’s capital cities. The rapid pace of house price growth has contributed to growing housing affordability concerns. However, the housing affordability
Chanticleer suggests we look to what APRA did to NAB following its forex travails in 2003: APRA conducted a review into that incident and delivered its findings to the NAB board which then released it publicly. The report found that NAB’s management was complacent and arrogant and this impacted negatively upon its management of regulatory
There are two angles on the rapidly falling Chinese housing bid. The first is for commercial property. Via Domainfax: A Chinese government crackdown on offshore property deals will be widely felt in countries including Australia, says Trade Minister Stephen Ciobo. Chinese companies have been the biggest source of new foreign investment in Australia for the past three years,
Via the AFR: A Melbourne family is set for a cash bonanza with a 153-hectare farm on the city’s northern fringe tipped to sell to developers for more than $100 million. The elongated site at 750 Craigieburn Road East, 23 kilometres north of the Melbourne CBD and within the Urban Growth Zone, includes 97 hectares of
Leith will return next week so today we’ll have to rely on CoreLogic charts for house prices and sundry indexes: Last week was down. The trend is still up. The leading mortgage index continues to bleed materially lower year on year: However, listing have also rolled sharply: It doesn’t fell like a market on fire
Via CoreLogic: Auction activity increased across the combined capital cities this week, with 2,239 homes taken to auction; the largest number of auctions held since the first week of June. The larger volume of auctions returned a preliminary auction clearance rate of 71.1 per cent, up from last week’s final results when 2,064 auctions were
Pretty weird stuff this at the AFR: At least 14 buyers who bought apartments off the plan in a tower in Sydney’s south-west are facing the loss of their investment after the developer defaulted on a loan from a British Virgin Island lender, backed by a Chinese bank. The default raises questions about the protection for
Ah, Jess Irvine: The team at ABC’s Four Corners assembled a thrilling package about the Australian property boom last Monday. It came replete with forecast of the “perfect storm” for property and an inevitable popping of the property “bubble”. …Absent a rise in the jobless rate, which has been falling recently, it’s hard to see where the trigger
From S&P: The number of delinquent housing loans underlying Australian prime residential mortgage-backed securities (RMBS) fell to 1.15% in June from 1.21% in May, according to a recent report by S&P Global Ratings. While arrears typically fall month on month during this period of the annual cycle, we also attribute some of the decline to
When Hong Kong doesn’t want to be Hong Kong. Via Domainfax: An international expert on planning healthy cities has warned Sydney against following the Asian model of concentrating high rise around train stations to house a booming population. Dubbing it “suburban cellulite”, the clusters of towers were designed to give maximum patronage to private railways
Via News: THE founder of a new political party dedicated to taking the heat out of Australia’s overblown and hideously expensive housing market has said politicians need to be given a “kick up the bum” on the issue. Sydneysider Andrew Potts, who registered the Affordable Housing Party (AHP) with the Australian Electoral Commission earlier this month, said
From the usually smarter Adam Creighton today: Strictly speaking, there’s no housing affordability crisis. If houses weren’t affordable people wouldn’t be buying them. But they are buying them, in droves. Over 50,000 home loans have been approved every month this year, above the average for the past decade. Are homes too expensive? Too right! I’d
Via Gotti today: Australians who own dwellings and plan to work or live overseas need to think again. Leaving the country may cost a fortune. And many of those currently overseas are also in grave danger of receiving a very harsh tax penalty. Sydneysiders and Melburnians face the greatest risk from what is another clear
From one very confused immigration booster, Rob Burgess, today: The Coalition has ramped up its ‘socialist’ attack on the opposition, hoping to counter Labor’s ongoing campaign against ‘inequality’. Finance Minster Mathias Cormann said in a fiery speech that Labor’s “socialism” would “flatten” aspiration and that young Australians would “leave Australia and go where hard work, risk-taking
Cross-posted from Investing in Chinese Stocks. The first column after the city name is its tier, then rental yield and payback in years. Xiamen tops out at a 1 percent yield, or 100 year return of capital. You might think that’s overstating things a bit, but it’s also a gross yield and doesn’t include maintenance,
From the HIA: “The housing sector has already stepped back from its role driving the Australian economy and now is not the time for governments to hit the industry with punitive charges,” warned Tim Reardon, HIA’s Principal Economist. Today’s Winter 2017 edition of the HIA’s National Outlook Report discusses the downturn in building activity that
Oh dear: What is its strategy? I thought it was about muscling into new markets, especially Melbourne? What’s all of this guff about adding value to sundry services? Perhaps it’s because the 15 new offices in NSW and VIC led to shrinking market share in both: If you combined this with the pounding that sales
Via SCMP: Cash-rich Chinese firms – the big spenders in the global property market in the past four years – are getting cold feet as Beijing tightens controls on outbound investment. “Requests for overseas acquisitions are already drying up,” said Paul Guan, a partner with global law firm Paul Hastings who advises Chinese institutional investors