From the Old Goat today: A Chinese banking expert told me in Melbourne yesterday that the word from the Chinese banks is that the Chinese government’s clamp down on smaller investors taking money out of the country is likely to be eased later in 2017 — hence the scramble by overseas Chinese to re-enter the
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.
By Leith van Onselen The AFR reports that Treasurer Scott Morrison has set up a taskforce to finalise the design for a bond aggregation scheme, which is aimed at boosting affordable housing. The taskforce will be headed by John Fraser, the head of the Treasury Department. Morrison says the aim of the scheme is to
From Bell Potter: BUY recommendation based on value of annuity businesses Our BUY recommendation on McGrath is currently more based on the valuation of the annuity businesses (i.e. property management and mortgage broking) rather than the valuation of the whole company which includes areas with earnings volatility (i.e. company owned sales) that makes valuation difficult.
By Leith van Onselen In the week ended 9 March 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, jumped by 0.75%: Values rose in all major capitals: So far in 2017, values have risen by 3.10% driven overwhelmingly by Sydney and Melbourne: Over the past 12 months,
By Leith van Onselen Let’s recall the recent comments made by David Murray – the former CEO of the Commonwealth Bank and head of the Financial System Review – whereby he likened the Australian housing market to the 1600’s Dutch Tulip Bubble: Switzer: “How vulnerable do you think our banks are to the apartment oversupply?”
Via the AFR: Buyers of some capital city apartments bought off the plan and sold within 18 months are losing up to 30 per cent of their investment, confidential analysis by the nation’s largest valuation company reveals. The potential loss of close to $200,000 in the value of average-priced apartments not only highlights the need
By Leith van Onselen Australia’s big four banks have united to play down fears that Sydney and Melbourne housing are a bubble. From The SMH: Testifying at the parliamentary inquiry into banking this week, the chief executives of National Australia Bank, Westpac and Commonwealth Bank all said that while they are worried about elements of the housing
By Leith van Onselen Long-time defender of Australia’s expensive housing, Stephen Koukoulas (aka “the Kouk”), has finally acknowledged that housing affordability is a problem in Australia. He’s even offered some solutions. Let’s take a look, via The Guardian: Given the bipartisan policy approach to immigration, which contributes the lion’s share of the 350,000 to 400,000
CoreLogic’s Cameron Kusher has released a new research report showing that the supply of rental stock is climbing higher, which is likely to maintain downward pressure on rents, which are already experiencing the lowest growth on record: Over the 12 months to January 2017, there were 362,708 houses advertised for rent and 287,233 units at
By Leith van Onselen Normally sensible Peter Martin has penned a spurious piece today throwing his support behind ‘shared equity’ mortgages. Let’s examine his key arguments: The critics leapt on the weekend announcement of a (small) pilot program in which the [Victorian] government would take an equity share in private homes, saying it would “drive up
By Leith van Onselen After an action-packed week of toing and froing, Prime Minister Malcolm Turnbull finally appeared to rule-out changing the capital gains tax (CGT) discount when he said the following in Question Time on 16 February: 14.34:Shorten to Turnbull: “Does the prime minister rule out changes to capital gains tax?” Turnbull: “The finance
CoreLogic’s Cameron Kusher is the latest to call for fundamental reforms to both the demand as supply-sides of the housing market to alleviate affordability pressures in the two major cities: …housing affordability challenges are largely a Sydney and Melbourne phenomena: Between December 2008 and June 2016, the increase in population across each state and territory
By Leith van Onselen Labor’s treasury spokesman, Chris Bowen, last night appeared on ABC’s 7.30 report where he gave a mixed performance on the issue of housing affordability. On Labour’s negative gearing policy, Bowen made the following sensible observations: “These are reforms that will provide more stability for the financial system, because the high leverage
Via the AFR: Citigroup is set to limit overseas mortgage lending to elite high net worth clients with minimum deposits or investments of $250,000 because of concerns about its capacity to handle the number of applications following the withdrawal of most other major Australian banks. Citi, which last year banned key Asian currencies from buying
By Leith van Onselen With speculation rising that the upcoming May Budget will include stimulatory demand-side policies targeting at first home buyers (FHBs) under the guise of ‘housing affordability’, CBA chief Ian Narev issued the following veiled warning at yesterday’s House of Representatives Committee. From The Australian: Commonwealth Bank chief executive Ian Narev has warned
By Leith van Onselen Yesterday, the Australian Prudential Regulatory Authority (APRA) wrote to all Authorised Deposit-Taking Institutions (ADIs) – i.e. banks, building societies and credit unions – highlighting concerns relating to the banks’ commercial property exposures, urging lenders to exercise more caution in their commercial property books and effectively calling on them to rein-in lending:
By Leith van Onselen CoreLogic’s Cameron Kusher recently published a blog post showing the hyper-inflation of vacant land costs across Australia. According to CoreLogic, the median cost of vacant land across the combined capital cities rose by 4.1% to a record $253,000 in the year to December 2016, versus a 8.5% fall in regional areas
By Leith van Onselen SQM Research managing director, Louis Christopher, yesterday released his weekly newsletter, which offered five common sense solutions to Australia’s housing affordability crisis: 1. Cut the immigration intake It’s a rather obvious solution and is entirely logical. Yes, housing affordability is a demand and supply game. If you cut demand relative to
By Leith van Onselen From SQM Research comes stock on market figures for the month of February, which lifted sharply over the month, although they remain significantly lower year-on-year: As shown above, property listings nationally rose by 3.9% in February but are down a hefty by 5.1% year-on-year. Listings lifted across all jurisdictions except Darwin in
By Leith van Onselen Australia’s real estate treasurer, Scott Morrison, appears to have taken a liking to the ‘shared equity’ home ownership scheme announced by the Victorian Government, suggesting some similar scheme might be included in the upcoming Federal Budget under the cloak of ‘housing affordability’. From The Canberra Times: Home buyers would only have
From the Shadow RBA today: Stronger than expected economic growth provides welcome news to the Australian people. Coupled with a lack of new data on inflation, the unemployment rate hardly moving and no clear direction for the global economy, the CAMA RBA Shadow Board’s conviction that the cash rate should remain at its current level
By Leith van Onselen The Turnbull Government continues to give mixed messages about housing affordability, in the process showcasing why it does not understand the issue and has no genuine solutions to fix the problem. Let’s begin with with the Coalition’s only real champion for housing affordability, John Alexander, who noted the following about negative
By Leith van Onselen The Residex house and unit price results for January have been released, which revealed falling prices over the month at the national level, as well as across Sydney and Melbourne: However, over the year to January, house prices nationally rose by 4.9%, led by Hobart (+7.8%), Melbourne (+5.9%), and Sydney (+4.6%),
By David Collyer, cross-posted from Prosper Australia: Victorian Premier Daniel Andrews announced a range of housing affordability measures Sunday, some of which will help. The eye-opener is the introduction of a Vacant Residential Property Tax at one per cent of the capital improved value on properties held vacant for six months or more. This mimics