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

CoreLogic: “Housing downturn losing steam”

By Leith van Onselen Following on from Friday’s post on CoreLogic’s daily dwelling values index results for May, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table). As you can see, Sydney (-0.5%), Melbourne (-0.3%), Brisbane (-0.5%), Perth (-1.0%), Hobart (-0.4%), Darwin (-1.6%), Canberra (-0.2%), and

13

Push for national sub-prime first home buyer loan scheme

By Leith van Onselen Only weeks after Prime Minister Scott Morrison announced a new first home buyer (FHB) deposit subsidy, Western Australia’s Housing Minister, Peter Tinley, has urged the Coalition to go further and implement a national rollout of Western Australia’s Keystart low-deposit loan scheme, which allows eligible buyers to purchase a home with a 2%

19

Auction clearance rebound continues

CoreLogic has released its preliminary auction report, which reported the second weekend in a row where the preliminary clearance rate held above 60%. The preliminary national auction clearance rate was 61.5%, slightly below last week’s preliminary clearance rate of 62.2% and also well above the 54.1% final clearance rate recorded in the same weekend of

0

UBS runs the property scenarios

Via the excellent Jonathon Mott at UBS: Scenario 1 – ‘Bounce-back’: A recovery in housing lending flow (+20%) back to record levels would add 2.2% to housing credit growth (1.5% to EPSg). But this would likely give rise to a sharp bounce in house prices and household debt. Stimulatory policies would likely be reversed. Scenario

2

Mortgage credit growth shows faint pulse

By Leith van Onselen The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of April 2019: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.3% MoM; -0.6% QoQ; -2.8% YoY) has plunged, whereas business credit growth (0.0% MoM; 0.8% QoQ;

19

Final auction clearance rate highest in over 12 months

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 4.9% decline in the final national auction clearance rate to 57.7% – slightly above the same weekend last year (56.2%) and above last week’s 55.2%: As

17

Capital Economics: House price correction over

Via Capital Economics: The severity of the slump means that housing affordability has already improved substantially and will improve further if the RBA cuts interest rates over the coming months. New housing supply has dried up and the regulatory authority has indicated that it will loosen lending restrictions. We have been arguing that house prices

47

Westpac hit with class action over ‘irresponsible’ mortgages

By Leith van Onselen Queensland couple Ian and Michelle Tate are the lead litigants in a class action being brought against Westpac by law firm Maurice Blackburn. The class action alleges that Westpac was overly-reliant on benchmarks when assessing mortgage loan applicants. The Tates, who lost over $430,000 on two investment properties, are blaming Westpac,

11

Property Council Lord Mayor demands less tax for foreign buyers

By Leith van Onselen Sally Capp – the former executive director of the Property Council of Australia’s (PCA) Victorian branch and Melbourne Lord Mayor – has questioned the Victorian Government’s announced increase in the surcharge imposed on foreign buyers of residential property from 7% to 8%. Capp warns that the increase has come at a “critical

2

Inside Victoria’s stamp duty bust

By Leith van Onselen The ABS’ 2017-18 tax revenue data, released last month, revealed that the Victoria Government is the most reliant on stamp duty receipts in the nation, accounting for 25% of total tax revenues in 2017-18: Last year’s mid-year Budget Review for Victoria contained the below hopelessly optimistic forecasts around stamp duty receipts,

38

Property rocketeers ought to cool their jets

I can claim to be the first but not the loudest or largest as the election, rate cuts, APRA cuts, and FHB stimulus trigger a property rocketeer party, via the AFR: AMP Capital economist Shane Oliver said the optimistic outlook was based on a “quadruple whammy”…. HSBC’s Paul Bloxham…now expects house prices falls to stop

29

Macquarie goes all in on housing recovery

Via Macquarie equities: “multiple catalysts [have] improved the domestic growth outlook”. “With positive housing catalysts in the last week, we are more confident housing will improve in 2019.” “Based on an average of 6 months, we could see month-on-month house price rises as early as July 2019.” “This should flow through to better growth in

19

Weekend auction clearances analysis

Via Westpac: Given the intense focus on Australia’s housing markets at the moment and in light of our recent commentary around the best way to interpret auction market results (seehere) we are now putting out short previews each Friday and summary updates the following Monday setting out how results should be viewed. Preliminary assessment of auction

50

Auction clearances surge on policy easing

CoreLogic has released its preliminary auction report, which reported a big lift in the auction clearance rate after the Coalition’s unexpected election victory and announced macro-prudential easing by APRA. The preliminary national auction clearance rate was 62.2%, well above last week’s preliminary clearance rate of 57.0% and also above the 56.2% final clearance rate recorded

10

Parasites bicker over ScoMo’s first home buyer subsidy

By Leith van Onselen The Real Estate Institute of NSW (REINSW) has attacked the Morrison Government’s first home buyer (FHB) deposit subsidy scheme, claiming it will create unintended consequences for the housing market. From RealEstate.com.au: The industry body’s chief executive Tim McKibbin said the government offer was admirable but the prime minister would have been

7

Who is going to soak up the property glut?

Via Bloomie: …there are at least 80,000 reasons to suggest there’ll be no rapid rebound as the worst housing slump in a generation spreads deeper into the economy. That’s how many apartments were completed in recent years in Sydney — adding about 5% to the housing stock — while Melbourne and Brisbane have also seen relatively large

8

High land costs are behind Australia’s dodgy construction quality

By Leith van Onselen A consultant has blamed escalating land costs in the ACT – which has soared past $1,100 per square metre – for the proliferation of building defects across Canberra’s housing developments: Damien Moloney made the observation during the latest round of hearings at the ACT Assembly’s building quality inquiry, which is examining