By Leith van Onselen Labor Senator Sam Dastyari has posted the above video on Facebook that mocks the high cost of housing in Sydney. The video profiles various run-down and poorly-located houses across Western Sydney that have a price tag over $1 million, and is an effort to show just how ridiculously expensive Sydney housing
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 It’s blame the victim time again. Over the weekend, Craig Treasure – the managing director of ASX-listed house-and-land developer Villa World – blamed younger Australian’s “high expectations” for not being able to purchase a home. From The Australian: Young buyers’ high expectations for big homes with multiple bathrooms and all the
Via the AFR: Harry Triguboff, the country’s richest person, says he is financing about $200 million of the $1.4 billion worth of apartment sales he expects to make this year, as his mostly Chinese buyers struggle with tougher currency controls to get money into Australia. …Apartment prices are also weakening, he said. “So he (the Chinese buyer) never
CoreLogic released its auction report yesterday, which revealed another weekend of strong auction conditions, despite the national auction clearance rate falling to 74.6% from 76.9% last weekend, still well above the 67.7% recorded in the same weekend last year: However, auction volumes nationally (1,662) were below the same weekend last year (2,230). As shown above,
By Leith van Onselen RBA Governor Phil Lowe’s speech yesterday on household debt an house prices once again pinned Australia’s housing woes on the imbalance between supply and demand, as housing and infrastructure has failed to match strong population growth: The supply of well-located housing and land in our cities has been constrained by a
By Leith van Onselen In the Q&A following yesterday’s speech, Reserve Bank Governor, Phil Lowe, made the subtle but important observation that “you don’t fix [housing] affordability by boosting demand”. The veiled warning comes after it was all-but confirmed over the weekend that the Turnbull Government would include in the Budget some type of measure
By Leith van Onselen In the week ended 4 May 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.11%: Values rose in three major capitals and fell in two: So far in 2017, values have risen by 3.75% driven overwhelmingly by Sydney and Melbourne, whereas
Via Banking Day: National Australia Bank will pare back its interest-only lending from 41 per cent of recent flow to within APRA’s 30 per cent cap by late this year, Andrew Thorburn, the bank’s managing director said yesterday. An acceleration in NAB’s interest-only home loans around this time last year, highlighted in an investor presentation
By Leith van Onselen BIS Oxford Economics has done some interesting analysis for The Guardian showing that Sydney’s mortgage affordability is now the equal worst on record, with Melbourne’s just below 2008’s record low, driven primarily by housing investors: As of December 2016, 42% of the average disposable income of a New South Wales household
By Leith van Onselen The HIA has released its New Home Sales report for March, which revealed a continued slowdown in sales across Australia: “New home sales across the country eased by around 1.1 per cent in March 2017,” said HIA Economist, Geordan Murray. “The decline was more evident in detached house sales which were
By Leith van Onselen As Australia’s dwelling values have surged against incomes: One of the casualties has been the huge housing deposits that must be saved by first home buyers (FHBs) in order to buy a home: Yesterday, Domainfax published an interesting article measuring the average size of, and number of years taken to save
By Leith van Onselen Ahead of the State Budget next month, the NSW Office of State Revenue has updated its stamp duty data for March 2017, which shows that annual receipts continued their second wind on the back of rising Sydney home prices and rebounding transaction volumes: As shown above, NSW stamp duty receipts hit
Via Citi at the AFR: House prices could fall as much as 7 per cent by 2018 as lending curbs bite and household debt is lowered, according to Citi. “APRA’s tightening measures probably contributed to the April prices result, but Easter and school holidays may also have contributed to the slowdown. Given the stretched house price
Domainfax is torturing itself unnecessarily over house prices: The big question raised by last month’s slowdown in Sydney and Melbourne’s housing markets is whether this is a blip on the radar, or the start of something more significant. No one knows the answer yet, but a few important points about the housing market are becoming clearer all the same. First,
By Leith van Onselen From SQM Research comes stock on market figures for the month of April, which reported a large 8.3% decline in listings over the month and an 11.9% fall over the year: Listings fell across all jurisdictions in April, Melbourne (-15.2%) and Sydney (-12.7%) recording particularly large declines. Over the year, all capitals
Again from Martin North: Following the initial release yesterday, and the coverage in the AFR, today we drill down further into the latest mortgage stress results. By way of background, we have been tracking stress for years, and in 2014 we set out the approach we use. Other than increasing the sample, and getting more
By Leith van Onselen Independent economist, Saul Eslake, has penned a good treatise on how to make Australian housing affordable, which provides the following concluding recommendations to federal and state governments: It’s worth emphasising that a strategy which embraces all of these areas requires a sustained commitment from all levels of government – Commonwealth, state
Sparkling journalism today at Flufferfax: ANZ chief executive Shayne Elliott said talk of a housing bubble was simplistic, as the bank published figures showing more people were repaying their home loans on time than two years ago. Speaking on the day the Melbourne-based bank reported a below-expectations $3.4 billion cash profit for the six months
From Deutsche: April new listings down According to RP Data, new listings in the national property market declined c7% y/y in April, which is a slowdown from the flat volume growth recorded in March. We believe the timing of Easter (mid-April this year vs late March last year) has impacted April volumes, with post-Easter campaigns
From UBS: April home price growth slows sharply to 0.1% m/m, the slowest since 2015 CoreLogic-RPData dwelling prices slowed sharply in Apr-17, rising by only 0.1% m/m (UBS: +0.2%, mkt: nf), the slowest since 2015, albeit after a booming 1.4% m/m in the last couple of months. This saw the y/y pace drop to 11.2%,
Via Bloomberg: Home Capital Group Inc. extended declines after the Canadian mortgage lender reported additional deposit withdrawals, prompting one of its biggest rivals to seek a C$2 billion ($1.5 billion) credit line to stem any contagion across the country’s financial markets. Home Capital fell 13 percent to C$6.96 in Toronto, bringing its two-week drop to
By Leith van Onselen A vacant homes tax looks certain to be included in the upcoming Federal Budget. From The Australian: According to Sky News, the measure could see foreigners pay fees as high as $5000 per property if their house or apartment is left empty… The revenue measures will be used to fund other