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.

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Mortgages point to softer property prices

On Tuesday, the Australian Bureau of Statistics (ABS) released data on new finance commitments, which registered the first decline in mortgages for nine months: As regular readers know, the growth in new mortgage commitments has historically been correlated very strongly with dwelling value growth. The reason is straightforward: the overwhelming majority of buyers borrow to

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What’s the point of another housing inquiry?

Fairfax’s senior economics writer, Jessica Irvine, wants another housing affordability inquiry chaired by former Treasury secretary Ken Henry: [We need] a high-level Treasury review, of the ilk of the Ken Henry tax review… So, I texted Henry to see if he’s up for it. He replied: “Jess. Sure. I’d chair such a review. The question

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Retail sales positive for Q2 GDP

The ABS has released retail sales data for June, which fell 1.8% over the month to be 2.9% higher year-on-year: The decline in retail sales in June was fairly broad-based with only South Australia and the ACT recording growth: All sub categories other than food retailing also registered falls: However, quarterly retail volumes rose 0.8%

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Property listings rebounded in July

SQM Research has released its stock on market report for July, which recorded a 1.1% rise in for sale listings nationally, with all markets except Sydney and Melbourne recording increases: However, over the year listings were down a whopping 23.6%, exposing a very tight market. Interestingly, both the number of new listings (<30 days old)

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Labor flags first home buyer subsidies for next election

After last week junking their negative gearing and capital gains tax reforms taken to the past two elections, Labor’s financial services spokesman Stephen Jones hinted that it will offer first home buyer subsidies as part of its election platform: “We took those policies [negative gearing and capital gains tax reforms] to the last two elections.

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Boarding houses the latest housing affordability gimmick

First caravans ‘tiny homes’ were marketed as Australia’s housing affordability solution. Now it is boarding houses ‘co-living’. From Fairfax: “Co-living, a trendy new wave of communal housing championed by millennials, will be automatically approved in all areas where apartments are allowed in order to flood NSW with affordable developments”. “NSW Planning and Public Spaces Minister

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Aussie rents grow fastest since GFC

CoreLogic has released rental data for July, which shows that rental growth nationally is running at its fastest pace since 2008, up 7.7% year-on-year. However, rental growth is two-speed, with the smaller capitals generally experiencing faster growth than the bigger capitals, and detached houses experiencing much faster growth than apartments: With dwelling prices growing even

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Banks tighten mortgage screw on Sydney leper colony

“Team Australia” has been breaking apart for some time now as premiers and federalies tear at each other’s throats. The media is enjoying the COVID state of origin. Now the banks have joined in: CBA is tightening leading criteria focussed specifically on any loss of income incurred owing to COVID. JobKeeper-syle payments will not longer

2

Auction market runs hot

Despite Sydney still being in lockdown, the nation’s auction market ran hot over the weekend. CoreLogic record a preliminary national clearance rate of 79.2%, up significantly from the prior weekend’s 74.8%. Sydney’s preliminary clearance rate lifted to a strong 80.8% from the prior weekend’s 74.8%, whereas Melbourne’s firmed to 77.1% from 71.9%. However, auction volumes

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Big bank specufestor mortgages still contained

If macropriudential moves were not already fading on the interminable Sydney Delta outbreak, today’s APRA data pushes it further from sight. The big eight banks lifted specufestor lending to 0.3% monthly for June (with CBA having its own little party): And still only 1.1% year on year: Then there’s Mad Macquarie as usual: Big eight

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CoreLogic weekly house price update: Perth down again

In the week ended 29 July, the CoreLogic daily dwelling values index increased another 0.31% – the equal smallest weekly increase since early February: All major markets except Perth recorded rising values: So far in July, dwelling values have risen by 1.48%, led by Sydney and Brisbane: Quarterly price growth remains turbo-charged at 6.19% across

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Millennials drive suburban property boom

According to Bernard Salt, Millennials are behind the surging demand for suburban properties: “The housing market – and the shape of our cities – is shifting from medium- and high-density apartments in the inner city to low-density living on the edges of our capital cities”. “Net overseas migration to Australia stopped in March 2020… This

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Domain: House prices soar to record highs across six capitals

Domain has released its June quarter house price report, which recorded 5.8% growth in detached house prices at the national capital city level, with values up a whopping 18.8% year-on-year: As shown above, all capitals recorded double-digit price growth in the 2020-21 Financial Years. As expected, unit price growth was much weaker at only 6.7%

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Residential lot prices soar to new heights

The federal government’s Homebuilder policy has successfully brought forward a stack of demand for new houses, more than offsetting the collapse in immigration: But one of the unfortunate byproducts is that it has also helped juice lot prices across the nation, which have soared to new record heights, led by extreme growth across Sydney: As

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ABS: Property rents climb out of gutter

The Australian Bureau of Statistics (ABS) yesterday released consumer price index (CPI) data for the June quarter of 2021, which revealed that property rents across the combined capital cities fell sharply over the prior 12 months. While property rents rose 0.1% of the quarter: However, over the year to June 2021, rents were dead flat

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Brisbane property the winner from Sydney’s lockdown

I have been bullish on Brisbane property for some time. The main reason is that Brisbane dwelling values are exceptional value in a relative sense when compared to its larger East-Coast counterparts, Sydney and Melbourne, as illustrated clearly below: The other reason is that net internal migration into Brisbane has remained robust throughout the pandemic: After