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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Minsky moment arrives for highrise apartment bubble

And so it begins. Market prices crack first. Later comes the economic fallout. We had the price bust now for the casualties, via The Australian: The collapse of the prolific east coast suburban apartment developer Ralan Group, headed by British-born William O’Dwyer, owing creditors at least half a billion dollars has highlighted the fragile state

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Australia’s housing construction crash turns nasty

Following Tuesday’s dwelling approvals data for the June quarter, it’s time once again to plot Australia’s various measures of dwelling construction against population growth, namely: Dwelling approvals to June 2019; Dwelling commencements to March 2019; Dwelling completions to March 2019; and Population change to December 2018. First, the national picture shows that dwelling approvals and

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Gottiboff: Property is surging!

The Gottiboff is at it again spruiking property: Six forces are driving the market: The low interest rates… There is a widespread fear of “missing out”… In detached dwellings there is a shortage of supply… They might not admit it publicly, but the banks are now easier with granting loans… Young people are waking up that

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Mortgage growth crashes to record low

The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of June 2019: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.2% MoM; -1.1% QoQ; -3.5% YoY) has plunged, whereas business credit growth (-0.1% MoM; 0.1% QoQ; 4.0% YoY) and housing

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12 charts on Australia’s epic apartment crash

Yesterday, the ABS released dwelling approvals data for June, which revealed that overall dwelling approvals have crashed 28.5% since their May 2016 peak, with house approvals down 18% from peak and apartment approvals down 43% from peak: Moreover, approvals have crashed across all major markets, with NSW down 35% from peak, VIC down 32%, QLD down 48%,

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Cracking apartment tower residents sue NSW Government

In a taste of things to come, residents from Sydney’s Opal Tower, which was evacuated on Christmas Eve amid severe structural cracking, have launched a multi-million dollar class action lawsuit against the NSW Government. From The ABC: In documents lodged with the NSW Supreme Court late on Friday, owners of the western Sydney apartment tower

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Urban Taskforce demands more high-rise slums

Amid the proliferation of faulty and flammable high-rise apartments across Sydney, it is hard to fathom that the slum lords at the Urban Taskforce want even more: Suburbs across Sydney are scarred with “big, fat, dumb” apartment buildings that provide poor living spaces for residents, according to two of the city’s leading architects. Philip Thalis,

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Apartment faults crisis spreads to Brisbane

In the wake of Queensland’s unprecedented apartment construction boom: The faults crisis has now spread to Brisbane, with an owner facing bankruptcy after a serious defect in her new $1.7 million luxury apartment caused thousands of dollars worth of damage. From The ABC: Louisa Carter purchased a new four-bedroom sub-penthouse in The Johnson apartment tower

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New home sales stabilise

From the HIA: “New home sales in the June quarter were up by just 0.8 per cent on the preceding quarter. This is the first quarterly improvement since the December quarter in 2017,” stated HIA’s Chief Economist, Tim Reardon. The HIA New Home Sales report – a monthly survey of the largest volume home builders

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BISOxford: Dwelling construction bust two years to run

Via BISOxford: The 2019/20 financial year should represent the trough for total building, with a strong rebound anticipated from 2020/21 onwards as interest rate cuts, easing mortgage serviceability tests and first-home buyer stimulus help facilitate a broad recovery. Total building activity is anticipated to climb near its previous peak over the coming five years. Strong

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Apartment cracking crisis spreads from Sydney to Melbourne

After a string of major faults have been uncovered across apartment developments in Sydney, the high-rise crisis has now spread to Melbourne, with residents reporting cracking noises and defects in the new 101-storey tower, Apartment 108: Residents are forking out as much as $2,600 a month for a two-bedroom apartment, but have complained of a

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Auction clearances continue to rise

After last week’s final auction clearance rates for Sydney and Melbourne hit two-year highs, CoreLogic’s preliminary auction clearance rate for the weekend’s auctions rose further above 70%, driven by Sydney and Melbourne: However, auction volumes have fallen by more than a quarter – 1,115 aucti0ns were held over the weekend versus 1,536 in the same

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2018-19: A year of heavy losses for Australian property

CoreLogic Research Analyst, Cameron Kusher, has released analysis examining total investment returns (i.e. value growth and gross rental returns) across Australia’s housing market in 2019-19: Over the 2018-19 financial year, total returns from residential property recorded a fall of -3.3%. Returns were down from the previous year and it was the only financial year since

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S&P downgrades Aussie mortgage linchpin

Via S&P: Genworth Australia Ratings Lowered To ‘A’ Under Revised Criteria; Outlook Stable • We view that Genworth Australia’s constrained business diversity and challenging market conditions make it increasingly susceptible to competitive pressures, as reflected in a decline in revenue and earnings over recent years. • We are lowering our ratings on Genworth Australia to

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Specufestor Trad a true Aussie hero

Ah, yes, anothery: Queensland Premier Annastacia Palaszczuk has not ruled out standing aside her deputy Jackie Trad from Cabinet if the state’s corruption watchdog launches an investigation into her investment property. The Crime and Corruption Commission is considering two referrals about Ms Trad’s inner-city investment property, which she failed to publicly declare and which stands to increase

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Final auction clearance rate at 16-month high

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 5.2% decline in the final national auction clearance rate to 65.4% – well above the same weekend last year (57.0%) and exactly the same as last week’s: As you can see, Sydney’s

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Are specufestors “surging” or “upticking” back into property?

Via Domain: The number of people searching for investor loans doubled in the week after the June rate cut, compared to the week before, on comparison platform Finder. …“The doubling of traffic is definitely a significant result there – the interesting thing will be to see whether it has any result in the market,” Finder

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Sydney’s apartment crisis mushrooms as faults spread

Sydney’s apartment crisis continues to deepen following a series of high profile structural faults reported across major complexes. Residents of faulty apartment blocks have inundated a NSW parliamentary inquiry with submissions before it investigates construction standards in August. From The SMH: Human waste flowing down apartment hallways and bubbling up through shower drains, wall cracks