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.

132

FOI: RBA terrified of its own housing bubble

Via the ABC: Reserve Bank economists considered urging the Federal Government to shut down the real estate industry, “pausing” sales of established homes to avoid perceptions of a coronavirus-inspired housing market crash. Highly classified documents from inside Australia’s central bank also suggest house prices could slump up to 15 per cent. The internal reports contradict

12

NSW stamp duties hammered by COVID

According to the NSW Office of State Revenue, stamp duty receipts have begun to fall as both property prices and transfers recede. Annual stamp duty receipts in May fell by $83 million (1.5%) from April and have clearly hit a turning point: This decline in stamp duties was driven by falling property transfers, which fell

14

Proof government grants inflate house prices

Last week, the Western Australian Government piled in behind Scott Morrison’s HomeBuilder program, offering a $20,000 non-means tested subsidy to all purchasers of a newly constructed dwellings. Along with other available subsidies, this meant that first home buyers could ‘save’ around $60,000 on the cost of a new home, broken down as follows: $25,000 HomeBuilder;

13

First home buyers crunched by COVID

Despite home prices falling across Sydney and Melbourne, the proportion of homes available priced below $700,000 has shrunk, according to Domain: In Sydney, only 30 per cent of listings fell under the $700,000 threshold during May, according to Domain data. That is a 6 percentage point drop in listings compared to May last year. The

14

Australian housing valuations hits a double top

The ABS yesterday released its property price data for the March quarter, which valued Australia’s dwelling stock owned by households at $6.91 trillion, whereas the total housing stock was valued at $7.24 trillion. As shown below, the total value of Australia’s dwelling stock owned by households was 7.3 times employee incomes as at March 2020,

1

ABS: Property prices rose pre-COVID

The Australian Bureau of Statistics (ABS) has released its property price indices for the March quarter – incorporating both detached houses and units – which registered a solid 1.6% quarterly rise in home values, driven by Melbourne (+2.1%) and Sydney (+1.9%): The other capitals also experienced positive growth. The ABS also updated its estimated total

11

Flammable cladding class actions mushroom

Back in March we learned that apartment owners were involved in two combustible cladding class actions backed by litigation funder IMF Bentham. Alucobond manufacturer 3A Composites and supplier Halifax Vogel Group are the subject of one of the class actions, whereas Vitrabond supplier Fairview Architectural is the subject of the other class action. Today The

15

Sydney’s rental vacancy rate soars

SQM Research has release its rental vacancy data for May, which saw rental vacancies across Sydney hit a record high 4.0%: Here’s the chart for Greater Sydney: CBD rental vacancies have also blown-out: Among the capital city CBD locations, Sydney CBD continues to blow out, now 16.2% in May, up from 13.8% in April. Melbourne

37

Banks force multiple property investors to sell

Leith noted yesterday: The Australian Banking Association (ABA) has released data on loan deferrals to 12 June. 772,600 loans have been deferred across Australia, including 480,700 mortgages: In dollar terms, $234.1 billion total loans have been deferred, including $173.5 billion of mortgages: According to the ABA, around one in 14 mortgage holders have had their

39

Manchurian Dan swamped by corruption

Via Crikey on today’s Manchurian Dan meltdown: STACKS ON According to The Age, Anthony Albanese is pushing for former Victorian premier Steve Bracks and ex-deputy federal leader Jenny Macklin to lead Labor’s review into the Victorian branch stacking scandal, while The Guardian reports the federal party is considering an audit of the entire state membership. The news comes after Albanese — fresh from delivering

8

Highrise Harry: HomeBuilder not generous enough

Multi-billionaire high-rise apartment developer, Harry Triguboff, has savaged the Morrison Government’s HomeBuilder subsidy for biasing detached housing over apartments: “This decision completely baffles us because 68 per cent of new homes completed in Sydney are actually apartments. This is where the jobs are”… Mr Triguboff questioned why the government was trying to manipulate the housing

41

$173b mortgage cliff beckons for Australia

The Australian Banking Association (ABA) has released data on loan deferrals to 12 June. 772,600 loans have been deferred across Australia, including 480,700 mortgages: In dollar terms, $234.1 billion total loans have been deferred, including $173.5 billion of mortgages: According to the ABA, around one in 14 mortgage holders have had their repayments deferred. The

7

HomeBuilder to crash construction in 2021

CoreLogic’s head of research, Eliza Owen, warns that the Morrison Government’s HomeBuilder subsidy for new home sales and renovations could bring forward demand, resulting in a possible construction bust in 2021 once the stimulus ends: The scheme grants $25,000 dollars for new home builds and renovations where: The recipient is an owner occupier; The recipient

14

Mortgage slump points to falling property prices

Last week’s ABS mortgage commitments data for April revealed a sharp 4.8% decline, with owner-occupied mortgages falling 5.0% and investor mortgages falling 4.2%: The below charts plot this data against CoreLogic’s dwelling values index for May. This provides a useful guide to short-term price movements for the market, given the historically strong correlation between mortgage

12

Auction clearance results solid

CoreLogic’s preliminary auction report posted a solid rebound in the preliminary clearance rate (from 59.8% to 63.3%) off much higher volumes: Once final results are received later this week, we are likely to see the weighted average clearance rate fall to around 60%. Domain’s preliminary auction results were similar; albeit based on a smaller sample

0

Auction market faces its biggest test

CoreLogic has released the final auction clearance rate for last weekend, which retraced to 56.2% versus 61.3% last week; albeit off volumes that were depressed by the Queen’s Birthday Long Weekend Holiday: According to CoreLogic: Last week’s clearance rate was lower than the previous week’s 61.3% when volumes were higher (856). The rate of withdrawn

43

Sydney landlords slaughtered as rental market implodes

A few weeks back, SQM Research managing director, Louis Christopher, described Sydney’s rental market as “very much a tenants market right now, it’s probably the biggest tenants market I’ve seen in my last 20-years“. This statement came as Sydney’s rents were reportedly plummeting across the city: If you’re looking for a new rental property now

6

Credit Suisse: Australian credit impulse shock ahead

Via the excellent Damien Boey at Credit Suisse: Loan demand plunges in April. Loan approvals fell sharply by 9.2% in April, taking year-ended growth lower to -2.9% from 12.6%. Compositionally, weakness was broadly based across lending categories, with particularly sharp falls in personal and business construction loans. Worse still, the Australian Bureau of Statistics (ABS)

59

CoreLogic weekly house price update: solid falls

In the week ended 11 June 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.16%: It was the fifth consecutive weekly decline. The falls were driven by Sydney, Melbourne and Perth: Quarterly dwelling value growth has also turned negative, driven by Melbourne: Annual price growth

9

Credit Suisse: Chinese won’t save Aussie house prices this time

Vai the excellent Damien Boey of Credit Suisse: Chinese non-residential capital inflows into Australia have been on the decline. Since 2011, Klynveld Peat Marwick Goerdeler (KPMG) and the University of Sydney Business School have published estimates of Chinese investment into Australia. Their estimates cover investments made by Chinese entities, as well as their subsidiaries and special purpose vehicles in Hong Kong and

14

Rental discounting war erupts

Via the AFR: A discounting war is in full swing in the rental market as landlords try to fill empty properties or keep existing tenants, with the proportion of properties with discounts surging since the emergence of COVID-19. Between February and May the proportion of listings with rents discounted increased across all the capital cities

71

SQM: Property “falling with vendors and buyers struggling to agree”

SQM Research has released its alternative auction series, which attempts to trawl the internet before and after to capture all advertised auctions (rather than only those reported). According to SQM, auction clearance rates across both Sydney and Melbourne fell to around 40%, which indicates a falling market: Last week, Sydney recorded a final auction clearance

6

Australian mortgage commitments dived in April

Today’s new mortgage data from the Australian Bureau of Statistics (ABS) recorded a big fall as the COVID-19 shutdown took effect: The next chart plots the time series: Total new mortgage commitments (excluding refinancings) fell by 4.8% in April, with owner-occupied mortgages falling 5.0% and investor mortgages falling 4.2%. Year-on-year, total new mortgage commitments (excluding

0

Consumer sentiment still bearish on housing

Via Westpac: • The Westpac-Melbourne Institute Index of Consumer Sentiment rebounded 16.4% to 88.1 in May from the extremely weak 75.6 read in April. Remarkably, consumer confidence is now back around pre-COVID levels, having recovered all of the extreme 20% drop seen when the pandemic exploded in March– April. Confidence has clearly been buoyed by