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.

4

How to stem Adelaide’s youth exodus

By Leith van Onselen ABC News last week published an alarmist article on the exodus of young people from South Australia (Adelaide in particular), with the new Liberal Government deeming that “urgent action is needed to address the situation”: Adelaide’s population would have flatlined last financial year if not for the arrival of overseas migrants…

0

CoreLogic: rental yields continue to rise as values fall

By Leith van Onselen Following on from yesterday’s post on CoreLogic’s daily dwelling values index results for April, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table). As shown above, the smaller capitals and the regions had a positive month, with Hobart (+1.2%), Canberra (+0.6%), Darwin

25

ABA/Canstar shows a rebounding mortgage market

By Leith van Onselen ABA/Canstar has released its housing finance data for the five major banks (covering 85% of lenders) to March 2018, with trend annual rises registered in both the number and value of housing finance commitments (excluding refinancings): As shown above, the annual number of finance commitments is tracking just 3.1% below the mid-2016

2

Despite falling rents, affordable rentals near all-time lows

By Leith van Onselen The ABS’ latest CPI data showed that housing rents nationally have registered zero growth in inflation-adjusted terms over the past six years (see my earlier post): Despite this, the number of affordable rental properties remains near all-time lows according to a Anglicare’s latest Rental Affordability Snapshot, which surveys all the private

12

Westpac pumps investor mortgages as CBA pulls plug

APRA is out with end of month lending totals today and housing investors continue to ease up with monthly growth at just 0.1% in the top eight banks and only 1.6% year on year: Interestingly, of the big four only WBC persists with above system growth: These are March numbers, before the recent tightening, so

0

CoreLogic housing indicators remain soft

Via CoreLogic comes the leading mortgage index which remains down solidly year on year, but has shown a trend seasonal rise off the canvas: Total capital city for-sale listings are still higher year-on-year, led by Sydney: Whereas auction clearances and dwelling values are obviously trending down: Nothing has changed. Housing fundamentals remain weak.

1

New home sales fall for third consecutive month

From the Housing Industry Association (HIA): “Detached house sales fell again in March – meaning that declines have occurred in each of the first three months of 2018,” commented HIA Senior Economist Shane Garrett. The HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states

22

Sydney auction clearances tank below 60%

CoreLogic released its auction report yesterday, which reported another fall in the preliminary national auction clearance rate to 62.5% from 63.1% last weekend (later revised down to 62.2%). The preliminary clearance rate was also well below the 74.0% recorded in the same weekend of last year: Auction volumes nationally were 2,539 – above the 2,350

16

Negative gearing lies resurface

By Leith van Onselen Treasury analysis of Australian Taxation Office (ATO) data from 2015-16 suggests that people with taxable incomes of less than $80,000 a year would be hardest hit by Labor’s proposed negative gearing reforms. From The Australian: Almost two-thirds of all investors who negatively geared property were on taxable incomes of less than

60

Goodbye HEM, goodbye property bubble

Domainfax accidentally printed its own obituary today. It came in the form of an op-ed by Dick Bryan, emeritus professor of political economy at the University of Sydney: …the royal commission into finance is revealing that poverty is no longer just about low income. The commission has heard that Australian banks have adopted actual lending practices (as

17

UBS: Credit crunch risk rises as APRA launches macroprudential 3.0

Form UBS today, which is doing a fantastic job of pulling apart the bubble at the moment: APRA today announced plans to remove the investor lending cap… APRA today announced the removal of the 10% investor loan growth cap from Jul-18 (which had been in place since Dec-14). That said, this only applies after ADIs

34

Westpac tightens investor interest-only mortgage rules yet again

Via the AFR: Westpac, which includes Bank of Melbourne, BankSA and St George Bank, is warning that from next Monday borrowers switching from residential investment loans to owner occupied will need to provide more evidence so the banks can “continue to meet regulatory requirements and strengthen controls”. It includes providing the banks with utility, council

12

Australia’s land bubble has choked the real economy

By Leith van Onselen Dr Gavin Putland has published a research report for Prosper Australia, entitled Trickle-Up Economics Assessing the impact of privatized land rent on economic growth, which shows that since the Second World War, there has been a negative correlation between Australia’s total land price and the rate of economic growth, with rapid

19

Domain confirms Sydney house price falls

By Leith van Onselen Domain (formerly APM) has released its housing market results for the March quarter, which confirms the falls in Sydney dwelling values already reported by CoreLogic. The summary results are shown in the below tables: Similar to CoreLogic, Domain shows that Sydney’s dwelling values fell by 1.4% (houses) and 0.6% (units) in