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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Charting Australia’s high-rise apartment construction bust

The Australian Bureau of Statistics (ABS) yesterday released its dwelling approvals data for September, which revealed that apartment approvals have fallen 59% below their November 2017 peak: Today, I want to focus on the high-rise apartment segment, which has driven the apartment bust. The next chart shows the picture at the national level and across

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Strong mortgage growth bullish for property prices

Yesterday’s mortgage finance data from the Australian Bureau of Statistics (ABS) was unambiguously strong, driven by owner-occupiers: Total new mortgage commitments (excluding refinancings) rose by 25.5% year-on-year in September, driven by a whopping 33.8% growth in owner-occupier mortgage commitments versus 4.2% growth in investor commitments. As regular readers know, mortgage growth is one of the

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Links 3 November 2020

Global Macro / Markets / Investing: On the Minimum Wage – Medium The future of fiscal policy without traditional constraints – FT U.S. Dollar: There’s Possibility Of A Crash – Seeking Alpha The 4th industrial revolution, the Great Reset and Covid-19 – Medium Rashida Tlaib and AOC have a proposal for a fairer, greener financial

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John Hewson lashes Coalition’s irresponsible lending laws

Former Liberal leader John Hewson has slammed the Morrison Government’s proposed scrapping of responsible lending laws claiming it could create a “debt monster” that would be detrimental to the economy over the longer-term: “I think the basic premise is wrong,” Dr Hewson told The New Daily. “Lending might stimulate some short-term spending, but in the

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HomeBuilder drives house construction boom

The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of September. At the national level, the number of dwelling approvals surged by a seasonally adjusted 15.4% to 15,827. The overall rise in approvals was driven by the volatile units & apartments segment (+23.4%), whereas house approvals rose by 9.7%. Over

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Mortgage commitments go BOOM!

The Australian Bureau of Statistics (ABS) has released housing finance data for September which revealed another strong lift, driven by both owner-occupiers and investors: The below chart plots the time series: Total new mortgage commitments (excluding refinancings) surged by 5.9% in September, with owner-occupied mortgages rising 6.0% and investor mortgages rising 5.2%. Year-on-year, total new

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Australia’s mortgage cliff shrinks to $133 billion

The Australian Prudential Regulatory Authority (APRA) on Friday updated its loan deferrals data to September 2020, which revealed that there were still $179 billion loans outstanding as at 30 September, accounting for 6.7% of total loans outstanding by value:   The volume of deferred mortgages was $133 billion in September, accounting for 7.4% of total

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Auction market builds more steam

CoreLogic’s preliminary auction clearance rate strengthened again, with 77.0% of reported auctions cleared versus 76.2% last weekend: Sydney’s preliminary clearance rate rose was strong with 79.6% of reported auctions cleared versus 80.4% last weekend. Melbourne’s preliminary auction clearance rate firmed to 75.8% versus 72.6% last weekend. According to CoreLogic: There were 1,757 homes take to

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Sydney auction clearances continue to strengthen

CoreLogic has released its final auction clearance results for last weekend, which reveals that the final national clearance rate firmed to 66.9% from 66.2% the prior week: Sydney’s auction clearance strengthened to 70.4% from 69.1% the prior week, whereas Melbourne’s rose to 63.5% from 60.2%. As noted by CoreLogic: There were 1,427 auctions held across

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Australian mortgage growth surges

The RBA has released its private sector credit aggregates data for the month of September, which revealed a rebound in mortgage growth: A chart plotting the long-run time series is shown below:   Overall mortgage growth was 3.3% in the year to September, rebounding from the all-time low 3.0%. A breakdown of owner-occupied credit (0.5%

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CoreLogic: Low inflation is bad for housing affordability

Eliza Owen, Head of Research Australia at CoreLogic, has released an interesting report examining property returns during Australia’s 20 years of low inflation: The latest CPI results from the ABS showed a 1.6% increase in the consumer price index over the September quarter. The increase was the highest quarterly result since 2006, and adjusting for

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Property rents collapse at unprecedented rate

The Australian Bureau of Statistics (ABS) yesterday released data showing that capital city residential property rents fell another 0.2% over the September quarter, which follows the 1.3% decline recorded in the June quarter: Over the year, Australian capital city rents fell by a record 1.4%: The below charts plot residential rental growth across the various

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Scrapping of responsible lending rules bypassed regulators

Last month we were left flabbergasted when, out of nowhere, Treasurer Josh Frydenberg announced that the government would axe responsible lending rules: If you want proof that Australia’s economic managers are really just bubble managers, here is your smoking gun. This is a watershed moment in Australian banking and property history. Consumer groups promptly slammed

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CBA: Mortgage lending strong again in September

According to CBA’s internal data, Australian mortgage lending strengthened further in September, up 30% year-on-year: However, average loan sizes are shrinking; albeit are still higher year-over-year: The share of fixed rate lending remained at high levels, driven by fixed rates being lower than variable rates: Lending for renovations continued to grow, likely driven by people

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Victorian Government hands reins to developers

Under the cover of COVID and the AFL Grand Final, the Victorian Government fast tracked a swathe of developments to spur its sagging property ponzi economy: Planning Minister Richard Wynne has fast-tracked $625 million worth of developments… Announcing the approvals on AFL grand final day, Mr Wynne said the government had now approved $7.5 billion

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Australian property most affordable in years

So says Moody’s: Australian housing affordability, which improved over the year to September, will continue to improve slightly over the next 12 months, because of low mortgage interest rates and lower housing prices. » Affordability will continue to improve on low mortgage rates and lower housing prices. Australian households with two income earners needed 23.0%

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Auction market builds steam

CoreLogic’s preliminary auction clearance rate strengthened, with 76.2% of reported auctions cleared versus 72.4% last weekend: Sydney’s preliminary clearance rate rose was strong with 80.4% of reported auctions cleared versus 75.9% last weekend. Melbourne’s preliminary auction clearance rate also firmed to 72.6% versus 65.0% last weekend. According to CoreLogic: There were 1,456 capital city homes

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Melbourne listings rocket after real estate restrictions ease

From Eliza Owen, Head of Research Australia at CoreLogic: One of the lessons learned about the property market through COVID-19 is that listings numbers have been extremely responsive to changes in social distancing policies. Despite an extended lockdown, Melbourne is no exception. Since onsite, private inspections resumed on the 28th of September, new listings volumes

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Sydney’s auction market continues to strengthen

CoreLogic has released its final auction clearance results for last weekend, which reveals that the final national clearance rate retraced to 66.2% from 66.4% the prior week: Sydney’s auction clearance strengthened to 69.1% from 67.2% the prior week, whereas Melbourne’s rose to 60.2% from 58.6%. As noted by CoreLogic: There were 1,131 capital city homes

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AUSTRAC demands property money laundering laws

The CEO of AUSTRAC – the Australian Government agency responsible for detecting, deterring and disrupting criminal abuse of the financial system – has warned that lawyers, accountants and real estate agents are being used to launder illicit, necessitating then need for the industry participants to be brought into the anti-money laundering (AML) regulatory net: Austrac

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Why Australia needs more housing stimulus

A group of university academics have called on the Morrison Government to significantly increase housing stimulus in order to help drive Australia’s economic recovery: In response to the COVID-19 recession, federal, state and territory governments quickly provided support to the housing industry for two reasons. First, to safeguard jobs and, second, because investment in the