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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Negative equity threat as home owners “sleepwalk into disaster”

Research undertaken on behalf of the Finance Brokers Association of Australia shows that an official interest rate rise of just 1% would be enough to push many homeowners into mortgage stress. The survey found that 57% of respondents would not be able to meet a $300 increase in their rent or monthly mortgage repayment. FBAA

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Home ownership dives as baby boomers make out like bandits

Home ownership has declined particularly among younger and poorer people, a parliamentary inquiry into housing affordability has heard. Australia’s overall home ownership rate has fallen from about 70% to 66% over the past 20 years, with lower income earners and younger people bearing the brunt. Lower income earners’ home ownership rate has declined from 68%

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How property swallowed the Aussie economy

McKinsey Global Institute has released a new report, entitled “The Rise and Rise of the Global Balance Sheet”, which looks at real assets, financial assets and liabilities across 10 countries that represent 60% of global income (i.e. Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the UK and the US). McKinsey found that two-thirds of

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Vested interests push back against property money laundering laws

Last week I reported testimony from the head of Transparency International Australia (TIA), Serena Lillywhite, to the Senate committee examining money laundering. Ms Lillywhite claimed “Australia has become the destination of choice for illicit financial flows … which too often end up in the property market” before asking “how much evidence of money laundering in

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The rise and fall of inner city rental markets

By Tim Lawless, Director of Research at CoreLogic: While rental rates are rising at the fastest pace since 2008, a gap has opened up between the rate of growth in house rents compared with unit rents, with unit precincts across the inner city areas of some capital cities recording a much weaker performance through the

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Millennials flee to Brisbane for affordable housing

Social researcher Mark McCrindle claims that large numbers of Millennials from NSW and Victoria are migrating north to Brisbane in search of affordable housing: Social researcher Mark McCrindle said Queensland was yet to see the peak in interstate arrivals, which would occur once there were no travel restrictions. He said younger people were realising they

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Auction market stalls after flood of listings

Auction clearance rates continue to trend lower under the weight of heavy listings volumes. The national preliminary clearance rate was 75.5%, down from the 76.1% recorded the prior weekend. This was off 3,562 auctions, up from the prior weekend’s 3,276. Sydney’s preliminary clearance fell to 75.1% from 75.9% the prior weekend, whereas Melbourne’s was 74.1%

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Auction market showing fatigue amid listings surge

Australia’s auction market is beginning to show fatigue after weeks of high listings. Last weekend’s final auction clearance rate fell to 73.0% from 76.8% the prior weekend off 3292 auctions (down slightly from 3,546 the prior weekend): Nevertheless, clearance rates were still solid to strong everywhere except Perth. As noted by CoreLogic: Across the combined

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Regulators admit property money laundering is endemic

On Wednesday I reported testimony from the head of Transparency International Australia (TIA), Serena Lillywhite, to the Senate committee examining money laundering. Ms Lillywhite claimed “Australia has become the destination of choice for illicit financial flows … which too often end up in the property market” before asking “how much evidence of money laundering in

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APRA waves macroprudential stick at banks

The Australian Prudential Regulatory Authority (APRA) has advised banks that it may implement tougher macro-prudential mortgage curbs if they don’t take action to rein-in higher risk lending. APRA last month applied the brakes to higher-risk mortgage lending by requiring banks to use more cautious interest rate assumptions when assessing new customers. Yesterday, APRA issued a

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CoreLogic weekly house price update: Brisbane still booming

In the week ended 11 November, the CoreLogic daily dwelling values index increased another 0.26%: All major markets except Perth recorded rising values, led by Brisbane: So far in November, dwelling values have risen by 0.47%, led by Brisbane (0.82%) and Adelaide (0.66%): Quarterly price growth remains turbo-charged but slowing at 4.27% across the five

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Labour, material shortages drive up building costs

The latest Cordell Construction Cost Index data shows that the cost of building and renovating a home rose by 3.8% nationwide in the September quarter, and by 7.1% over the year to September. Below are extracts from the media release, alongside key charts: A surge in new builds and renovations coupled with supply chain disruptions

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Aussie homes sell in record time as buyers swarm

Aussie homes are selling at record speed as a spring surge in properties hitting the market gives buyers more options, according to the latest PropTrack Listings Report. New listings of properties for sale on realestate.com.au reached a record level across Australia’s capital cities in October and hit a three-year high nationally. Nationally, it was the

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Is Aussie housing still affordable?

Alex Joiner, chief economist at IFM Investors, has penned an interesting article at Fairfax looking at housing affordability in Australia. Joiner concludes that the housing affordability picture has been skewed by a range of factors and, more importantly, asks whether having such expensive housing and high debt loads is appropriate: Since the March quarter of

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Money laundering criminals are pumping Aussie property

The head of Transparency International Australia (TIA), Serena Lillywhite, yesterday testified to a Senate committee on how property is used for international money laundering: “Australia has become the destination of choice for illicit financial flows … which too often end up in the property market,” she told a Senate inquiry on Tuesday… [Money laundering has]

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How baby boomers got insanely rich from property

When it comes to winners from the Great Australian Property Boom, the baby boomer generation rules the roost. New data compiled by social research firm McCrindle shows that median house prices have multiplied in value by between 15 and 22 times across Australia’s capital cities in the 40 years to 2021, easily eclipsing wage growth:

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Auction market powers ahead

Australia’s auction market boomed again last weekend, recording a final auction clearance rate of 76.8% (down from 78.9% the prior weekend) on higher volumes (3,546 versus 3,019): As shown above, clearance rates were strong everywhere but Perth. It was also the second highest number of auctions this year. As noted by CoreLogic: Last week was

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Redeveloping old homes won’t cut Australia’s emissions

A new report has called for the large-scale redevelopment of more than eight million ageing Australian homes in order to reduce their energy footprint and carbon emissions: Nicholas Proud, the chief executive of PowerHousing Australia… [said] “the ageing housing stock will cruel any targets until sustainable technology takes over from coal”, which was decades away…

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CoreLogic weekly house price update: Brisbane booms

In the week ended 4 November, the CoreLogic daily dwelling values index increased another 0.30%: All major markets recorded rising values, led by Brisbane: Quarterly price growth remains turbo-charged but slowing at 4.31% across the five major capitals. Brisbane (6.63%) leads the way, followed by Adelaide (5.94%), Sydney (5.17%), Melbourne (2.96%) and Perth (0.52%): So

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NSW Treasurer walks back from stamp duty reform

NSW Premier Dominic Perrottet had argued strongly for stamp duty to be replaced by a broad-based land tax in his previous role as the state’s treasurer. Perrottet reaffirmed his commitment to tax reform in his first press conference after replacing former premier Gladys Berejiklian. However, Treasurer Matt Kean has distanced himself from the proposal, instead

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The great migration north will drive up Brisbane property prices

Domain has done some interesting analysis showing how for the price of a median unit in Sydney (currently priced at just over $800,000), homebuyers could buy a detached house on a good sized block across two-thirds of Brisbane’s suburbs: With [Brisbane’s] median house price sitting at a record high of almost $702,500, a budget of

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The great HomeBuilder boom is coming to an end

Yesterday, the Australian Bureau of Statistics (ABS) released dwelling approvals data for September, which shows that approvals nationally are falling sharply following the ending of the HomeBuilder subsidy scheme in March: The below charts plot annual dwelling approvals, commencements and completions against population growth nationally and across the five major states. These show that the

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Aussie borrowers dangerously exposed to mortgage rate rises

One of the inevitable ramifications of Australia having the second highest household debt load in the world (see next chart) is that Aussies are extremely sensitive to changes in mortgage rates. Therefore, it should come as no surprise that new research from Canstar suggests that many Australian borrowers could be thrown into mortgage stress as