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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Laundered Chinese money gushes into Australian property

Earlier this year, billionaire Huang Xiangmo’s permanent residency was cancelled for reasons including character grounds. Today, The AFR has published a detailed investigative report on how Huang Xiangmo laundered money through Australian real estate to buy political influence: Huang Xiangmo, the Chinese billionaire at the centre of a NSW corruption inquiry and tax office investigation,

14

Is Australian household debt actually falling?

This week’s shocker financial result from Westpac has led to financial commentator, Peter Switzer, declaring that Australia’s record household debt load – currently 191% of disposable income – may actually be falling: From Switzer Daily: What if the biggest worry for the house price doomsday merchants was actually shrinking before our very eyes but we’re

16

Perth property’s triple crash

October was a very bad month for Perth’s housing market, with the latest data on dwelling values, dwelling construction and dwelling rents all posting ongoing falls. Consider first Perth dwelling values, which have now fallen by nearly 22% from their June 2014 peak, after falling another 0.4% in October: Western Australian dwelling construction also continues

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Recessionberg has crashed the economy

L-plate treasurer, Josh Recessionberg, has done the near impossible and crashed the miracle economy. When he assumed the role of Treasuerer, Recessionberg made a critical misjudgement that if he follwed the Costello recipe of running surpluses, cutting taxes and stuffing in migrants then he’d force the RBA to ease, and rising house prices would boost

19

Toothless ATO exposed as illegal foreign property buyers run riot

Back in December, a parliamentary committee into Managing Compliance with Foreign Investment Obligations for Residential Real Estate lambasted the Australian Tax Office (ATO) for failing miserably to enforce the rules precluding foreign nationals from purchasing established homes: Despite at least 877 breaches of the country’s foreign ownership laws being uncovered in Victoria, the Australian Taxation

8

Melbourne residents revolt against ugly high-rise developments

Long suffering residents across Melbourne’s suburbs are pushing back hard against the spate of ugly high-rise apartments sprouting up across the city, which they claim are wrecking liveability: Grassroots campaigns against multi-storey developments are cropping up across Melbourne where, to the ire of locals, apartment towers are popping up and colonising old residential suburbs. “There’s

22

A new SMSF property rort emerges

Earlier this year, the Council of Financial Regulators (CoFR) recommended the federal government impose a ban on property investment through self-managed superannuation funds (SMSFs) after 18,000 SMSFs were found to have over 90% of their savings in a single asset class, primarily investment properties. However, its recommendation was ignored by Treasurer Josh Frydenberg: Regulators urged

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Dwelling supply to fall way behind population growth

With last week’s release of dwelling approvals data for the September quarter, it’s once again time to examine how Australia’s dwelling supply is tracking against population growth. The below charts track the following, which are based on the latest available quarterly data: Dwelling approvals to September 2019; Dwelling commencements to June 2019; Dwelling completions to

15

Auction clearances soften

Auction clearance rates softened slightly over the weekend, with the preliminary rate nationally coming in at 73.6%, down from 75.3% last weekend: Auction clearances were also way above the 47.0% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 79.4%, down from 79.7% last weekend, but way above the 45.3% recorded in

9

Apartment defects turns insurance crisis

Via The Australian: Construction projects worth billions of dollars could grind to a halt as hikes to professional indemnity insurance premiums begin to force building certifiers out of business in what the industry warns is a “national crisis”. One of Queensland’s biggest certifiers, GMA Certification Group, declared on Thursday it was “dead in the water”

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Are “tiny homes” a solution for housing affordability?

Another week, another spin piece about the benefits of “tiny homes” and why they offer a solution to Australia’s housing affordability crisis: According to the Internation Residential Code (ICC), a tiny house is defined as a dwelling under 400 square feet (or 37 square meters). A standard home, by comparison, is roughly 2,500 square feet

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First home buyers are on the rise. But for how long?

From CoreLogic’s Tim Lawless: According to ABS housing finance data for August 2019, first home buyers comprised the largest proportion of national owner occupier mortgage activity since early 2012. The data showed first home buyers comprised 29.8% of the national market for owner occupier home loans; almost five percentage points above the decade average of

7

Imagine what the AFP would find with proper money laundering laws?

The Australian Federal Police (AFP) has uncovered a cache of Australian property laundered by Chinese funds after receiving a request from the Chinese Government: A mansion in Melbourne’s east, newly constructed units and more than 3,000 acres of Tasmanian farmland are among $17.3 million in property seized by authorities as part of an investigation into

15

Australia’s high-rise apartment crash goes from bad to worse

Yesterday, the Australian Bureau of Statistics (ABS) released its dwelling approvals data for September, which revealed that dwelling approvals nationally have crashed by 35% in trend terms from the March 2015 peak, driven by a mammoth 54% decline in unit and apartment approvals: Today, I want to focus on the high-rise apartment segment, which is

6

Tories and Brexiteers unite!

Via FT: Nigel Farage’s Brexit party is considering whether to pull out of hundreds of seats in Britain’s forthcoming general election, in what could prove a game-changer to prime minister Boris Johnson’s hopes of winning a parliamentary majority. The insurgent party, which supports leaving the EU without a deal, is deciding whether to contest all

1

Final auction clearance rate holds above 70

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 3.1% decline in the final national auction clearance rate to 72.2% – well above the same weekend last year (47.0%) and almost the same as last week’s 72.1%: As you

23

Investor mortgage growth crashes into negative

The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of September 2019: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.7% MoM; -1.4% QoQ; -4.4% YoY) has plunged, whereas business credit growth (0.4% MoM; 0.9% QoQ; 3.3% YoY) and housing

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Jess Irvine buys a shoebox

It’s pretty awful watching Jess Irvine pretend to care about her generation’s bete noir as she hunted for a property to buy. It’s not that she hasn’t argued for lower house prices from time to time. She has. But she has also consistently argued for higher prices as well via an unshakable faith in the

13

ABS: Australian rents fall to 2010 levels

The June quarter consumer price index (CPI) data, released yesterday by the Australian Bureau of Statistics (ABS), revealed that Australian rental growth remains stuck in the gutter, posting the equal lowest annual growth in the series’ 45-year history. According to the ABS, rents nationally rose just 0.1% in the September quarter and grew by just

13

New home construction costs record first ever fall

Yesterday’s consumer price index release from the ABS posted the first ever fall in the “New dwelling purchase by owner-occupiers” sub-component, which measures the cost of building a home (excluding the land): According to the ABS, this sub-index fell by 0.17% in the September quarter and by 0.08% year-on-year. This was the first annual decline

15

International student crisis goes on trial at Murdoch

Independent writer, Paul Wallis, has penned an interesting analysis of Murdoch University’s case against Dr Gerd Schroeder-Turk, who is being sued for causing a drop in international student enrolments after he told ABC’s Four corners that entry and teaching standards at the university had collapsed: You’d think it’d be common sense for international students coming

26

Retirees ‘upsizing’ to game Australia’s pension system

The Australian’s Adam Creighton claims that some wealthy seniors are deliberately ‘upsizing’ to more expensive homes in order to receive bigger Aged Pension payments: Older Australians are buying more expensive homes in retirement to hang on to the Age Pension, according to experts who say pension eligibility rules are causing nationwide over-investment in housing. Part

4

John Hewson lashes Coalition’s FHB subsidy

Former Liberal leader, John Hewson, has joined the conga-line of analysts lashing the Morrison Government’s first home buyer (FHB) deposit guarantee: A key federal government policy on housing affordability is little more than “an election sop”, while piecemeal policy and a lack of forward-thinking are crippling both state and federal responses to the issue, former

8

Inner-Melbourne apartment completions collapse

Melbourne’s high-rise apartment boom is well and truly over, with apartment completions hitting a six-year low across inner Melbourne: Advisory firm Urban Property Australia forecast fewer than 4000 apartments to be added to the key inner-city precinct in 2019, which comprises the CBD, Docklands, Southbank and 11 other suburbs including North Melbourne, Carlton, Parkville, Port