And so it begins. Market prices crack first. Later comes the economic fallout. We had the price bust now for the casualties, via The Australian: The collapse of the prolific east coast suburban apartment developer Ralan Group, headed by British-born William O’Dwyer, owing creditors at least half a billion dollars has highlighted the fragile state
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.
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 were flat (0.0% growth) in the June quarter and grew by
Following Tuesday’s dwelling approvals data for the June quarter, it’s time once again to plot Australia’s various measures of dwelling construction against population growth, namely: Dwelling approvals to June 2019; Dwelling commencements to March 2019; Dwelling completions to March 2019; and Population change to December 2018. First, the national picture shows that dwelling approvals and
The Gottiboff is at it again spruiking property: Six forces are driving the market: The low interest rates… There is a widespread fear of “missing out”… In detached dwellings there is a shortage of supply… They might not admit it publicly, but the banks are now easier with granting loans… Young people are waking up that
Westpac CEO, Brian Hartzer, has joined the chorus calling for stamp duties to be replaced with a broad-based land tax: Mr Hartzer on Tuesday argued that getting rid of stamp duty could help address the high cost of housing, and allow more first home buyers to enter the market… “The big upfront cost of buying
The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of June 2019: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.2% MoM; -1.1% QoQ; -3.5% YoY) has plunged, whereas business credit growth (-0.1% MoM; 0.1% QoQ; 4.0% YoY) and housing
CoreLogic’s dwelling price results have been released for July, which reveals a 0.1% increase in values recorded over the month at the 5-city level: It was the first monthly rise in home values at the 5-city level since August 2017: In the July quarter, dwelling values fell by 0.42% across the major capitals: Over the
APRA is out with monthly banking statistics for June, the first clean post-election month. The news is investment mortgages are still on the nose. The stock of loans is still falling: ANZ CBA MQG NAB WBC BOQ BEN SUN Total Jun-19 76774 133761 12643 104660 153525 11340 12811 11756 517270 May-19 77473 133400 12532 104681 153096
Via UBS: Implications: house prices set to rise modestly, but activity still set to drop Optimism has returned to housing following the surprise election result, and coordinated policy easing from APRA & the RBA. Positively, we now expect a ~10% y/y lift in home loans to drive house price growth of 3-5% y/y ahead; albeit
Yesterday, the ABS released dwelling approvals data for June, which revealed that overall dwelling approvals have crashed 28.5% since their May 2016 peak, with house approvals down 18% from peak and apartment approvals down 43% from peak: Moreover, approvals have crashed across all major markets, with NSW down 35% from peak, VIC down 32%, QLD down 48%,
The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of June. At the national level, the number of dwelling approvals fell by a seasonally adjusted 1.2% to 14,295. The overall fall in approvals was driven by the volatile unit & apartment segment (-6.5), which more than offset the 0.4% rise
In a taste of things to come, residents from Sydney’s Opal Tower, which was evacuated on Christmas Eve amid severe structural cracking, have launched a multi-million dollar class action lawsuit against the NSW Government. From The ABC: In documents lodged with the NSW Supreme Court late on Friday, owners of the western Sydney apartment tower
Amid the proliferation of faulty and flammable high-rise apartments across Sydney, it is hard to fathom that the slum lords at the Urban Taskforce want even more: Suburbs across Sydney are scarred with “big, fat, dumb” apartment buildings that provide poor living spaces for residents, according to two of the city’s leading architects. Philip Thalis,
In the wake of Queensland’s unprecedented apartment construction boom: The faults crisis has now spread to Brisbane, with an owner facing bankruptcy after a serious defect in her new $1.7 million luxury apartment caused thousands of dollars worth of damage. From The ABC: Louisa Carter purchased a new four-bedroom sub-penthouse in The Johnson apartment tower
From the HIA: “New home sales in the June quarter were up by just 0.8 per cent on the preceding quarter. This is the first quarterly improvement since the December quarter in 2017,” stated HIA’s Chief Economist, Tim Reardon. The HIA New Home Sales report – a monthly survey of the largest volume home builders
Via BISOxford: The 2019/20 financial year should represent the trough for total building, with a strong rebound anticipated from 2020/21 onwards as interest rate cuts, easing mortgage serviceability tests and first-home buyer stimulus help facilitate a broad recovery. Total building activity is anticipated to climb near its previous peak over the coming five years. Strong
After a string of major faults have been uncovered across apartment developments in Sydney, the high-rise crisis has now spread to Melbourne, with residents reporting cracking noises and defects in the new 101-storey tower, Apartment 108: Residents are forking out as much as $2,600 a month for a two-bedroom apartment, but have complained of a
After last week’s final auction clearance rates for Sydney and Melbourne hit two-year highs, CoreLogic’s preliminary auction clearance rate for the weekend’s auctions rose further above 70%, driven by Sydney and Melbourne: However, auction volumes have fallen by more than a quarter – 1,115 aucti0ns were held over the weekend versus 1,536 in the same
From our Chris today: When the RBA slashed its cash rate from 4.75 per cent to 1.5 per cent between 2011 and 2016, it repeatedly argued that this would not trigger a re-leveraging of household balance-sheets and/or a new double-digit house price boom, which is exactly what happened. …Most embarrassingly for the RBA, two of
CoreLogic Research Analyst, Cameron Kusher, has released analysis examining total investment returns (i.e. value growth and gross rental returns) across Australia’s housing market in 2019-19: Over the 2018-19 financial year, total returns from residential property recorded a fall of -3.3%. Returns were down from the previous year and it was the only financial year since
Via the ABC: Small businesses in general — and tradies in particular — have suffered a serious deterioration in their trading conditions and profitability, according to a survey from NAB. The drop-off for small and medium enterprises (SMEs) was far sharper in the second quarter than for the bigger end of town, which was reported
Via S&P: Genworth Australia Ratings Lowered To ‘A’ Under Revised Criteria; Outlook Stable • We view that Genworth Australia’s constrained business diversity and challenging market conditions make it increasingly susceptible to competitive pressures, as reflected in a decline in revenue and earnings over recent years. • We are lowering our ratings on Genworth Australia to
From the Q&A yesterday with Phil Lowe: “There has been a significant tightening in lending standards. In some respects, it seems some institutions have become excessively risk averse. Many people in the community feel they have already borrowed too much and now they are in a period of consolidating the balance sheet rather than going
In the week ended 25 July 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.05%: Values rose across all major markets except Adelaide: So far in July, dwelling values have risen by 0.04% across the five major capitals, driven by the three biggest markets: The
Ah, yes, anothery: Queensland Premier Annastacia Palaszczuk has not ruled out standing aside her deputy Jackie Trad from Cabinet if the state’s corruption watchdog launches an investigation into her investment property. The Crime and Corruption Commission is considering two referrals about Ms Trad’s inner-city investment property, which she failed to publicly declare and which stands to increase
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 5.2% decline in the final national auction clearance rate to 65.4% – well above the same weekend last year (57.0%) and exactly the same as last week’s: As you can see, Sydney’s
Via Domain: The number of people searching for investor loans doubled in the week after the June rate cut, compared to the week before, on comparison platform Finder. …“The doubling of traffic is definitely a significant result there – the interesting thing will be to see whether it has any result in the market,” Finder
Domain has released its house price results for the June quarter, which reported further falls. As shown in the next table, median house prices fell by 0.4% across the combined capitals over the June quarter, with prices down 6.4% year-on-year: As you can see, prices fell across five out of eight capitals over the quarter,
Sydney’s apartment crisis continues to deepen following a series of high profile structural faults reported across major complexes. Residents of faulty apartment blocks have inundated a NSW parliamentary inquiry with submissions before it investigates construction standards in August. From The SMH: Human waste flowing down apartment hallways and bubbling up through shower drains, wall cracks