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.

0

New home finance down again in October

By Leith van Onselen Today’s housing finance data for October posted another 1.5% fall in the number of new home finance commitments (both construction and new), although commitments were still up by 12.1% over the year: Looking at the state-by-state breakdown, which is presented below on a rolling annual basis since it is not seasonally

4

First home buyer bribes mask weak housing finance trend

By Leith van Onselen Today’s housing finance data for October, released by the Australian Bureau of Statistics (ABS), posted a fall in lending to owner-occupiers but an increase in lending to investors. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) fell by 0.8% in October in seasonally adjusted terms but

9

RBA: Affordable housing vanishes in Sydney and Melbourne

By Leith van Onselen The Reserve Bank of Australia (RBA) has released a Bulletin Article examining housing accessibility for first home buyers (FHBs), which finds that accessibility is especially poor in the immigration/investor hotspots of Sydney and Melbourne: A common measure of housing affordability is the ratio of mean housing prices to mean household disposable

31

ANZ: Foreigners purchasing 7% to 13% of Australian homes

By Leith van Onselen ANZ has released new research examining the impact of foreign property purchases on the Australian housing market: The research shows foreign investors purchased between 35,000 and 60,000 dwellings in Australia in 2015-16, with foreign buyers making up only a small share of total housing turnover for the year, between 7 per

38

Sydney house prices fall for 13th consecutive week

By Leith van Onselen The slow deflation of Sydney’s housing market has continued for the 13th consecutive week, with CoreLogic’s dwelling values index registering another 0.2% decline, with values down a cumulative 1.7% over that 13-week period, and dwelling values also down 1.4% over the past 18-weeks: Sydney’s quarterly growth rate continues to turn negative,

64

ATO targets negative gearing tax dodgers

By Leith van Onselen Back in May, the Australian Taxation Office (ATO) noted that property investors were rorting the tax system by claiming excessive depreciation expenses on plant and equipment: “The ATO has actively monitored this area over many years. During this time we have identified a number of issues relating to inflated valuations of

8

McGrathmageddon wields the axe

Via AFR: McGrath has retrenched 15 employees in non-sales divisions including property management and IT. Chief executive Cameron Judson said the redundancies were in line with the recent ASX announcement indicating planned restructuring costs in non-revenue generating roles, outside the executive leadership team. I guess we can safely say that market conditions have not improved.

40

Beijing knows exactly what it’s doing Downunder

Yesterday the Chinese Embassy gave us a good old fashioned dummy spit: “Some Australian politicians and government officials also made irresponsible remarks to the detriment of political mutual trust between China and Australia. We categorically reject those allegations,” the Spokesperson of Chinese Embassy in Australia said. “Over the recent period, some Australian media have repeatedly

9

HIA summons the first home buyer patsies

By Leith van Onselen With the Senate last month shooting down the Turnbull Government’s legislation to allow first-home buyers (FHBs) to use up to $30,000 of voluntary super contributions for a housing deposit, the rent-seekers over at the Housing Industry Association (HIA) have dialled-up the lobbying: “Superannuation incentives for first home buyers to save for their

72

Apartment giveaways escalate

Via the AFR: Real estate agents and developers are offering rental guarantees, even advertising on personal ad website Gumtree, in a bid to push sales in a slowing housing market. Last month, Melbourne developer Growland offered a 6 per cent yield guarantee for two years on new apartments purchases at their Victoria Square project in Footscray.

8

Macroprudential 2.0 pulls handbrake on interest-only mortgages

APRA released its Sep QTR banking property exposures yesterday and we can update progress of the MP2.0. First, the progress towards 30% of mortgage stock being interest-only is good, falling to 35%: It was largely driven by mortgage flow as interest-only issuance tanked to just 17% of the total: When stock catches down to flow then

33

Will build-to-rent revolutionise Australia’s housing market?

By Leith van Onselen Domainfax has published a boosterish report on the so-called ‘build-to-rent’ revolution coming to Australia: The number of homes built explicitly to rent out is set to take off in Australia over the next five years, housing industry experts have predicted. They’ll be nothing like we’ve seen before, either, with building managers

4

Melbourne lot prices surge as population ponzi overruns land supply

By Leith van Onselen Last month, The AFR reported that first-home buyers (FHBs) are desperately fighting for land in Melbourne as the city’s population soars: First-home buyers face fierce competition in Victoria’s fast-rising market, with only a quarter of the 84 lots in Stockland’s latest land release going to first-time buyers. Shaneel Veerabathula was one

17

Melbourne buildings chock-o-block with flammable cladding

By Leith van Onselen In the wake of June’s Grenfell tower disaster in London, which claimed the lives of around 80 people, a special Victorian Taskforce interim report has identified 1,400 buildings with flammable cladding, including eight hospitals. From The ABC: The Victorian Cladding Taskforce identified 1,400 buildings “as most likely” having aluminium composite panels

24

Why Sydney’s housing market is even weaker than it looks

By Leith van Onselen The slow deflation of Sydney’s housing market has continued for the 12th consecutive week, with CoreLogic’s dwelling values index registering another 0.2% decline, with values down a cumulative 1.5% over that 12-week period, and dwelling values also down 1.4% over the past 17-weeks: Sydney’s quarterly growth rate continues to turn negative,

2

Housing credit growth continues to slow

By Leith van Onselen The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the  month of September 2017: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (0.0% MoM; -0.2% QoQ; -0.9% YoY) is still in the gutter, whereas business credit growth (0.3%

31

Gottiboff: Goodbye credit, farewell house prices

Gottiboff panic! Can’t say I disagree at this point, though: The banking inquiry combined with regulator-driven clamps on lending will initially boost banking profits and margins but they will create a longer term threat to dwelling prices. But that’s just the start. When you put an industry like banking under extreme pressure surprising things happen.

12

Sydney drives 0.1% November decline in Aussie home values

By Leith van Onselen CoreLogic’s dwelling price results are in for November, with a 0.12% decrease in values recorded over the month at the 5-city level, driven entirely by a sharp decline in Sydney: Home values nationally are finally declining following the turbo-charged growth recorded over the 2016-17 financial year: Quarterly value growth is now