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.


A great Budget for housing affordability

The parasites at Domain are upset: Remember the housing affordability budget? In only two years, Australia’s housing market has gone from a boom that required urgent intervention to help prospective buyers – to a slowdown that poses risks for the economic outlook. This year’s federal budget contains little to help those who still can’t get


High-rise approvals bust takes a quick breather

By Leith van Onselen Yesterday, the ABS released dwelling approvals data for February, which revealed that apartment approvals rebounded marginally, albeit remained down 42% since their May 2016 peak: To add further colour, below are charts plotting the breakdown of approvals by type for each of the states and territories, which are presented below in


Apartments drive dwelling approval dead cat bounce

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of February. At the national level, the number of dwelling approvals rebounded by a seasonally adjusted 19.1% to 17,074. The overall rise in approvals was driven by the volatile unit & apartment segment (+64.6%), whereas detached house


Negatively geared investors lost $8,800 each in 2016-17

By Leith van Onselen The Australian Tax Office (ATO) has released its taxation statistics for the 2016-17 financial year, which registered a small fall in the number of negatively geared property investors, with annual losses claimed also falling marginally. According to the ATO, there were 2,179,107 people claiming net rent in 2016-17 (2,149,796 claiming gross


Charting Australia’s record breaking house price crash

By Leith van Onselen With Australia’s housing correction now dragging on for 18 months, and peak-to-trough declines totalling 9.2% at the capital city level, it’s an opportune time to compare this correction with prior episodes. The below chart shows the various dwelling corrections over the past 30-plus years at the 8-city level, as measured by


CoreLogic: Aussie housing bust broadening

By Leith van Onselen Following on from this morning’s post on CoreLogic’s daily dwelling values index results for March, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table). As you can see, Sydney (-0.9%), Melbourne (-0.8%), Brisbane (-0.6%), Perth (-0.4%), Adelaide (-0.2%), Darwin (-0.6%), and the


The rise and rise AND RISE of Australian household debt

By Leith van Onselen The Reserve Bank of Australia (RBA) has released its debt ratios for the December quarter, which revealed that Australian households’ debt loads have hit another all-time high. The ratio of household debt to disposable income hit a record high 189.6% in December, with mortgage debt to income a record high 140.2%:


Banks to pass on full rate cuts…April fool!

Straight from the horse’s mouth, via Chanticleer: …up in Hong Kong, as least one of the Big Four was making it very clear that full pass-through was unlikely; the bank was keen that investors particularly understood that deposit rates at zero gave it very little room to move. If we assume that somewhere between 10


Murdoch fake news: LNP negative gearing boom Labor’s fault

Fake news alert. At The Australian: The number of landlords with five or more investment properties has surged as buyers get in before a potential Labor government ­implements its negative-gearing policy from January 1. New Australian Taxation Offic­e figures released yesterday revealed the number of landlords with five investment properties grew at nearly six times


Auction clearances post small bounce

CoreLogic released its preliminary auction report yesterday, which reported another weak clearance rate on soft volumes. The preliminary national auction clearance rate was just 56.8%, slightly above last week’s 56.0% and way below the 64.8% final clearance rate recorded in the same weekend of last year: Auction volumes nationally were 2,155, which was well above


Will dunciad specufestors leap into negative gearing bull trap?

So says Domain: Investors could return to falling property markets across the nation before the year’s end, in a bid to beat proposed changes to negative gearing and capital gains tax, experts say. “Many people thought July 1 next year was the most likely start date,” said Domain economist Trent Wiltshire. “It’s probably a good


Housing credit growth hits all-time low

By Leith van Onselen The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of February 2019: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.1% MoM; -1.2% QoQ; -2.7% YoY) is in the gutter, whereas business credit growth (0.3% MoM;


Gotti: Coalition defeated and deflated over negative gearing

By Leith van Onselen For years, the property lobby and Coalition has spent huge sums of money and political capital fighting Labor’s negative gearing reforms, launching scare campaign after scare campaign around prices, rents and the economy. And yet, according to Robert Gottlebsen (‘Gotti’), the electorate has failed to take the bait and has seen


Weekend auctions preview

Via Westpac: Given the intense focus on Australia’s housing markets at the moment and in light of our recent commentary around the best way to interpret auction market results (seehere) we will start putting out short previews each Friday and summary updates the following Monday setting out how results should be viewed. Key points heading into


Millennials don’t prefer apartments, they want a house

By Leith van Onselen The AFR has published a propaganda piece claiming “Millennials don’t want to buy Boomers’ sprawling, multi-bedroom homes”: Boomers and Millennials also want very different types of houses… Fifteen years ago, Boomers were building large, elaborate houses in states like Arizona, Florida, North Carolina, and South Carolina, The Wall Street Journal reported.


Melbourne’s McMansion meltdown deepens

By Leith van Onselen Last year it became apparent that Melbourne’s house and land market had become an giant bubble after the median price for a housing lot hit $339,000 – up 21% in only 12 months – with steeper rises in the cost per square metre: Mid last year we learned that that Chinese developers had taken control of


Labor announces 2020 negative gearing start date

By Leith van Onselen Shadow treasurer, Chris Bowen, has announced that Labor’s signature negative gearing and capital gains tax (CGT) reforms will come into effect on 1 January 2020, roughly seven months after the federal election. This is six months earlier than the 1 July 2020 start date speculated by most observers. From The ABC:


UBS: “Calling the end of the household super leverage cycle”

Via UBS’s excellent George Theranou: Households are still leveraging. Even though household liabilities growth dropped to a >5-year low of 4.2% y/y, because nominal income growth collapsed even more to just 2.0% y/y, the household debt-to-liabilities ratio lifted to a record high of 199% in Q4- 18. However, mainly due to falling house prices, household


UDIA: Lot prices defying house price crash

By Leith van Onselen The Urban Development Institute of Australia (UDIA) has released its 2019 State of the Land report, which reveals that median lot prices continued to rise in 2018: Despite shrinking in size: And crashing sales: The below time series gives the longer-term context. The supply of lots is now shrinking: The median


Chris Joye’s big short

Via Livewiremarkets: In assessing whether to get long or short residential mortgage-backed securities (RMBS), we undertake a great deal of quantitative analysis, including revaluing the homes that protect these bonds at regular intervals and developing globally unique RMBS default and prepayment indices. (Regular readers will know that we exited most of our RMBS in February


Final auction clearance rate stuck in gutter

By Leith van Onselen 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 5.1% decline in the final national auction clearance rate to 50.9% – below last week’s 51.4% final clearance rate: As you can see, Sydney’s final auction clearance


REA: prepare for “the deepest construction employment downturn since the GFC”

By Leith van Onselen REA chief economist, Nerida Conisbee, believes residential construction will bust over the next six months, ushering in “the deepest construction employment downturn since the GFC”. From [Conisbee] said many Aussies will start to see physical signs of the downturn on the streets of their own suburbs as the number of building