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.

11

Crashing property market smashes Domain

By Leith van Onselen Credit Suisse expects Domain Holdings’ earnings for the first half of 2018-19 to fall by 16.6%, to $20.6 million. The broker has also scaled back its share price target by 19%, to $2.50. Credit Suisse attributes its earnings downgrade to a decline in real estate listings, especially in the Sydney and

7

Could we see Labor’s negative gearing reforms on 1 July?

By Leith van Onselen Financial advisers are warning their clients that Labor’s negative gearing and capital gains tax (CGT) reforms could come into effect as early as 1 July in a bid to minimise voter backlash. From The Australian: “It just very important for any investor to digest that these sweeping changes on property tax

13

Chinese property outflows won’t be helped by this

Via The Australian: Billionaire property developer and political party donor Huang Xiangmo is not only stranded in Beijing, suspected by many of being a Chinese Communist Party influence agent, but he is also facing major problems across his ­diverse portfolio of Australian real estate assets. Mr Huang, now an adviser to his Yuhu Group, which

13

Inside Australia’s dwelling construction bust

By Leith van Onselen With Monday’s release of Australia’s dwelling construction data for the December 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 December 2018; Dwelling commencements to September

56

Melbourne house and land market melts down

Recall late last year at the AFR: Melbourne housing lot prices will “quickly” tumble up to 10 per cent as Uber-driving speculators and foreign investors default on thousands of sales contracts, Financial Review Rich Lister Nigel Satterley has warned. …”We believe that over the next 30 months 5000 growth-area lots (about 165 lots a month) will

35

Despite falling 12%, Sydney housing remains ridiculously expensive

By Leith van Onselen Despite suffering the second biggest value decline in nearly 40 years: Sydney’s housing market remains far too expensive and out-of-reach to the vast majority of first home buyers. From News.com.au: House hunters in Sydney need the salary of a paediatrician or a member of parliament just to afford a detached home

18

Developers get desperate as Chinese demand evapourates

By Leith van Onselen With foreign (mostly Chinese) buyers exiting Australian property developments en masse, especially in Victoria: Developers are getting desperate. From The AFR: A Melbourne-based developer has offered its Chinese buyers an option to pay for the purchase of townhouses in China… Developers have started to think outside the square on how to

65

Flammable cladding more widespread than first thought

By Leith van Onselen The fallout from Monday’s fire at the 41-storey Neo200 building on Melbourne’s Spencer Street continues, with information emerging that residents of the 60 buildings deemed to be at the “highest risk” due to deadly flammable cladding have not been notified for fear that arsonists and/or terrorists could target their buildings: Stephen Raff,

14

As Hayne fades, mortgage rate hikes appear

CBA’s half year result is out today and it reeks of coming mortgage rate hikes: Unexciting at best: falling revenue; falling ROE; falling NEM; rising bad debts 15bps or $577m (vs consensus 13bp) and NPLs 89bp (vs 85bp) NPAT boosted by cost cutting; dividend stalled and broker write downs ahead. Mortgage rate hikes are inevitable

5

CoreLogic leading indices signal more property pain

CoreLogic’s leading indexes are out and they point to further house price weakness. Listings barely retraced over the Christmas break and are ready to rocket into the Autumn not-selling season: As shown above, stock levels are exceeding the same time in February 2012, suggesting record potential stock levels this year. SQM Research’s rival Stock on Market

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SQM: Property listings “abnormal and concerning” after “terrible spring selling season”

By Leith van Onselen SQM Research has released its stock on market report for January, which posted a tiny seasonal decline in listings over the month but a large 8.0% increase in listings over the year: Over the year, for sale listings rose across all markets except Hobart (-1.9%) and Darwin (-0.6%), and skyrocketed in

5

Hog wild HIA demands more first home buyer bribes

By Leith van Onselen With Perth property values collapsing, down 16.5% since their prior peak: A desperate Housing Industry Association (HIA) has demanded the Western Australian Government step in and offer even bigger first home buyer (FHB) incentives. From WA Today: The number of WA first-home buyers is dwindling with the amount of first home

22

Taxpayers may be slugged millions to fix high-rise faults

By Leith van Onselen Last month, the senior bureaucrat who reviewed building regulation for the NSW Government warned that defects in the 34-storey Opal Tower at Sydney’s Olympic Park “are likely just the tip of the iceberg”. Now, Fairfax reports that NSW taxpayers could be held liable for the costs of rectifying faults at the Opal

18

Chinese property bust laughs at Juwai jokers

By Leith van Onselen A fortnight ago, Chinese real estate portal Juwai claimed that Chinese buyers are returning to the Australian property market: The report estimates that mainland Chinese buyers will have spent $US129.3 billion on global real estate last year, a growth rate of between 3 per cent and 8 per cent over the previous

3

UBS: Credit squeeze to continue

George Tharenou at UBS on the Hayne RC and credit flows: Implications: RC still consistent with our view of tighter credit ahead Overall, the RC should not trigger a material acceleration in the tightening of lending standards under way, which should reduce the chance of an imminent ‘credit crunch’. This will likely give some comfort

40

Broker locusts swarm Hayne

Via Domain: The Finance Brokers Association is warning the Hayne recommendations could drive up interest rates. The association’s managing director, Peter White, has gone directly to the proposals around mortgage brokers which has also caught the attention of the government. He said eliminating trail commissions for brokers could ultimately push up the price of loans.

48

No mortgage relief in Hayne

The Hayne pain is here. The most important finding for the economy in the final report is the Commission’s view of the Household Expenditure Measure (HEM) on which its find is quite subtle: 1.2.1 The NCCP Act When dealing with particular case studies in the Interim Report, I concluded that there had been conduct that

12

NSW/VIC drives high-rise approvals bust

By Leith van Onselen Yesterday, the ABS released dwelling approvals data for December, which revealed that apartment approvals have crashed by 47% 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 rolling annual

10

JLL: Apartment completions to drop 31%

By Leith van Onselen JLL has forecast that new apartment completions across Australia will fall from 23,200 in 2018 to 16,000 in 2019. From The AFR: New apartment completions nationally will drop by almost one-third this year to 16,000 from 23,200 last calendar year, as a consequence of the regulator-driven curbs on mortgage lending and

20

Shorten/Bowen stare down tax and banking doomsayers

By Leith van Onselen The Property Council has vowed to make stopping Labor’s negative gearing and capital gains tax (CGT) reforms its top priority for 2019: Property Council group executive for policy Mike Zorbas said… “More than two million Australians own an investment property… Through this they play a vital role in supporting the private

9

Australian dwelling approvals are crashing

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of December. At the national level, the number of dwelling approvals fell by a seasonally adjusted 8.4% to 13,995. The overall fall in approvals was driven by the volatile unit & apartment segment (-18.8%), whereas the detached

33

High-rise “slums” are a symptom of mass immigration

By Leith van Onselen Last night, Martin North from Digital Finance Analytics appeared on 60 Minutes where he warned that “Australia has built a generation of properties that could become slums in just 20 years”: Mr North criticised developers and the housing industry for “throwing up” high-rise buildings at such alarmingly fast rates. He warned viewers

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Flammable cladding fear as fire rips through Melbourne high-rise

By Leith van Onselen Australia’s apartment market is literally going up in flames, with another high-rise apartment block in Melbourne’s CBD catching alight and believed to be constructed using the same flammable cladding used on London’s Grenfell Tower and Melbourne’s Lacrosse Tower. From The Age: This morning’s apartment fire was at the Neo200 building on

66

What does Justice Kenneth Hayne’s anger mean?

Justice Kenneth Hayne has delivered his final report on banking crime to Josh Recessionberg and the footage is priceless: Why so pissed, Ken? The AFR offers one explanation: “I remember the number of times in Parliament, the current Prime Minister, he would wag his finger and say you’ll never get a banking royal commission,” Mr