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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New mortgage commitments rocket post-election

CoreLogic’s head of research, Tim Lawless, has released interesting research on the boom in new mortgage commitments since the May Federal Election: Since moving through a trough in May, the value of new owner occupier home loan commitments has increased by 17.3% through to the end of September and the value of investor loan commitments

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Insolvent developers forced into fire sales

Earlier this week, we learned that construction insolvencies are booming, according to ASIC: Insolvencies in the $150bn residential and non-residential construction industry remain at a high level… insolvencies in the three months to September jumped 78 per cent in Victoria, 41 per cent in Queensland and 7 per cent in NSW. This was a significant

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Final auction clearance rate holds at 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 1.4% decline in the final national auction clearance rate to 72.0% – well above the same weekend last year (43.3%) and above last week’s 68.0%: As you can see, Sydney’s

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SQM: Housing to boom into bull trap

SQM Research MD Louis Christopher expects growth in housing prices in Australia’s capital cities to average 11% in 2020. The latest edition of Christopher’s Housing Boom and Bust Report forecasts that dwelling prices in Melbourne will rise by up to 15%, while Sydney’s housing market will record growth of 10%-14%. However, Christopher says the housing

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Adios housing affordability

CoreLogic has released housing affordability data, which shows that affordability peaked in the June quarter of 2019: However, that was as good as it will get given the recent surge in values, especially across Sydney and Melbourne: According to CoreLogic: CoreLogic’s head of research, Tim Lawless, said the return of the “fear of missing out”

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Older Australians hog family friendly homes

Australian Housing and Urban Research Institute (AHURI) has released new research claiming that older empty-nesters are clinging to their larger family-friendly homes. The AHURI also recommends a wide range of tax reforms to encourage seniors to downsize: “They like to stay where they’re familiar,” said lead researcher Associate Professor Stephen Whelan from the University of

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NSW Planning Minister attacks community for opposing crush-loading

NSW Planning Minister has attacked so-called NIMBY baby boomers for opposing high-rise development across Sydney: Baby Boomers are primarily responsible for hostility toward housing growth and density, Planning Minister Rob Stokes says, accusing the generation of being the drivers of so-called NIMBYism… Speaking to developers, planning bureaucrats and community leaders, Mr Stokes said growth had

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Big Australia lobbyists: Aussies don’t want to live in houses

‘Big Australia’ mass immigration shills claim that Australians no longer want to live in a detached house with a backyard, and are instead choosing high density living and renting: Danni Hunter, Victorian chief executive of the Urban Development Institute of Australia… said density would “grow stronger … and that’s really good for the diversity of

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Insiders: Morrison’s FHB deposit subsidy to lift property prices

Various property insiders agree that the Morrison Government’s first home buyer (FHB) deposit subsidy is likely to raise property values when it is introduced in January, thereby eroding housing affordability: SQM Research real estate analyst Louis Christopher said the Morrison government’s free LMI for 10,000 first-time annual buyers would “marginally” increase prices from January… “Past

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Real estate companies hit property panic button

Yesterday, the CEO of property listings portal, REA Group, claimed the crash in property sales is “about as bad as it can get [and] it’s the worst market we’ve ever seen”. Today, the boss of rival Domain Group has warned of an “extraordinary” shortage of properties for sale in Sydney and Melbourne: Mr Pellegrino likened

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CS: Chinese driving Sydney property price recovery

Via Damien Boey at Credit Suisse: We have just published an article on the drivers of the Sydney housing market recovery. Key points are as follows: Sydney house prices are rising at a 22% quarter-annualized pace – but the speed of the recovery cannot be explained by local demand and supply factors. Our model of house prices based on

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Paradox of thrift hits Aussie mortgage holders

The “paradox of thrift” was a theory made famous by renowned economist John Maynard Keynes. The theory posits that individuals will try to save more during an economic recession, which then leads to falling aggregate demand. Such “thrift” is harmful for everybody as the overall economy slows. It appears that the “paradox of thrift” is

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House sizes: the great shrinkflation

In 2010, the CBA produced the below slide claiming that part of the reason why Australian housing is so expensive is because we have the biggest homes in the world: HSBC’s Paul Bloxham made similar arguments: …the quality of the housing stock is high. Australia has the largest dwellings in the world, and they are

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Australia shamed again on property money laundering

The Australian Banking Association and the Greens are calling on the federal government to tighten anti-money laundering laws. The Paris-based Financial Action Taskforce has complained for some time that Australia’s anti-money laundering laws do not require real estate agents, accountants and lawyers to report suspicious transactions; it is expected to repeat these complaints when it

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Panic grips REA amid “worst ever” property sales collapse

The CEO of property listings portal, REA Group, has lambasted APRA’s macro-prudential curbs and state governments’ foreign buyer stamp duty surcharges for causing a “manufactured” collapse in property sales: The News Corp controlled property listings portal’s first quarter trading update on Friday revealed a 9 per cent decline in revenue after broker commissions fell to

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Mortgage bounce to drive property prices higher

Friday’s ABS data on new mortgage lending revealed another solid increase in September, driven by owner-occupiers: As regular readers know, we consider the flow of new mortgages to be a prime indicator for property price growth. This view is based on the incredibly strong historical correlation between finance and prices, as illustrated by the next

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Auction clearances soften again

Auction clearance rates softened slightly over the weekend, with the preliminary rate nationally coming in at 72.0%, down from 73.6% last weekend: Auction clearances were also way above the 43.3% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 81.0%, up from 79.4% last weekend, and way above the 42.1% recorded in

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Australia’s mortgage rebound solidifies

Today’s housing finance data for September from the Australian Bureau of Statistics (ABS) recorded a continued rebound in mortgage commitments: As shown above, total finance commitments (excluding refinancings) rose by 1.3% in September, with owner-occupied commitments rising 3.2%, more than offsetting a 4.0% fall in investor commitments. However over the year, total finance commitments (excluding

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BIS: Apartment market faces years of implosion

The latest dwelling approvals data from the ABS shows that unit & apartment approvals are running 54% below their June 2016 peak, after collapsing by 31% over the past year alone: The situation is equally dire for high-rise approvals, which have collapsed across the three major markets, down by 54% (NSW), 58% (VIC) and 70%

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CoreLogic weekly house price update: Skyrocket

In the week ended 7 November 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.34%: The rise in values was driven by Sydney and Melbourne: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are rocketing: The rebound across Sydney

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Final auction clearance rate falls into the 60s

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 5.6% decline in the final national auction clearance rate to 68.0% – well above the same weekend last year (47.0%) but below last week’s 72.2%: As you can see, Sydney’s

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Off-the-plan apartment buyers bleed losses

Off-the-plan buyers of Australia’s biggest apartment complex –  Australia 108 – are haemorrhaging losses of up to 25%, after valuations plunged from their 2015 contract date. This has left many buyers better-off forgoing their deposits and walking away. From The AFR: The local buyer, who asked not to be named, bought the apartment for $972,000

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Growth in housing construction costs outpaces inflation

The latest CoreLogic residential construction costs report (CHIP – September quarter) claims that costs associated with dwelling construction continued to rise at a faster pace than inflation over the September quarter. According to the CHIP index, construction costs rose by 1.1% over the quarter to be up 3.7% year-on-year. The National CHIP index began to

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Westpac loosens HEM for specufestors

Via Banking Day: Westpac has flipped another card in a bid to revive its anaemic mortgage business by loosening the household expenditure benchmark it uses to assess investment borrowers. In a notification to brokers on Wednesday,  the bank said it was overhauling the formula used to determine the Household Expense Measure band for investors. Under