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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Youngun’s ‘expectations’ are not to blame for affordability ‘crisis’

By Leith van Onselen It’s blame the victim time again. Over the weekend, Craig Treasure – the managing director of ASX-listed house-and-land developer Villa World – blamed younger Australian’s “high expectations” for not being able to purchase a home. From The Australian: Young buyers’ high expectations for big homes with multiple bathrooms and all the

16

Highrise Harry demands banks fund skint Chinese buyers

Via the AFR: Harry Triguboff, the country’s richest person, says he is financing about $200 million of the $1.4 billion worth of apartment sales he expects to make this year, as his mostly Chinese buyers struggle with tougher currency controls to get money into Australia. …Apartment prices are also weakening, he said. “So he (the Chinese buyer) never

10

Auction clearances stay strong but volumes weak

CoreLogic released its auction report yesterday, which revealed another weekend of strong auction conditions, despite the national auction clearance rate falling to 74.6% from 76.9% last weekend, still well above the 67.7% recorded in the same weekend last year: However, auction volumes nationally (1,662) were below the same weekend last year (2,230). As shown above,

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Phil Lowe warns Coalition on first home buyer Budget bribe

By Leith van Onselen In the Q&A following yesterday’s speech, Reserve Bank Governor, Phil Lowe, made the subtle but important observation that “you don’t fix [housing] affordability by boosting demand”. The veiled warning comes after it was all-but confirmed over the weekend that the Turnbull Government would include in the Budget some type of measure

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If you’re after interest-only, don’t go to NAB!

Via Banking Day: National Australia Bank will pare back its interest-only lending from 41 per cent of recent flow to within APRA’s 30 per cent cap by late this year, Andrew Thorburn, the bank’s managing director said yesterday. An acceleration in NAB’s interest-only home loans around this time last year, highlighted in an investor presentation

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Can you save $500 a month to buy a house in 2027?

By Leith van Onselen As Australia’s dwelling values have surged against incomes: One of the casualties has been the huge housing deposits that must be saved by first home buyers (FHBs) in order to buy a home: Yesterday, Domainfax published an interesting article measuring the average size of, and number of years taken to save

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Ahead of Budget, NSW stamp duty receipts boom

By Leith van Onselen Ahead of the State Budget next month, the NSW Office of State Revenue has updated its stamp duty data for March 2017, which shows that annual receipts continued their second wind on the back of rising Sydney home prices and rebounding transaction volumes: As shown above, NSW stamp duty receipts hit

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Relax, the housing boom is over

Domainfax is torturing itself unnecessarily over house prices: The big question raised by last month’s slowdown in Sydney and Melbourne’s housing markets is whether this is a blip on the radar, or the start of something more significant. No one knows the answer yet, but a few important points about the housing market are becoming clearer all the same. First,

4

Shrinkflation hits for sale listings

By Leith van Onselen From SQM Research comes stock on market figures for the month of April, which reported a large 8.3% decline in listings over the month and an 11.9% fall over the year: Listings fell across all jurisdictions in April, Melbourne (-15.2%) and Sydney (-12.7%) recording particularly large declines. Over the year, all capitals

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Saul Eslake: how to fix housing affordability

By Leith van Onselen Independent economist, Saul Eslake, has penned a good treatise on how to make Australian housing affordable, which provides the following concluding recommendations to federal and state governments: It’s worth emphasising that a strategy which embraces all of these areas requires a sustained commitment from all levels of government – Commonwealth, state

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Flufferfax: Headless man declares he has no head

Sparkling journalism today at Flufferfax: ANZ chief executive Shayne Elliott said talk of a housing bubble was simplistic, as the bank published figures showing more people were repaying their home loans on time than two years ago. Speaking on the day the Melbourne-based bank reported a below-expectations $3.4 billion cash profit for the six months

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Inside shrinking realty listings

From Deutsche: April new listings down According to RP Data, new listings in the national property market declined c7% y/y in April, which is a slowdown from the flat volume growth recorded in March. We believe the timing of Easter (mid-April this year vs late March last year) has impacted April volumes, with post-Easter campaigns

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Canadian bank run contagion begins

Via Bloomberg: Home Capital Group Inc. extended declines after the Canadian mortgage lender reported additional deposit withdrawals, prompting one of its biggest rivals to seek a C$2 billion ($1.5 billion) credit line to stem any contagion across the country’s financial markets. Home Capital fell 13 percent to C$6.96 in Toronto, bringing its two-week drop to