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.
Following on from my recent articles on land-use regulations and housing affordability, I want to take readers through Texas’ deregulated and innovative urban planning system, and how this system has assisted in providing Texans with housing that is among the most affordable in the Western world despite very high population growth and easy access to
As regular readers would know, the debate continues about the role of planning regulations on housing supply and the resulting price implications. Yesterday our favourite Unconventional Economist elaborated his views in an exploration of town planning and the UK housing market, so I feel it is an opportune time to elaborate the opposing argument – why the
There’s nothing like a breath of honesty. From the SMH today: As global investors curb their exposure to Europe’s troubled banks and governments, Australia’s biggest issuers of bonds plan to step up their marketing efforts in a meeting with key US fund managers this week. In the first co-ordinated roadshow of Australian credit market players,
Australian banks’ reliance on foreign funding has lead to the alarming situation whereby we (as a nation of households) have borrowed from the rest of the world to buy existing houses from each other at inflated prices. As I once said it makes me quite frustrated to even suggest that a fair portion of
Look, I know the Unconventional Economist has already covered Mr Dent’s visit to Australia and I have to agree with everything he said in that regard. But I feel the need to bring our reader’s attention to the hilarious debacle that was the “expert” Australian response to Mr Dent’s accusations as presented by Koshie on Sunrise yesterday morning. Craig James’s “expert” response: Australia’s population
Harry S Dent is a well known author and founder of HS Dent Investment Management, an investment firm based in Tampa, Florida. Dent writes a regular economic newsletter and has written seven books analysing demographic trends and their affect on the economy and asset markets. I first stumbled across Dent’s work early last year at my
Recent discussions about the CPI have brushed over a key change that occurred in the construction of the index in 1998. In its 13th Series the CPI became a pure price index utilising an acquisitions approach, rather than a cost-of-living index utilising an outlays approach. One feature of this change is that it removed land
The latest SQM research newsletter contains some more rays of sunshine for the property market. Figures released this week by SQM Research revealed that residential property listings have actually declined during the month of August 2011, coming to a total of 362,793 nationally. Falling by 14,522 listings since July 2011, total amount of stock on
The liberties available to the real estate industry over other purveyors of financial goods is a constant source of angst for me. The fact that a real estate agent is able to spruik to his or her hearts content about the virtues of the “never declining” housing market with impunity while your local bank teller has
All markets need a price floor, Australian housing is no different. Without entry level buyers the next level of the market struggles to move up the property ladder and as the churn rate of the market falls so do prices. In areas that are at the tail of the inelastic supply response house prices are
RPData’s latest newsletter is out and, as expected, is once again fairly bearish. Canberra is bucking the trend on the back of the public sector, everywhere else is struggling in degrees from a little to a whole lot. It must also be noted , because I find most people struggle with the idea, that a
My readers will know that I am bearish on housing and have been for over a year. In June 2010 while I was predicting the coming house price falls the media was busy providing real estate industry propaganda to the contrary. Now that there has been an obvious change in both sentiment and the market,
Last month, the Federal Reserve Bank of Richmond published a report, Foreign Housing Finance, which highlights a number of problems with the US mortgage financing system and proposes a number of reforms based largely on the financing systems employed in other developed nations. While the entire report is interesting, the below chart, in particular, grabbed my
Well it looks like housing finally got some good news yesterday with a bit of a Queensland driven rise in housing finance. This was a predicted event. I had this to say back in July: I am actually expecting to see a bit of an uptick in median values in July as people bring forward their property transactions to
You know the housing market has taken a turn for the worse when industry groups renowned for ‘taking-up’ the housing market change track and start conditioning sellers to lower their price expectations in order to promote sales. A reader, last week sent me the below email report from Ray White, which I think you will
Don Brash, leader of the New Zealand ACT Party and former governor of the Reserve Bank of New Zealand (1988 to 2002), has delivered some stirring speeches recently lamenting the declining level of housing affordability in New Zealand. On 25 August, Dr Brash gave a speech in which he noted the role played by regulatory
Please find below a guest post by fellow blogger, Cameron Murray. We are pleased to announce that Cam will be joining the MacroBusiness team later in the week. While the RBA has warned of the risks of leveraging into the housing market on national television, they, and other analysts, have also presented a stable picture
Ever since Corelogic took over RPData in January I have noticed that the company’s outlook for property has slowly become more subdued and, in my opinion, more realistic. I am a unsure whether this is the influence of the new US owners, who would be well aware of the risks associated with overexuberance in both the
I note today that Australia’s favourite bullhawk, Chris Joye, has claimed that if: …the RBA starts cutting rates, I would be bullish on housing. Unlike almost any other housing market in the world, Australia is unique insofar around 90% of all mortgage debt is purely adjustable-rate and priced off the RBA’s target cash rate
As noted earlier by Data Sword, the latest RPData index was out today and as usual he has done an excellent job in the analysis. The press release is also out (available below) and as usual I like to provide a bit of analysis outside the data. The results certainly shouldn’t come as a surprise
It will come as no surprise to regular MB readers that Australian house prices continued to slide in July, according to the latest RP Data-Rismark house price index. On a seasonally adjusted basis prices fell 0.6% in July while the 0.2% June decline was revised lower to show a fall of 0.4%: The raw figures
Remember this chart? It is taken from page 15 of the RBA Research Discussion Paper: Asset Prices, Credit Growth, Monetary and Other Policies: An Australian Case Study, released in September 2010. As you can see, the RBA chart shows a nationwide dwelling price-to-income ratio of around 4.5. Senior RBA officials have quoted this ratio in
Since writing my first article in April warning of the precarious outlook facing the Melbourne housing market, Melbourne home prices have softened, falling by 2.0% in the 12 months to June according to the most recent RP Data release: Although the median annual fall of 2.0% appears moderate in light of the huge run-up in
RBA Governor, Glenn Stevens, continues to provide mixed messages on whether he believes Australian housing is unaffordable. In March last year, Mr Stevens lamented the fact that the high cost of housing in Sydney is making it increasingly difficult for his children to afford their own home: THE man who dictates official interest rates fears
Last week Louis Christopher from SQM research, otherwise known as black dragon, made it very clear about his expectations for the Australian Real estate market over the coming months: …. but by the fact that most of us here in Australia are worried about our debt, and, as the Reserve Bank of Australia has reported,
