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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Rents going nowhere fast

Last week, in The boys who cried rents, I showed how the private sector housing data providers’ perennial bullish predictions of strong rental growth across Australia’s capital city housing markets is at odds with recent data, which has shown sluggish rental growth nationally since early 2009 (see below RP Data chart). Chief amongst the forecasters

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Repossessions rising

In the last Financial Stability Review, the RBA had this to say about the rate of housing repossessions  in Australia: Rates of mortgagees’ applications for property possession generally declined in the second half of 2010; for the year as a whole, these rates were below those seen in recent years. The exception was south-east Queensland (comparable

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Residex responds (Updated)

Yesterday I posted on what seemed to be a very large turn around in sentiment from John Edwards the CEO of Residex. I also noted that there were some discrepancies between his claimed length of tenure in two of his own articles, and I also thought Mr Edwards was doing a bit of his own jawboning

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A new bullhawkian argument

Today’s bullhawkian charge cannot go without a prod. According to Chris Joye writing in Smart Company: There is mounting evidence to suggest that Australia’s housing market rests at a critical juncture…In my opinion, the near-term destiny of Australia’s housing market very much depends on next week’s second-quarter inflation numbers. If inflation is low, the RBA

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Death of a gecko

The effects of the slowing rate of credit issuance (disleveraging) continue to seep into the broader economy. With sales volume charts like this in Queensland it really was a matter of time before something had to give. It therefore shouldn’t really surprise anyone that the Queensland Real estate industry is in for a tough time

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Bulls at sea in falling market

As we recorded at the time, it was two months ago that Residex CEO, John Edwards, had the following to say on the falls in Australian house prices: I have been researching the housing markets for more than 21 years and I am sensitive to ensuring we have a properly informed market. Because of this,

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The boys who cried rents

Economic forecasting – whether in relation to housing, currency, interest rates, or other markets – is tough. The world of economics and finance is very complex and predictions within a reasonable degree of confidence and accuracy 12 months hence are hard. Yet, the media continually publishes predictions by the nation’s economists and data analysts as

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A flood of spruiking for Queensland

After a week being disconnected from the outside world I have returned to Queensland to find that the real estate pushers have turned their attention to the January floods. Let’s start with Terry Ryder in the Australian. Brisbane’s housing price performance is among the worst of the capital cities. It is also, from another perspective, the

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Attack of the housing “pessimists”!

Not that we needed another survey to tell us, but the Melbourne Institute Westpac quarterly Consumer House Price Expectations Index is sinking. According to the index, a majority of the house-loving Australian population remains convinced that price rises are ahead. But the number of realists (strangely, Westpac refers to them as “pessimists”!) is rising fast:

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Property insiders losing faith

Typically, I don’t take much notice of the NAB quarterly property survey. It’s packed with industry representatives and as such risks reflecting the cognative biases so obvious across the industry. However, for the same reason, it is surely significant that the June quarter survey has printed a negative result, with even the property industry itself

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Not in my backyard

In 2002, the Victorian Labor Government launched Melbourne 2030 – a strategic planning policy framework for greater Melbourne aimed at reducing urban sprawl and car dependence by shifting new housing development away from Melbourne’s fringe (“greenfield development”) towards pre-existing urban areas (‘brownfield development’), where public transport is already established. Central to Melbourne 2030 was: the

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Melbourne leads supply glut

Following on from today’s post, Avoid Melbourne housing, SQM Research has just released its latest weekly newsletter  again showing Melbourne as the epicentre of the nation’s housing supply glut. According to SQM, Melbourne’s stock on market has increased a whopping 47% since June 2010 (see below table). The only ‘good’ news coming out of the newsletter is

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RMBS mortgage arrears rise 25%

Just in, arrears on Australian prime residential mortgage-backed securities (RMBS) rose by 25% in the March quarter and are approaching their historical high reached in January 2009. From The Adviser (via aushousingcrash): Loans underlying Australian prime residential mortgage-backed securities that are greater-than-30 days in arrears jumped to 1.81 per cent in March 2011, from 1.44

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AFG’s LVR revisions

As my readers would know I try to follow AFG’s loan reports every month. They claim to be a good leading indicator for the ABS data that doesn’t appear until 6 weeks later. I have however had a long term issue with their LVR data because it made absolutely no sense.  I posted about this

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Local bulls vs foreign bears

On Friday, Bloomberg published an article entitled Australia’s home price plunge pits local bank bulls against foreign bears. The article nicely summarises the conflicting views about the Australian residential property market, with foreigner’s pessimism largely tempered by the local bank economist’s rose coloured outlook: Australian home prices in 2011 have fallen the most in three

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RPData – May analysis

As Data Sword posted yesterday the latest RPData report is out. I am running a little behind on this, but as usual I like to do a bit of analysis of the media release to find things that you won’t see reported in the MSM Capital city dwelling values declined by 0.3 per cent (seasonally

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RPData Index – Charted

The monthly RP Data – Rismark House Price Index was released this morning for May with the raw data showing a fall of 0.5% after last month’s fall of 0.1% was revised to -0.3%. In seasonal adjusted terms the fall in May was 0.3% after last months 0.3% was revised to a fall of 0.4%.

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Future funding housing

From the Age this morning. The Future Fund has gone into partnership with a land developer to buy and develop greenfield sites on the outskirts of the major cities. West Australian-based property developer Peet Limited yesterday announced a partnership to buy land in areas of projected population growth and develop master-planned communities. The arrangement is

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Myth: Tight rental market boosts home prices

Fellow econblogger, Cameron Murray, has written a thought provoking post on his Blog about the link between tight rental vacancy rates and home prices. Cameron’s post has been re-produced below for your reading pleasure. A common housing market myth is that low vacancy rates lead to rent increases, which lead to price increases (or at the very

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Forecasting error

BIS Shrapnel are never afraid of making a bullish property forecast. In July last year, near the peak of the last housing cycle, BIS chief, Frank Gelber, made the following bold prediction on the future direction of house prices in Australia [my emphasis]: Frank Gelber gave members at a Real Estate Institute of Victoria lunch

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Spruikalicious

Once in a while a real estate article gets published in the mainstream media that is so bad that it just has to be dissected.  Mark Armstrong, an independent [sic] property analyst, adviser and director of Armstrong Property Planning, published one such article yesterday in Fairfax, entitled Bold investors buy in a softer market. Here

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A small step of declaration

My long term readers would be aware that one of my pet hates is that members of the real estate industry do not have the same legal declaration requirements as other traders of financial wares. Your local bank teller has to declare far more when you open a new bank account than a real estate

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RPData reports no change

RPData has put out their latest newsletter today and once again it isn’t great news for the housing market. The RP Data-Rismark Home Value Index results for May 2011 will be released next week and there is little evidence to suggest that there will be any significant change to market conditions with values likely to

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The battle rages on

The battle for the hearts and mind of who’s telling the truth about housing prices in Australia rages on. In the latest installment SQM research’s Louis Christopher has returned serve to Michael Matusik via SQM’s newsletter. I have talked Mr Matusik previously, he is a housing bull , turned bear, who now seems to flip-flop between