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.


Rents continue to flat-line

Back in August I noted how the property boosters have shifted from talking-up the prospect of rising house prices to forecasting sharply rising rents: …price stagnation… has created a headache for the property industry. With prices now expected to flat line and rental yields well below both mortgage interest rates and term deposit rates, there is reduced


No Refund

As I noted last week Bank of Queensland is showing signs of stress in its loan book, on top of that RPData has recently released data that there is growing stress on real estate agents due to sharp falls in housing transactions. Put these two together and it probably shouldn’t be too much of a surprise


Why agents are nervous

I think most people would appreciate that the Australian property market is struggling at the moment. In most cities house prices are falling and the stock on market is high by historical standards. It seems fairly intuitive from these two observations that housing sales volumes would also be down. As I have posted on previously market turn


The RBA is wrong on housing

Yesterday’s speech by the RBA’s Luci Ellis had some high points.  Her reference to rent-seeking behaviour in the property and finance industries was a pleasure to read.  I hope this reflects likely future efforts for more scrutiny of the industry by the RBA. It was disappointing, if not unexpected, that Ellis continued to repeat the


“Renovation” on the chopping Block

Back in August, just after Channel 9’s “The Block” turned out to be a flop, MacroBusiness hosted a post by Christine Kenneally in which she said: But last night The Block unintentionally revealed on national TV that property-as-pathology is over. In a private auction where bidders had to pre-register (and were sworn to silence for 24


Refinancing boom

ABS Housing Finance Commitments is out for August and there’s a big move on. Here’s the state by state chart for total value of new loans: As we’ve noted many times, housing finance moves in lock step with price rises so surely prices are about to rocket in Sydney and Melbourne! Well…no. And here’s why:


RPData on August

The latest RPData video came out last week with an overview of the market using their August data. If you don’t want to watch the entire 17 minutes but are interested in a particular market Sydney is @3:50, Melbourne @5:35, Brisbane @7:42, Adelaide @9:40, Perth @10:55 , Darwin @12:25, Canberra @13:20 and Hobart @14:30. The


Housing stock on market up in September

Apologies readers. Although we put up a Chart of the day on Friday containing SQM research’s stock on market data we neglected to provide a broader post on the rest of the data. Please find SQM’s latest newsletter  below. Figures released this week by property research house SQM Research revealed that residential property listings have increased


RBA responds to housing concerns

The RBA has responded to my questions about their housing research paper released earlier this week.  In particular, their use of real per sqm rents in their housing model, but their use of house price in their empirical investigation. Sharon, the RBA’s public relations officer, offered a very brief response: While I cannot respond in


The RBA’s dodgy housing model

RBA researchers released a paper yesterday modelling urban structure and house prices under conditions of population growth, zoning controls, and the provision of transport infrastructure.  They use an Alonso-Muth-Mills model to demonstrate typical location, density and rent effects of housing in a mono-centric single land use disk-shaped model of a city (in fact their geographical


I’m giving up on AFG

My long term readers will be aware that I have followed the loan issuance data from AFG since I started blogging. Over time I have noticed quite a few problems with their reporting and data, most notably a large revision in LVR calculations that went completely unmentioned by AFG themselves. Over the last few months I have


More dour news from R.P.Data

Just some additional information that was released today by RPData but wasn’t in their media release. Stock on market looks to be heading back up again: Across the combined capital cities the current volume of property listings is 36.9% higher than at the same time last year, while new listings are just 2.1% higher than


The not so slow melt of housing

Further to the charts posted earlier today on the latest RP Data-Riskmark house price indices for August, something I have been following is the comparison between the current pace of house price declines in Australia to the slide we experienced during the GFC and the fall in prices experienced in the US. As you can


Housing’s steady melt continues

The monthly RPData stats are out today and the slow melt continues. The value of homes overall fell 0.4 per cent during August. Perth down 2 per cent, Canberra down 1.8 per cent, Adelaide down 0.6, Melbourne and Brisbane down 0.2 per cent, Sydney flat, Darwin up 0.2. Charts below. From Bloomberg Australian home values fell


Mortgage delinquencies by postcode

Moody’s has produced its annual report into Australian mortgage arrears. Below is their findings. Below that find the reports themselves, including a list of the 300 most delinquent post codes. For a bit of fun you can surf around and compare the newspaper reports that have reproduced the press release with…ahem…very little alteration. These are


Sinking into negative equity

The spectre of negative equity is creeping across the Australian housing market. According to RP Data’s first Equity Report (below) Queensland leads the way with 6.3 per cent of homes in negative equity, while the Australian average sits at 3.7 per cent. On the good side 41.3 per cent of homes in Queensland are more than


Sydney housing ripples

Sydney is different. Since 2003 rents have risen faster than prices. I imagine the rest of the country would find that hard to believe, given their experience. But this is just one piece of evidence to show that the property cycles in Australian cities are non-synchronous. The past 25 years data shows that the Sydney


Abolishing stamp duty

Last week, Treasury Secretary, Dr Martin Parkinson made a convincing case for why state stamp duties should be abolished: Treasury boss Martin Parkinson has backed a move to wind back or abolish real estate stamp duties saying they make it hard for workers to move west and north to take advantage of the mining boom.


Real estate agent hysteria

A few weeks back, I published a post highlighting how real estate agents seem to have turned from ‘talking-up’ the housing market to ‘talking it down’ in order to boost sales. I provided some recent email reports from a Ray White real estate agent that set a new benchmark for bearishness. Well, today I want


RMBS arrears stabilising

The latest Fitch Rating fair dinkum report is out in what looks to be a few more streams of sunlight for the economy. Arrears on RMBS are still high by historic standards, but flat interest rates look to be providing some stability. Fitch Ratings said that the decision by the Reserve Bank of Australia (RBA)


Home buyer confidence etc.

I was going to ignore today’s Genworth Home Buyer Confidence Survey. I saw the press release this morning and it was so loaded with positive spin that I didn’t think it credible enough to report upon. However, I’ve noticed that both Bloomberg and Fairfax are now running the release so I thought I’d better take


WA first home owner’s grant revealed

Back in March one of MacroBusiness’s gold star recipients, Saul Eslake, penned a stinging review of first home buyers grant schemes in the Sydney Morning Herald: It’s hard to think of any government policy that has been pursued for so long, in the face of such incontrovertible evidence that it doesn’t work, than the policy


Look to Texas to solve Australian housing supply

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


The housing production line

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


Politico-housing complex goes on tour

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,