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.

10

Regional property boom a COVID blip?

Since the COVID-19 pandemic began, there has been lots of discussion claiming that Australians are fleeing from capital cities to the regions, which is helping to fuel the region’s rapid price growth. For example, the Australian Bureau of Statistics’ (ABS) latest internal migration data shows that Australia’s capital cities lost around 22,000 residents over the

6

Auction market gets winter chill

CoreLogic released its final auction report for last weekend, with the final clearance rate to 77.0% from 77.0% the prior weekend. It was the lowest final auction clearance rate recorded in 2021. The result came off the year’s fifth strongest auction volumes (2,834). As usual, Sydney led the market recording a final clearance rate of

7

Saul Eslake: Morrison mortgage reforms “crazy”

More than 33,000 Australians and 125 community groups recently signed an open letter against the Morrison Government’s legislation to abolish responsible lending laws, which are currently sitting in limbo in the Senate. As we know, the Hayne Banking Royal Commission’s very first recommendation was to maintain these responsible lending laws, which came after observing multiple

5

Are property investors really “back”?

Earlier this month I wrote an article entitled “Investors storm back into property market” which cited NAB survey data and ABS mortgage statistics showing that investors are rapidly increasing demand for Australian property. My one disclaimer was that the value of investor mortgage commitments was still running 22% below its 2015 peak, suggesting that the pick-up

10

SMSFs leverage into property bonfire

Back in 2016, David Murray –  the chairman of the Financial System Inquiry (FSI) – recommended self-managed superannuation funds (SMSFs) be banned from borrowing to invest because of risks to the financial system: “Superannuation funds should not be leveraged, including SMSFs, because leverage magnifies risk. If the system is unleveraged, then if asset prices rise,

38

Highrise Harry versus Australia

Say what you like about Highrise Harry but he’s a survivor. With Chinese immigration via students and tourists doomed, with the exodus to regional areas as ‘work from home’ embeds, with apartments on the nose worldwide as social distancing becomes the norm, he sees a new apartment boom: People want to move closer in, says

3

Regional property rents are soaring

CoreLogic’s head of research, Eliza Owen, has released research showing that regional property rents are growing at triple the rate of capital cities, soaring 9.6% in the year to April 2021: The next chart shows the growth in rents at the state and capital city levels. As you can see, regional rents are stronger across

4

Auction market softens on higher volumes

CoreLogic’s preliminary report on the weekend’s auctions reported a slightly lower clearance rate on another big weekend of high volumes. The national preliminary clearance rate fell to 78.2% from 79.0% the prior weekend. This was off 2,845 auctions, down slightly from the prior weekend’s 2892 (which was the third biggest weekend of auctions in 2021).

4

Final auction clearances fade some more

CoreLogic released its final auction report for last weekend, with the final clearance rate falling slightly to 77.0% from 77.2% the prior weekend. This was off the year’s third strongest auction volumes (2,905). As usual, Sydney led the market recording a final clearance rate of 78.9% (down from 81.4%), whereas Melbourne’s final clearance rate rose

25

One Nation blocks Frydenberg’s irresponsible lending reforms

As we know, the Hayne Banking Royal Commission’s first recommendation was to maintain responsible lending laws: The Hayne Royal Commission came to this recommendation after observing multiple cases of predatory lending over its 12 month deliberation. Despite this recommendation, Treasurer Josh Frydenberg is currently seeking to abolish responsible lending laws following pressure from the banking

4

The biggest problem with Victoria’s stamp duty hike

The Grattan Institute’s household finances program director, Brendan Coates, has taken aim at the Victorian Government’s stamp duty increase for property transactions above $2 million. Under this change, stamp duty will increase to $110,000 plus 6.5% for every dollar above $2 million. This is up from the 5.5% rate that currently applies to all properties

21

Property indicators signal cooling market

A bunch of leading indicators have been released suggesting the Australia’s red hot property market may soon run out of steam. First, the latest REA Insights report shows that weekly for sale searches have fallen sharply from their March peak across every market: Email enquiry to agents has also fallen sharply from recent peaks: Non-investors

19

New buyers face rising mortgage stress

RateCity has released interesting data via Domain showing how new mortgage buyers are facing growing rates of mortgage stress, especially across Sydney and Melbourne. According to RateCity, the median buyer in Sydney needs to earn around $186,500 with a 20% deposit to avoid ‘mortgage stress’ – defined as spending more than 30% of a household’s

8

Stockland cries wolf on housing shortages

Unbelievably, Australia’s largest listed developer, Stockland, has warned of imminent housing shortages despite negative net overseas migration, the lowest population growth in generations, and record rates of homebuilding: The head of Australia’s largest residential property developer, in the final month of his eight and a half year tenure, has warned that policymakers will have to

2

Auction clearances stay strong despite high volumes

CoreLogic’s preliminary report on the weekend’s auctions reported a slightly higher clearance rate on the third biggest auction volumes of the year. The national preliminary clearance rate rose to 79.0% from 78.6% the prior weekend. This was off a whopping 2,892 auctions, down slightly from the prior weekend’s 3,033 (which was the second biggest weekend