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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CoreLogic weekly house price update: Frothing

In the week ended 19 December 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.38%: The rise in values was fairly broad-based, but again driven by Sydney and Melbourne: So far in December, dwelling values have risen by 0.92%, again driven by Sydney and Melbourne:

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CoreLogic: House prices to slow in 2020

Via CoreLogic comes the 2020 outlook for property: Housing prices are likely to trend higher through the year. At a broad level, we expect dwelling values to trend higher in 2020, however at a reduced pace of growth relative to the second half of 2019. Factors that will propel values higher include the stimulatory effect

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ANZ: Construction bust to trigger housing shortages

ANZ forecasts that Melbourne and Sydney are facing housing shortages as dwelling construction plummets amid ongoing strong population growth: ANZ analysis said that there is little sign so far that higher prices for established homes are driving a pick-up in construction… According to senior economist Felicity Emmett, the decline in approvals suggests that construction will

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Millennial inferno: Tiny homes trailor trash bushfire risk

I honestly don’t know how Millennials don’t burst spontaeously into flames of rage, via Domain: With properties hidden away off the grid in remote locations, popular travel startups based out of tiny houses are keeping a careful eye on bushfires. Startups including Unyoked and Shacky advertise themselves as enabling users to get “easy access to the

11

Sydney’s rental vacancy rate launches

SQM Research has released its rental vacancy data for November, which registered a 0.1% rise over the month but a 0.1% fall over the year: As shown above, Sydney now has the highest vacancy rate in the nation followed by Darwin, which helps to explain their significant rental falls: According to SQM Managing Director, Louis

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Housing finance surged 2% in October

The ABS has released a new housing finance series that replaces the old format. Therefore, this month’s report will not include the usual flashy charts, as these will need to be calibrated for the new data sets. Instead, below are charts and commentary directly from the ABS. Commentary: New loan commitments for housing rose by

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‘Big Australia’ immigration means you pay more for less

South-East Queensland (SEQ) lot sizes are projected to shrink as the region welcomes an additional 2 million residents over the next 20-years – equivalent of adding a Perth to the existing population: As south-east Queensland prepares to welcome almost 2 million new residents in the next 20 years, the region’s lot sizes continue to shrink.

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SQM: House price boom won’t save economy

In an interview with CNBC, SQM Research’s managing director, Louis Christopher, claims that Australia’s authorities are hoping the rise in Australian dwelling values will feed through to greater confidence in the economy. However, Christopher has “serious questions” about that view because the housing recovery is not creating more jobs. Instead, unemployment is set to rise,

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Auction clearance rate slides into the 60s

Auction clearance rates retraced over the weekend, with the preliminary rate nationally falling to 69.2% from 74.5% last weekend: However, the nation auction clearance rate was still way above the 41.0% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 73.6%, down from 78.1% last weekend, but way above the 41.3% recorded

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IMF warns on Australian property bubble

Via the IMF today: A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to

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Mirabile dictu: Perth rental market tightens!

The Real Estate Institute of Western Australia (REIWA) has released its rental data for the September quarter, which reveals that Perth’s rental market has tightened, with the vacancy rate falling to 2.5%: This is yet to translate meaningfully into rents, however, which remained flat over the past three quarters; although they have risen $10 for

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Flammable cladding crisis halts building projects

Back in June, the Australian Institute of Building Surveyors (AIBS) released a member communique warning that “the situation around Professional Indemnity (PI) Insurance has reached crisis point” with “a real possibility that without government intervention… private building surveyors may be forced out of work and the construction industry across Australia will be significantly impacted”. The

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CoreLogic’s daily property index validated by ABS

Last month, Martin North and John Adams challenged the credibility of the various private sector property indices, which were reporting strong rebounds in property values, claiming “the establishment has sought to kill the counter narrative that the market is falling”. I brushed off their claims at the time and said that “we’ll get confirmation when

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CoreLogic weekly house price update: More boom

In the week ended 12 December 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.32%: The rise in values was broad-based, but again driven by Sydney and Melbourne: So far in December, dwelling values have risen by 0.54%, again driven by Sydney and Melbourne: Quarterly

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Deluge of lenders offer tax-payer backed sub-prime mortgages

Vai The Advisor: Twenty-six additional lenders have been appointed to the initial panel of the government’s First Home Loan Deposit Scheme, including major bank, Commonwealth Bank. The National Housing Finance and Investment Corporation (NHFIC) has announced its full panel of lenders taking part in the federal government’s First Home Loan Deposit Scheme (FHLDS). Following on

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Final auction clearance rate holds above 70%

Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 3.4% decline in the final national auction clearance rate to 71.1% – well above the same weekend last year (41.0%) but below last week’s 73.6%: As you can see, Sydney’s

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Australia’s housing shrinkflation worsens

During the peak of the last housing cycle in 2017, MB coined the phrase “shrinkflation” to describe the peculiar situation whereby housing prices rise strongly alongside crashing sales volumes. Australia’s housing market is experiencing another round of shrinkflation with dwelling values surging at the same time as turnover remains anaemic. The latest evidence comes from

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Can auction clearance rates be trusted?

Martin North from Digital Finance Analytics talks mortgage statistics with FreshCanvas. They argue that auction clearance rates can be manipulated and of questionable reliability. My view is that CoreLogic’s series, whose sample is much more robust than Domain’s, is the best short-term indicator for house prices. And this is reflected in the strong correlation between

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As Sydney’s house prices boom, rents bust

The latest quarterly dwelling price results for Sydney shows that values are rising at around 6.4%, which is equivalent to the peaks experienced during the 2015 and 2017 booms: Indeed, since bottoming in May 2019, Sydney dwelling values have surged by around 8.5%. While Sydney’s dwelling values are booming, the same cannot be said for

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Mass immigration drives huge shortage of affordable homes

The Australian Housing & Urban Research Institute (AHURI) has warned that the shortage of affordable rental housing has risen since 2011 and will continue to worsen in coming years. The AHURI estimates that the shortage of affordable homes for the lowest 20 per cent of income earners now tops 212,000. The lead researcher, Swinburne University’s

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The death of the Aussie backyard

One of the most profound changes affecting the Australian economy and society this century has been the massive lift in Australia’s net overseas migration (NOM) and population growth under the multi-partisan Big Australia policy. This rapid population growth is projected to continue for decades to come, if current policy settings favouring high immigration continue. The

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Australia’s housing valuation lifts

The ABS yesterday released its property price data for the September quarter, which valued Australia’s dwelling stock owned by households at $6.56 trillion, whereas the total housing stock was valued at $6.87 trillion. As shown below, the total value of Australia’s dwelling stock owned by households was 7.10 times employee incomes as at September, up

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ABS: Property prices surged 2.4% in Q3

The ABS has released its property price index – incorporating both detached houses and units – which registered a 2.4% rise in home values nationally over the September, driven by big gains (3.6% respectively) in Sydney and Melbourne: The other capitals were a mixed bag, with Brisbane (+0.7%) and Hobart (+1.3%) recording rises and Adelaide

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Urban infill utopia is baking our cities under concrete

For years, the development industry and urban planners have called for Australia’s supposedly underutilised middle-ring suburbs to be bulldozed for apartments and townhouses in order to house the many millions of extra migrants projected to inundate our cities over coming decades: This transformation into a dense urban form is to be most stark in Sydney,

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Auction clearances hold in the 70s

Auction clearance rates retraced over the weekend, with the preliminary rate nationally falling to 74.5% from 78.9% last weekend: However, auction clearances were still way above the 41.0% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 78.1%, down from 84.7% last weekend, but way above the 41.3% recorded in the same

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Auction market picks up steam

Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 5.3% decline in the final national auction clearance rate to 73.6% – well above the same weekend last year (41.3%) and well above last week’s 68.5%: As you can see,

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CoreLogic weekly house price update: Bubbling

In the week ended 5 December 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.41%: The rise in values was broad-based, but again driven by Sydney and Melbourne: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are rocketing: The

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Thousands more apartments wrapped in flammable cladding

Australia’s flammable cladding fiasco has just mushroomed with “biowood” also being declared unsafe, and apartment owners now facing millions of dollars in costs to have the cladding replaced: Thousands of apartment owners across Australia who thought they were safe from potentially deadly cladding fires now face millions of dollars in bills to remove and replace

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HEM date with destiny set

Via the AFR: The Federal Court has set a date for the appeal against the “Wagyu and shiraz” judgment, however the regulator will be meeting a different adversary than the one it faced off against in the first half of 2019. The Australian Securities and Investments Commission will front up to a full bench of Federal

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Property listings surged in November

SQM Research has released its Stock on Market figures for November, which revealed a big 6.3% jump in for sale listings over the month, although listings were still 6.3% lower than the same month last year: As you can see, the rise in listings in November was broad-based, with everywhere rising except for Darwin. Likewise,