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.
Yesterday was the first day of the inquiry into NSW building standards, which was set up last month after major faults appeared in apartment buildings such as Mascot Towers and Opal Tower. The inquiry heard tails of woe from owners of apartments in the Mascot Tower, who have been left destitute and facing potential bankruptcy.
CoreLogic’s August chart pack shows that the premium end of the market suffered the biggest declines in the year to July, but have also led the recovery over recent months: To add more colour, below is CoreLogic data examining price growth across the three broad market segments – bottom 25%, middle 50% and top 25%.
It’s all so predictable. Just months out from the prolific criminality exposed by the Hayne Royal Commission, the rentiers are back. Via the AFR: The founder of Aussie Home Loans, John Symond, says the housing market has turned a corner but both he and ANZ Banking chief Shayne Elliott believe that ‘over-regulation’ could threaten its
It’s partly seasonal but looks early and strong: Listings have finally bottomed too, around lowish levels: Full report.
In the video above, Martin North and property insider Edwin Almeida delve deeper into the high-rise apartment crisis, which they have previously claimed is a $1 trillion problem for Australia. In particular, North and Almeida discuss the collapse of developer Ralan and what the implications are for home buyers of off-the-plan buyers. Two months ago, Edwin Almeida
Some brouhaha around this in Denmark: Jyske Realkredit is ready with a fixed-rate mortgage with a nominal interest rate of minus 0.5%. Yes, you read right. You can now get a fixed-rate mortgage with a maturity of up to 10 years, where the nominal interest rate is negative. However, you are not exactly going to make money
In Friday’s testimony to the House of Representatives Standing Committee on Economics, Reserve Bank of Australia (RBA) governor, Phil Lowe, explicitly blamed mass immigration for fuelling the strong house price inflation experienced over the past decade: Chair: Since its peak in 2011, the cash rate has fallen from 4¾ per cent to 1½ per cent…
Could it be that hubris has overcome the ScoMo Government already? Via the AFR: The briefing, for MPs who entered Parliament in 2016 and 2019, was held when Parliament sat the week before last and was organised by Liberal MPs Tim Wilson, Jason Falinski and Andrew Bragg. It was designed to inform MPs from the
Auction clearance rates continue to strengthen, with the preliminary rate nationally rising above 70% and Sydney’s rising above 80%: As shown below, the preliminary national auction clearance rate rose to 70.4% versus 68.3% last weekend. Clearances were also way above the 54.9% recorded in the same weekend last year: Sydney’s preliminary clearance rate rose to
Hey, hey, Millennials, this is for you: Tiny homes are popular with millennials since their standard of living has collapsed. All thanks to insurmountable student loans, no savings, and gig-economy jobs that don’t pay the bills. Wzhgroup, a Chinese builder of container homes, has recently become a merchant on Amazon where they can ship a tiny, expandable container
From CoreLogic’s Cameron Kusher: Over the 12 months to June 2019, 12.5% of all houses and 8.0% of units sold nationally transacted for at least $1 million. The share of million dollar house sales was down from 14.7% a year earlier and was also well down from its peak of 15.0% of all sales in
Via New Daily now: It’s difficult to understate the importance of having a space to call your own. Somewhere to shut out the world and the stresses that come with it. A place to reflect and rebuild. It doesn’t need to be much. But without it, we can’t weave the fragments of our days into a
You may recall that some time ago I discussed REA as the ideal housing bust short. It half played out then rallied again post-election. But some chickens are home to roost today: The result was marred by a big write down: But that is not the problem. This is: A dubious outlook with EPS growth
Susan Lloyd-Hurwitz, the CEO of Australia’s largest apartment developer Mirvac, has demanded an urgent lift in building standards, labelling the crisis in defective units as “outrageous” and a “breach of faith”. From The SMH: “Of particular urgency currently is the need to raise building standards in Australia,” she said. Ms Lloyd-Hurwitz said it was “unacceptable”
Below are the latest charts, derived from CoreLogic data, plotting annual sales volumes across Australia’s capital cities to April 2019: Sydney (-46%), Melbourne (-38%), Brisbane (-30%), and Perth (-37%) are all down massively from their most recent peaks, whereas across the combined capitals sales are down 34%. In fact, the last time annual sales volumes
She’s probably Australia worst public policy sell out. And she’s earning her $600k plus, via Banking Day: The Australian Banking Association is preparing to push back against ASIC’s plan to make responsible lending guidelines more prescriptive, and will argue for the maintenance of the principles-based approach when the regulator holds public hearings on the issue
In the week ended 8 August 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, retraced by 0.05%: It was the first decline in four weeks. The fall in values was broad-based, with all major markets falling: The quarterly decline is running at 0.30%, with Melbourne and Sydney
Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic released its final auction results, which reported a 1.9% decline in the final national auction clearance rate to 66.4% – well above the same weekend last year (54.0%) but below last week’s 68.6%: As you can see, Sydney’s final auction
As we know, developer Ralan has collapsed, via The Australian: The collapse of the prolific east coast suburban apartment developer Ralan Group, headed by British-born William O’Dwyer, owing creditors at least half a billion dollars has highlighted the fragile state of the high-rise property market. …The private Ralan Group specialised in high rise developments with a
Via Martin North comes Chris Bates, mortgage broker: I am still concerned about this binary market of rising existing and falling new property. But I am even more concerned that Australian income is about to be demolished by a global shock. Outright recession risk is the highest I can remember. I can see the apartment
Yesterday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) began to rebound in June; albeit it was still down a hefty 18% over the year in trend terms, driven by an epic 26% crash in investor commitments, whereas owner-occupied commitments also fell by 15%: As regular readers
New research from Propertyology has advised owners of recently built apartments to consider cutting their losses and selling now before : The analysis from respected property market research firm Propertyology said unit owners who were patiently waiting for prices to rebound were playing Russian Roulette with their financial futures amid a looming apartment crisis. Propertyology
Today’s housing finance data for June from the Australian Bureau of Statistics (ABS) recorded a modest rebound in mortgage commitments: As shown above, total finance commitments (excluding refinancings) rose by 1.9% in June, with owner-occupied commitments rising 2.4% and investor commitments rising 0.5%. However, 0ver the year, total finance commitments (excluding refinancings) crashed by 17.6%, with investor
Last week we reported that the NSW Government had belatedly appointed a dedicated building commissioner to return integrity to the construction industry amid the proliferation of flammable cladding and structural faults across the apartment market. This commissioner is slated to “drive legislative reforms of the industry” and would be there to convince developers to “do the job
CoreLogic’s Cameron Kusher released interesting data tracking the real inflation-adjusted decline in Australian dwelling values across the major markets to June 2019. As shown in the below charts, both Darwin and Perth have experienced vicious housing downturns of 39.9% (Darwin) and 36.3% (Perth), with Darwin’s running for nine years and Perth’s 12.5 years: It is
SQM Research has released its stock on market report for July, which posted another 2.8% fall in listings over the month but a 0.7% increase in listings over the year: Listings fell across all markets over July, whereas over the year for sale listings rose everywhere except Sydney (-10.5%), Perth (-2.6%) and Darwin (-4.8%). Meanwhile,
From CoreLogic’s Cameron Kusher: Over the 28 days to 28 July 2019, CoreLogic was tracking 27,848 unique newly listed properties advertised for sale and 207,883 total properties listed for sale. New listings are properties not previously advertised for sale over the past six months and total listings is the sum of new and ongoing listings.
Roy Morgan Research has released its latest personal net wealth rankings, which show that Sydney and Melbourne have gone to the top on the back of soaring housing values: In the year to December 2007 just prior to the GFC the average net wealth (personal assets minus debt) per capita for Perth, was the highest
Via Martin North today: The DFA mortgage stress tracker to the end of July 2019 is released today. This is based on our rolling 52,000 household surveys and includes data up to the 31st July. More than 70,000 households risk default over the next 12 months. Despite the two RBA rate cuts, and the tax
The “tiny home’ phenomenon continues to get touted as a solution to Australia’s chronic housing affordability problems – not only for our youth, but also as a way to house the homeless: A tiny home village has been opened in Melbourne’s west for those who have experienced homelessness and need a permanent residence. The Harris
