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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Auction clearances strong in face of lockdowns

With both Sydney and Melbourne in hard lockdown this weekend, I was expecting the nation’s auction clearance rate to take a heavy hit. Not so, with CoreLogic recording a preliminary national clearance rate of 76.3%, basically the same as last weekend’s 76.4%. Sydney’s preliminary clearance rate firmed to 77.1% from the prior weekend’s 76.5%, whereas

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Property affordability June 2021 update

Australian property market prices continued to climb over the last month, with the past six months seeing some of the strongest growth on record. Mortgage interest rates edged higher as the Reserve Bank of Australia ended its Term Funding Facility. There are some extraordinary divergences in affordability. It has never been cheaper in some markets

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Auction market solid despite lockdowns

The auction market has largely swept aside Sydney’s lockdown, with the final national clearance rate rising to 73.7% from 72.1% the prior weekend off similar volumes (2,104 versus 2,168 the prior weekend). As shown in the next table, Sydney’s final clearance rate rose to 74.3% from 70.5% the prior weekend. This was off 650 auctions

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A detailed look at Australian dwelling construction

Yesterday, the Australian Bureau of Statistics (ABS) released dwelling construction data for the March quarter, which showed that detached house commencements hit the highest level on record over the quarter, whereas unit commencements fell to a nine-year low: By contrast, actual dwelling completions remained depressed over the quarter, suggesting the pipeline of construction is well

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One-third of Aussie properties cheaper to buy than rent

CoreLogic has released a new report showing that it is cheaper to service a mortgage than rent across one-third of the nation’s properties, with New South Wales and Victoria primarily responsible for warping the results: CoreLogic analysis suggests servicing a mortgage is now cheaper than paying rent on 36.2% of Australian properties, which is higher

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I’m shocked! Shocked! Developers hate Victoria’s zoning windfall tax

May’s Victorian Budget implemented a new windfall gains tax for properties whose value is boosted by a council rezoning. This tax will apply to properties where the value is boosted by more than $100,000, with a 50% tax on windfalls above $500,000. The clearest indication that this windfall tax is good policy has come from

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Forget vaccines. House prices cure COVID!

That’s the message from today’s Westpac consumer sentiment release: • The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 1.5% to 108.8 in July from 107.2 in June. The survey was conducted over the week of July 5–9, during the lock-down in Sydney and restrictions in regional NSW but before the tightening of restrictions announced

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MB Subscriber Report: 1H 2021 Australian Property Outlook

Below is the first in a new monthly routine of special reports that will be provided exclusively to MacroBusiness subscribers. The Australian economy’s better than expected recovery, driven by unprecedented fiscal and monetary support, has delivered the biggest and broadest property price boom for generations. All five major capital city markets have experienced astonishing rebounds

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Sydney lockdown tanks auction market

The auction market has been hit hard by Sydney’s lockdown, with the final national clearance rate falling to 72.1% from 75.4% the prior weekend off a big decline in auction volumes (2,168 versus 2,960 the prior weekend). As shown in the next table, Sydney’s final clearance rate fell to 70.5% from 77.5% the prior weekend

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Australia’s property market unfazed by lockdowns

CoreLogic’s head of research, Eliza Owen, has published new research looking at the impact of lockdowns on Australia’s property market. Owen finds that while transaction volumes were temporarily hit, there was a strong catch-up period. Moreover, prices were resistant to the lockdowns: Auctions Longer social distancing periods had far lower average auction volumes… More properties

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Phil Lowe: RBA won’t raise rates to cool housing

In the Q&A to yesterday’s speech to the Economic Society of Australia, RBA governor Phil Lowe hosed down speculation that interest rates would be lifted to cool the property market: “I sometimes read commentary that we’ll raise interest rates to choke-off housing prices. And with housing prices rising quickly, the Reserve Bank will raise interest

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CoreLogic weekly house price update: rinse and repeat

In the week ended 8 July, the CoreLogic daily dwelling values index surged another 0.44%: All major markets recorded rising values: Quarterly price growth remains turbo-charged at 6.26% across the five major capitals. Sydney (8.31%) continues to lead the way, followed by Brisbane (6.20%), Adelaide (5.74%), Melbourne (4.66%) and Perth (2.09%): So far in 2021,

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Melbourne now cheaper to rent than Hobart

The collapse of international migration and the exodus of Melburnians to greener pastures has driven house rents in Australia’s second biggest city to the equal lowest in the nation, according to Domain’s latest rental report. As shown in the table below, the median asking Melbourne house rent is now only $430 per week. That’s unchanged

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Property listings shrink further in June

SQM Research has released its Stock on Market data for June, with total listings nationally down another 4.0% with all capitals but Darwin recording falls: Over the year, listings fell 21.6% nationally, again with all capital city markets but Darwin recording falls. New listings (<30 days) nationally fell by 9.1% in June: Whereas old listings

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Aussie property values up $70k during pandemic

CoreLogic has released data showing that the median Australian property has risen in value by a whopping $69,633 from their pre-COVID peak: As shown above, Canberra’s property values have risen the most ($122,711), followed by Hobart ($103,799) and Sydney ($97,932). The only two markets where home values remain below their pre-COVID highs are Western Australia

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Sydney lockdown whacks auction market

CoreLogic’s preliminary report on the weekend’s auctions reported a significantly lower clearance rate on the back of Sydney’s lockdown. The national preliminary clearance rate fell to 73.6% from 77.5% the prior weekend. This was off significantly lower auction volumes, which fell to 2,177 from the prior weekend’s 2,976. Sydney’s auction clearance rate fell to 71.6%

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Rental vacancies lowest on record

Domain has released its June Rental Vacancy Report, which has reported the lowest national vacancy rate on the company’s records at just 1.6%: According to Domain: All cities have returned to vacancy rates that are lower than pre-pandemic levels reported in February 2020, except Melbourne and Sydney. However, the number of empty rentals have reduced

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Sydney high-rise apartments riddled with defects

Buying a high-rise apartment has become a game of financial Russian Roulette. Over recent years we witnessed a proliferation of building faults and flammable cladding infernos at sites including Lacrosse, Neo200, Opal, Mascot, Zetland, Campsie, among others. In 2019, Four Corners aired a segment entitled Cracking Up, where building law expert Bronwyn Weir encapsulated the