Aussie Housing Market Collapses: Building Approvals Crash 25%

Tyler Durden's picture

Following September's 9.3% MoM plunge in Aussie home approvals, hopes were high that October would see a bounce (expectations were for a 2% gain) as central bankers jawboned confidence higher. However, it didn't... Building approvals collapsed 12.6% MoM and a shocking 24.9% year-over-year decline is equal to the worst drop since Lehman. Ironically, just this month Aussie Treasurer eased restrictions on foreign buyers (otherwise known as bag holders it would seem).

It's been weak year anyway but this is an utter disaster as the Aussie housing bubble finally pops... (on a non-seasonally-adjusted basis the year-over-year drop is 28% - the biggest since Nov 2008)

This is the lowest level of building approvals per capita in 2 years as it seems China's credit impulse has faded entirely.

The cracks have been showing with default rates on the rise (as AFR reports)

Mirvac said it experienced a rise in the default rate for the settlement of off-the-plan residential sales, above its historic average of 1 per cent.

On top of defaults, the Australian apartment markets – which boomed in the last four years – are facing other fresh risks...

On Friday, HSBC said an oversupply of apartments in Melbourne and Brisbane could send unit prices down by as much as 6 per cent in 2017.

 

The apartment building boom, an ongoing concern for the Reserve Bank of Australia, especially in inner city Melbourne is likely to "start showing through" in price drops of between 2 per cent and 6 per cent in that city next year, HSBC chief economist Paul Bloxham said in a note.

 

It's a similar story in Brisbane where apartment prices are forecast to fall by as much as 4 per cent.

 

"A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets," Mr Bloxham said.

"A modest shakeout in the inner-city apartment markets in Brisbane and Melbourne, as we are forecasting, is not expected to have a broad-based impact on the overall housing market or economy."

Which perhaps explains why Aussie Treasurer Scott Morrison said the government will make changes to the foreign investment framework to allow foreign buyers to buy an off-the-plan dwelling that another foreign buyer has failed to settle as a new dwelling.

The federal government has announced it will make it easier for foreigners to buy new apartments amid concerns of a looming glut that will drive down prices.

 

Previously, on-sale of a purchased off the plan apartment was regarded as a second hand sale, which is not open to foreign buyers. Foreign buyers can only buy new dwellings.

 

The move effectively opens up the pool of buyers who can soak a potential flood of apartments hitting the residential markets due to failed settlements.

Hoping for some of the capital taking flight from China to rush down, we are sure.

By way of reminder, here is David Llewellyn-Smith via Acting-Man.com, to explain why the Australian property bubble is on a scale like no other...

Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:

Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:

  •  the record run up in commodity prices and subsequent correction;
  •  the associated boom in mining investment and current reversal;
  •  record low bond yields;
  •  the boom in housing construction, specifically apartments, that was spurred by the low interest rates.

 

Housing indicators in the bubble meter are at record highs but interest rates remain at record lows. Typically monetary policy is well into tightening mode at this stage in the housing cycle. A destabilizing housing burst (both in activity and prices) is a clear risk, particularly the longer the upswing runs.

 

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The size of the Australian property bubble is old news. It’s extreme in valuation terms:

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Underpinned by world-beating household debt:

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And nose-bleed levels of foreign borrowing:

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What is less well understood is how such a large and sustained bubble has distorted the Australian political economy.  The bubble has been running for twenty years (which some argue proves it is no such thing) and every time it has been threatened it was saved by luck or a bailout which sold off a little more of Australia’s liberal democracy.

In 2003, the bubble first threatened to burst as the Reserve Bank raised interest rates. But the bubble was rescued by the combined forces of demand side fiscal stimulus for first home buyers in the form of large cash grants, and the arrival the Chinese commodity boom that flooded the economy with people and income. The government of the day learned its lesson and economic reform has been dead ever since!

In 2008, the bubble was jeopardised again when the pipeline of offshore debt froze solid and major Australian banks were rendered insolvent given they could not roll over their enormous foreign debts. The government of the day rode to their rescue with guarantees to all offshore funding, directly bought mortgage backed securities (which it still holds), unleashed the largest proportional fiscal stimulus in the world, doubled the first home buyer grants, opened the spigots on foreign investor buying, and other measures. Almost all of it violated existing financial sector architecture and governance and virtually none of it has been wound back. No housing market in the world enjoyed such wholesale and limitless support.

In 2011, the bubble again faltered when the China commodity boom returned and raised interest rates. But, when threatened, the bubble was bailed out, this time by a central bank that desperately cut interest rates to all-time lows because it had over-estimated the durability of the commodities boom, and an influx of Chinese capital that was allowed to price-out local buyers with barely a word of protest from regulatory authorities.

While those three saves of the bubble have been widely admired as solid Keynesian policy-making, and have allowed Australia to claim a “miracle” economic expansion of 25 years, they have also transformed its economy and political economy.

The Australian economy is now structurally uncompetitive as capital inflows persistently keep its currency too high, usually chasing land prices that ensure input costs are amazingly inflated as well. Unsurprisingly, Australian manufacturing’s share of outlook has collapsed to 5.8% of GDP (even before the exit of car manufacturing scheduled for the next 12 months) half that of the supposedly “hollowed out” US and UK economies, and on a par with the financial haven of Luxembourg. Wider tradables sectors have been hit hard as well and Australian exports are now a lousy 20% of GDP despite the largest mining boom in history.

The other major economic casualty has been multi-factor productivity. It has been virtually zero for fifteen years as capital was consistently and massively mis-allocated into unproductive assets. To grow at all today, the nation now runs chronic twin deficits with the current account at -4% and Budget deficit of -3% of GDP.

But the damage is in some ways even worse in the political economy. How have Australian authorities responded to this growing crisis? By egging it on.

Not only are they running unsustainable deficits into looming sovereign downgrades, they have sustained historically very high rates of immigration to attempt to back-fill and support property prices. These levels have been so aggressive in the major eastern cities, which are now projecting a near doubling of their populations within 40 years (from four-plus to eight million), that elections are now routinely won and lost on issues of choked infrastructure, and a vehemently anti-immigration movement is afoot in the polity. Younger generations are also boiling over with anger at being locked out of housing markets. A full half of first home buyers rely upon parents for equity and their numbers have collapsed to just 12% of total sales.

Five prime ministers in six years have come and gone as standards of living fall in part owing to massive immigration inappropriate to economic circumstances and other property-friendly policy. The most recent national election boiled down to a virtual referendum on real estate taxation subsidies. The victor, the conservative Coalition party, betrayed every market principle its possesses by mounting an extreme fear campaign against the Labor party’s proposal to remove negative gearing. This tax policy allows more than one million Australians to engage in a negative carry into property in the hope of capital gains. In a nation of just 24 million, 1.3 million Australians lose an average of $9k per annum on this strategy thanks to the tax break.

The campaign against tax reform was led by former head of Goldman Sachs Australia, Prime Minister Malcolm Turnbull, who is a large Australian property-holder, and Treasurer Scott Morrison, who is the former head of research at the Property Council of Australia, the nation’s leading realty lobby. Australia’s 225 politicians hold a combined property portfolio worth over $300m.

The property corruption has even undermined the nation’s strategic outlook. The large wave of Chinese immigrants and investors have been accompanied by a hard-edged soft power drive from Beijing that is sorely undermining Australia’s commitment to its traditional US alliance partner. Chinese bribery scandals have erupted in the parliament, usually from property-based sources, and have clearly perverted policy-making. So much so, that Australia’s defence and espionage agencies are in a rising panic that Australia is literally auctioning its strategic outlook to Chinese property speculators.

How could all of this happen without the media holding it to account? As the economy gets ever more reliant upon its great foreign-funded housing ponzi scheme, and the political economy wraps ever more tightly around it, Australian media has been engulfed as well. Aussie media is a duopoly divided between a conservative Murdoch press and liberal Fairfax press. But both are largely loss-making old media empires whose only major growth profit centres are the nation’s two largest real estate portals, realestate.com.au and Domain. Thus neither reports real estate with any objective other than the further inflation of prices. Indeed newspaper (print and online) operations are nothing more than loss-leaders for over-excited real estate eyeballs. In the event that the Australian bubble were to pop then Australians will certainly be the last to know and the propaganda is so thick that they may never find out until they actually try to sell!

Before the year 2000, the Australian economy was a vibrant mix of world-leading productivity growth, liberalised tradable sectors balanced between commodities, services and manufacturing, solid household wealth, a reasonable external position, a clean public balance sheet and reliable institutions.

Today, it is a wildly imbalanced propertocracy with enormous offshore debts, a polity soaked by a Goebbels-like property propaganda machine, and a government run by realty carpet-baggers willing to sell their children to Chinese communists so long long as they pick up a three bedroom apartment along with little Johnny.

In a world replete with bubbles, rarely has one been quite so complete!

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xythras's picture
xythras (not verified) Nov 29, 2016 9:54 PM

Meh

Mr.Sono's picture

I thought Canada has already popped?

847328_3527's picture

Capital controls and catching Looters are going to kill these overpriced RE markets.

But the Chinese immigrants are not Australia's biggest problem. Can you guess which group is?

JackT's picture

That's not a collapse...this is a collapse" - Crocodile Dundee

tarabel's picture

 

 

Raiding Maori pirates from Auckland?

Joyo Bliss's picture

"I thought Canada has already popped?"

Not yet, but close. I've been saying that since 2008, though.

I sold in 2015, and it's cheaper to rent than buy. The rate of return on buying is 3% or slightly less right now.

I was just checking rentals in downtown Toronto; a $1500 rental for a 1 bed costs $2075 if you were to buy and pay yourself 3% ror on the capital outlay. And you get to free up $470k in something less risky, like tulip bulbs.

I keep breaking leases to move - 10 mos, then 8 mos, as the freedom of not paying 5% re fee every time you want to move is seductive. Sorry, here's a months rent. Bye.

I have a new gf who lives downtown, so that's why I'm looking to move again - the 1 hr drive each way is a pain in the derrière.

Lore's picture

Re: "A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets...A modest shakeout in the inner-city apartment markets in Brisbane and Melbourne, as we are forecasting, is not expected to have a broad-based impact on the overall housing market or economy."

Sounds familiar, eh?  Big Canadian cities like Toronto and Vancouver have likewise built thousands of hyper-leveraged shoebox towers as part of their greenwashed "We've-gotta-get-people-out-of-their-cars-and-houses-to-save-the-planet" diktat.  What's amusing to me is how the vast oversupply is billed by shills as "market driven!"   Popping of the bubble is going to make a negative-equity mess of big-city downtown cores.  Small wonder that the elites are moving back to country estates like their Victorian-era forebears.

Killdo's picture

The difference is condos in Australia are much better built and better looking than anything I have seen in Tornoto/Vancouver or LA/SF. Prices in Melbourne are also cheaper than in Toronto

Australians build beautiful stylish buildings. Canadians build cheap-looking crap or Leaky Condos in Vancouver. 

Australia is also much nicer place in every possible respect - it cannot be compared to Canada at all it's far superior and people are much happier and more interesting. Canada looks like Chernobil in comparison. 

Minimum wage in Australia is also 18.20 or somethign like that. 

I ussed to live in Vancouver - used to have a place on teh tallest hill in town. It felt like a small town, very provincial, even polluted, borring and with lots of unemployed people. I rememebr reading in the Business in Vancouver how an average person in Vancouver was a visible minority, unemployed and born abroad. 

I sold my place after 6 months and never went back. My former roommate is from Vancouver (lives in LA)  - he todl me he does not even liek going back although his whole family lives there since peopel seem very jealous and have small town mentality

Lore's picture

I think it depends where you are and what you're doing. If you land a good job, build good connections in the community and find a good place to hang your hat, parts of Greater Vancouver can resemble places in Melbourne or Ballarat or anywhere else, with a positive outcome being the result of a combination of initiative and circumstances.  Conversely, things can turn sour regardless of where you happen to find yourself. 

...But I sure as hell wouldn't touch those glass tower tickytacks downtown.  Generally speaking, everybody who lives in them is a gambler, leveraged to the hilt and riding the knife's edge with regard to negative equity.  We're not seeing clear status reporting yet because there hasn't been enough time, but I'm starting to hear anecdotes about disastrous individual situations from people who wanted to pretend that the good times would roll forever.  So begins the greater fool's game of musical chairs and bagholding...

PT's picture

It is cheaper to rent than to buy.  And those gains appear to be much more advantageous in the top end of the market.
eg
(I have not checked these numbers recently but they were true a few years ago)
poor end of market mortgage of $400 pw can be rented for $300 pw.
top end of market, mortgage of $1600 pw can be rented for $400 pw.
May as well rent top end, but if you're poor then every cent counts so you can't afford to take advantage of the anomaly.

Mind you, in order to buy a house then you have to have a job.
You also need a reason to believe that you will continue to have a reliable income for the next 20 - 30 years.
These two things could easily play havoc in Australia.  It's no wonder that TPTB are looking to foreigners with deeper pockets than the locals.

Short summary for the locals:  You think you can solve your problems by working harder, but no.  In truth, you are being enslaved while your land is being stolen from you.

Twodogs's picture

Bubble bursts do not discriminate on race or anything else.

Spungo's picture

Black Pigeon Speaks had a good video about China and their ability to ruin everything.

https://www.youtube.com/watch?v=Nk8-lLJEeQw

UncleChopChop's picture

apartments =/= houses. here in melbourne the premium for house (over apt) continues to rise.

hustler etiquette's picture

How's that million AUD shack doing?

PT's picture

House Prices in Australia need to drop about 90% before Australians can afford them again.  err, the Aussies with jobs, that is.

Killdo's picture

Melbourne was still much cheaper than LA, SF or even Toronto. (Also much nicer place ) And Autralians make more money (and pay less tax than Americans and probably Canadians)

Stormtrooper's picture

Well, Australia was originally populated with criminals so why would anyone expect anything less from the current political establishment.  It's a tradition!

ChaoKrungThep's picture

Does historical precedence also explain the US's high murder rate? First the natives then each other.

Killdo's picture

Australia is far superior to America in any possible way. I went there for the first time last year - and coudl not believe what a great place it was - how beautiful, how friendly the peopel and how nice the women. My only regeret in life is not having moved there years ago. America is like a 3rd world country in comparison

Four20's picture

Yep, they stopped sending them to America after you blokes had the balls to boot them out with the war of independence. Mostly poor Irish exiled for 7 years for the theft of a loaf of bread to feed their kids, or something equally insignificant. It was the poms own version of ethnic cleansing. Having an original convict in your family tree is regarded as a badge of honor here in the land of Oz. Fuck the English.

Yen Cross's picture

  They clearly need MOAR 'East African' immigrants in Australia. 

  The WHOLE country of Australia has 12<million> less people, than the state of Kalifornia.

wisehiney's picture

In the early eighties, I was a female East African one Halloween.

You had to be there.

Yen Cross's picture

   So you're typing with a hook?  ;-)

  *just kidding

wisehiney's picture

pirate hook, african crab hook, three tittieted titty hook?

Hen yeah man!

AC_Doctor's picture

Australians are mostly unarmed.  Don't look for many SERFS to rise up and take charge when the housing and property bubble burst engulfs Down Under alive.

wisehiney's picture

You ever see Crocodile Dundee?

AC_Doctor's picture

Dundee was a bad ass!  Never saw him dodging .308 Hornady 168's though...

wisehiney's picture

lil ol 308 only tickles gator skin

ozziindaus's picture

It's the lack of guns that make Australia a very violent place. There's not a night that goes by without a major brawl breaking out at a club or bar. That shit rarely happens in the US cos these "sick cunts" would never know who's packing. Yes, guns keep the peace.....very ironic but true

PT's picture

Australia still has plenty of gun violence.  I don't know how since we have strict laws on gun ownership...

Four20's picture

Hasn't been a mass shooting in Oz for twenty years. US has one almost every day. I'd love a gun but am glad that no one has them.

PT's picture

Your research starts here:

"One Man Banned" by Peter Sawyer. 

But in no way ends there.  Note the date the book was published and then note the date of the Port Arthur Massacre.

This book is by no means a torch in the rabbit hole, merely a scratching of the surface.  Keep going.

Stocker's picture

What about the guy that shot the other guy in the arse with a compound bow because he tried to steal his car.

Stocker's picture

What about the guy that shot the other guy in the arse with a compound bow because he tried to steal his car.

odzy's picture

I wouldn't be so sure about that....  lately the amount of people applying for gun licenses is staggering and I see it every week at the shooting range that more and more people get armed ;) 

wisehiney's picture

Thassa damn shame.

These twenty year old white pine doors, trim, bookshelves, oops Bar, etc etc etc

Has turned to pure honey

I am not sure that I have twenty more years to see it match

If you fuck up when painting

You do the honorable thing

Hari Kari

TheytookERjobs's picture

Fucking pop you cunt

chosen's picture

The Chinks pulled out.  Same will happen when they pull out of the US.

Holy Crab's picture

Have a look at the map and find a nice place where a wealthy south-east asian person can buy a good house, good health care, good eduction for his kids and just a nice place to live... They don't call it the land of milk and honey for nothing. With Population growth of 1.8% demand is likely to remain strong.

In Brisbane I can say that there is an oversupply of appartments, which is hurting some of my friends. Yes house prices are stupidly high, and yes they will come down (Sydney/Melbourne), I reckon the rest is pretty safe.

ozziindaus's picture

Is it just me or are ZH articles getting longer? I need the short story, a couple of charts or even a pic. In this case, a cartoon of a Chinese man in agony pulling the end of an Aussie RE price chart up by his balls. The tears bawling from his eyes will indicate stress in the market and the stretch in his sack will indicate the market has reached breaking point. DONE!!

Dame Ednas Possum's picture

Maybe get Mr.Squiggle to do some editing? 

peterk's picture

Im in sydney,  this damn property  bubble is ENDLESS.  All bubbles exceed all human expectations, but this is truely astonishing.

Even the relentless  US equity market bubble  will crash now and then, but not this beast.

This bubble WILL NOT end due to INTERNAL FACTORS, not from govt policy, not from  the RBAs interest rates. Those organistations are

integrated to this  bubble way to much.

The END MUST  come from an EXTERNAL SHOCK.

I have one in mind.... rising foreign rates thanks to Kuroda and yellen losing  control of the long end of the yeild curve

 makes alocal bank fail, sending up  banks funding rates across the board. This then feeds into  lower house prices

making the loan books worthless, brining down the other banks, forcing a govt bail in with cash withdrawl freezes being applied

on australian citizens.

As Aust is addicted to debt financing, the entire economy grinds to a halt,  the cost of capital rises killing  the entire economy.

Many year must then pass to  work off the debt load, as unlike the US /UK all mortgage loans in Australia are FULL RECOURSE loans

meaning even if the bank takes the house, you still have to pay the balance of the debt.

Consumer inflation will rise as the credit created in this  fiat monetray system has no place to "soak" up into as house proces are way down

and all that credit moves into other sectors of the economy, namely consumer items.

 

Anyway, that may all just be a wet dream:))

 

 

Yen Cross's picture

  At least that wanker Glenn Stevens is gone ;-)

Joyo Bliss's picture

That's quite the scenario you have created. Debt bubbles are so underrated. No-one in a bubble can see they're in it, until they're saddled with the debt and blaming it on getting in late rather than getting in at all.

Tulip bulbs - that's the new thing - get in early.

PT's picture

I take offence to "No-one in a bubble can see they're in it" but you may be right - those who can do maths would never put themselves in such a position to start with.
https://en.wikipedia.org/wiki/Hyman_Minsky
Hedge borrowing:  The investment pays for itself plus gives you an income
Speculative borrowing:  The investment pays for itself but gives you no profit.  You are relying completely on Capital Gains to make a profit.
Ponzi borrowing:  You are losing money every week but are hoping that eventual Capital Gains will pay off the investment PLUS give you a profit.

You know damn well when you're using Ponzi Finance.  You just don't know when you're going to meet your Minsky Moment.

You know damn well when the whole country is using Ponzi Finance.  Just look at the numbers:  Minimum wage vs minimum mortgage vs minimum rent.  Average weekly earnings vs average mortgage vs average rent.
Double Income family?  When does the wife get time to have kids?  And what are the consequences?
https://www.youtube.com/watch?v=akVL7QY0S8A

Income minus Expenses equals Profit.  Now apply that to the family budget.  How's that mortgage thing working out?
Gee, maffs is hard.  We only spent twelve years studying it as kids, okay, ten years for some.  Whoever would have thought it might be useful in the real world???

Joyo Bliss's picture

That's why I mentioned tulip bulbs - tulip mania.

https://mises.org/library/truth-about-tulipmania

It's just the speculation end of the cycle. We are in a constant state of speculation, it seems. As long as the bubble hasn't burst, everyone feels like they're winning at a greater rate than the fool who's not speculating - until the bubble bursts and the speculator keeps the debt and now has a devalued asset.

I have had no debt since 2015. No millstone around my neck now...

tarabel's picture

 

 

I think people can see if they're in a bubble. At least some of them. But what is one to do about it?

You keep paddling your canoe, hoping to generate enough cash flow to make it over the financial Niagara that is going to wipe everyone else out.