New figures indicate the biggest fall since the GFC, and as usual the upper end of the market is taking the bigger hits. After a decade of massive, unsustainable growth, the sector is now looking, well, unsustainable.
The Origin of Specious
The Australian housing market, like so many lop-sided economic holidays for the upper end of the market, started with cheap money. Housing prices boomed, loans were easy to get, including the now infamous “no attempt to conduct proper lending practices” starting in the US and now copied worldwide.
Housing soon became unaffordable for first home buyers. Combined with other irresponsible, (not to say downright insane), hits on incomes, the market bulged with much higher prices. Housing went to record highs, with a large number of people, (some figures are as high as 30% of the market) switching to “interest only” rates, which means you don’t get equity as you pay your mortgage. It’s like super-expensive rent.
Rental prices also went to absurd levels, far above the original baseline, to pay for these extremely expensive mortgages. (Sounding like a good idea so far? It wasn’t.) This is how the national house of cards got built.
Australian media was spruiking housing for many years. Everybody had to buy a house, an apartment, a dog kennel, you name it. This highly paid enthusiasm also included fearless market analysts praising the great investment opportunities available in Australia.
So, at the height of the market, just about everyone in the middle income brackets was getting squeezed, pretty hard. The market carried on regardless as prices for a house went to well over a million per dog box. The “lucky” sellers then found they had to buy in to this ridiculously overheated market, so the gains were pretty ephemeral, unless you were prepared to downsize to keep some of your profits.
Then:
Foreign investors were targeted, largely in response to the somewhat naïve theory that they wanted to price themselves out of the market by driving up selling prices. This did take a bit of heat from the market, notably for the very agile Chinese investors, who had better things to do than jump through hoops to make chump change.
The Royal Commission in to banks, finance and superannuation disclosed very iffy lending practices, including lending to people who simply couldn’t afford their loans, etc. The Royal Commission also disclosed that a lot of senior executives simply “didn’t know” about some things, and even if they did, they did nothing about them.
Apparently institutional investors and boards of directors were also as comatose as their executives. The Royal Commission would have been a particularly humiliating experience for any type of business person with any degree of personal self-respect or professional standards of any kind. However, it seems Australia has been spared any risk of exposure on any level to people of that inclination.
(Under Section 61 of the Corporations Law, directors are required to be fully aware of the finances and conduct of their companies. They are responsible for conduct of business, and penalties can be pretty serious, but that’s obviously not happening, either.)
Meanwhile, the sector started to mass produce apartments in record numbers, to the extent that there’s now a glut on the market. This, of course, also undercut investors and new home buyers who’d bought apartments. It was a very thorough process.
Politically, the classic division of conservative property side vs progressive public side polarizations was inevitable. Why, exactly, politicians believe a word said to them and prefer to take sides over taking definitive action to achieve an objective is debatable, but in this case it was disastrous. The market, never under any sort of restraint, derailed like a runaway toy train.
And then….
Then, not too surprisingly, the housing market started to implode, after years of warnings. The latest figures are the result of a market which is now still highly overpriced, in an lending environment where capital is scarce and borrowing is much harder.
The banks, meanwhile, now have portfolios of debt which are to put it mildly subject to scrutiny. The greed will have backfired badly, if they’re penalized by other banks in their own borrowing rates. Banks borrow on the basis of their collateral, and the Australian banks, overcommitted to the housing market, could be hit with higher rates quite easily, driving increases in their domestic lending rates. It’s a dumb situation which never needed to happen.
The housing market will resist downward pressure as much as it can, but the buyers just aren’t there anymore. From hysterical auctions doing $100,000 per bid per 10 seconds to a ragtag few buyers who may not even bid has happened in a year or so.
The buyers aren’t stupid. They know downward pressure saves them money and reduces their costs. The people who are simply trying to buy a home (remember them, you howling bloody idiots?) might even be able to do so.
Well, gosh, what if people could afford to own homes?
The misdirection of Australia’s housing market has soaked up capital which could have done almost anything which would have been more economically useful. We’ve been calling it “growth”, the now meaningless word which just means more dollars of confetti, but it’s never been real growth. The actual growth has been powered by another racket, our half-witted immigration stampede, which saddles new arrivals with the idiotic markets in all their inglorious stagnation.
The Australian Bureau of Statistics published some figures a few years ago that homeowners were 7 times more economically productive than those who didn’t own their own homes. (Current figures also show a tide of homelessness just happening to coincide with the endless cost increases the market caused.) So what have we been doing? Creating an obstacle course to prevent people from owning their own homes. How brilliant you guys must be, eh?
The stupidity is proven, many times over. The results are hitting the fan in real money, not paper values. It’s a matter of opinion what happens next, but the message is clear: If you want a workable housing market, don’t do it like this.
