Latest Auction Results Still Uptempo

The preliminary auction clearance results today from Domain continue the trend of high clearance rates, even if absolute volumes were down a little from the highs of last week.

Sydney achieved 81.3% with 479 sales, compared with 74.4% last week on 591 sales. Melbourne achieved 80.5% on 627 sales, compared with 75.9% last week on 975 sales. The national clearance rate was 79.4%, compared with 73.7% last week and 65% last year.

Brisbane cleared 62% of 99 scheduled auctions, Adelaide 79% of 73 scheduled and Canberra 60% of 48 auctions.

Global House Prices—Where is the Boom?

From iMFdirect.

While house prices around the world have rebounded over the last four years, a closer look reveals that this uptick is dependent on three things: location, location, location.

The IMF’s Global House Price Index—an average of real house prices across countries—has been rising for the past four years. However, house prices are not rising in every country. As noted in our November 2016 Quarterly Update, house price developments in the countries that make up the index fall into three clusters: gloom, bust and boom, and boom.

The first cluster—gloom—consists of countries in which house prices fell substantially at the onset of the Great Recession, and have remained on a downward path.

The second cluster—bust and boom—consists of countries in which housing markets have rebounded since 2013 after falling sharply during 2007–12.

The third cluster—boom—consists of countries in which the drop in house prices in 2007–12 was quite modest, and was followed by a quick rebound.

This chart shows that house prices varies within a cluster and within a country. Recent IMF assessments provide a more nuanced view of the within-country house price developments.

For example, in Australia, the strongest house price increases continue to be recorded in Sydney and Melbourne, where underlying demand for housing remains strong.

In Austria, the cumulative increase in the house price index over 2007–2015 was nearly 40 percent. To a large extent, this increase was driven by price dynamics in Vienna.

Looking at Turkey, the housing market exhibits significant variations across cities. Regional variations have been further accentuated by the presence of almost 3 million Syrian refugees since March 2011. Cities near the Syrian border, which have absorbed larger masses of Syrian refugees, have seen significant rises in local housing prices since 2011, though they have moderated in recent years.

 

Country/region and city clusters

Gloom = Brazil (Rio de Janeiro); China (Shanghai); Croatia (Zagreb); Cyprus (Nicosia); Finland (Helsinki); France (Paris); Greece (Athens); Macedonia (Skopje); Netherlands (Amsterdam); Russia (Moscow); Singapore (Singapore); Slovenia (Ljubljana); and Spain (Madrid).

Bust and Boom = Denmark (Copenhagen); Estonia (Tallinn); Hungary (Budapest); Iceland (Reykjavik); Indonesia (Jakarta); Ireland (Dublin); Japan (Tokyo); Latvia (Riga); New Zealand (Auckland); Portugal (Lisbon); South Africa (Johannesburg); United Kingdom (London); and United States (San Francisco).

Boom = Australia (Melbourne); Austria (Vienna); Belgium (Brussels); Canada (Toronto); Chile (Santiago); Colombia (Bogota); Hong Kong, SAR (Hong Kong); India (New Delhi); Israel (Tel Aviv); Korea (Seoul); Malaysia (Kuala Lumpur); Mexico (Mexico City); Norway (Oslo); Slovakia (Bratislava); Sweden (Stockholm); Switzerland (Zurich); and Taiwan, Province of China (Taipei City).

Read more on IMF global house price studies and check out the Global Housing Watch site.

Property prices continue to soar in an already hot market

From The NewDaily.

Latest property price figures have given home owners reason to celebrate and first home buyers even more reason for despair.

Latest data from CoreLogic Home shows prices in Australia’s main cities have leapt 3.7 per cent since the start of the year, with Sydney and Melbourne predictably higher than the national average.

Residential prices in the already-hot Sydney market jumped 5.3 per cent since January 1, with the median price hitting $950,000, and the median price for units now $740,000.

Melbourne property prices have risen 4.4 per cent this year, with the median house price at $710,000 and the unit price at $525,000.

Perth was the only capital where prices have fallen, down 1.1 per cent.

Meanwhile, Hobart remains the cheapest market with median house prices at $365,000 and unit prices at $306,500.

The news comes a week after former Liberal leader John Hewson declared Australia was experiencing a property bubble and also follows a Reserve Bank statement noting there had been “a build-up of risks associated with the housing market”.

The bank referred to rising property prices in Melbourne and Sydney, the “considerable” number of apartments coming onto the market over the next few years, resurgent growth in investor lending, and household debt rising faster than household income.

CoreLogic also reported that the proportion of settled auctions — a key benchmark of demand — was also up.

The national auction clearance rate jumped to 77.1 per cent in the week to March 26, from 74.1 per cent the previous week and well up from the 70.9 per cent in the same week in 2016.

But home buyers could soon find themselves squeezed from two sides, as interest rates rise for both owner-occupiers and investors.

“There’s only one way for interest rates to go in my reading, and that’s up,” Martin North, analyst with Digital Finance Analytics, told The New Daily.

“I’ve believed for some time that by the end of the year interest rates on owner occupied housing loans will rise by 25 to 50 basis points and for investor housing it will be between 75 to 100 basis points. That is irrespective on any moves the Reserve Bank might make on rates.”

The escalation that has seen mainland capital house prices rise 13.1 per cent in a year and as much as 19.8 per cent in Sydney is putting pressure on buyers despite low rates.

“Around 20 per cent of all owner-occupiers are suffering mortgage stress, and if rates were to rise one percentage point that would rise to 24 per cent, Mr North said.

CoreLogic’s data also showed that there were 3147 auctions last week— the second highest so far in 2017, and up from 2916 the previous week.

 – with AAP

Auction Clearances Higher

CoreLogic says the amount of auction activity across the capital cities increased this week, up from 2,916 last week to 3,147 this week; the largest number of auctions since the last week of February 2017 when 3,301 auctions were held. This time last year was the Easter long weekend, so auction volumes were substantially lower, with 554 homes taken to auction across the combined capital cities. This week’s preliminary weighted average clearance rate across the combined capitals was 77.1 per cent, increasing from 74.1 per cent over the previous week and up from 70.9 per cent one year ago. Sydney saw the highest preliminary clearance rate across the cities at 81.1 per cent, while across the remaining cities; clearance rates increased week-on week with the exception of Brisbane and Perth where clearance rates fell.

Auction Run Continues

The latest preliminary data from Domain shows continuing momentum in today’s auction results.

Sydney achieved a clearance of 80.2% compared with 76.7% last week, and 61.4% last year. The volumes are also up. In Melbourne, clearance was 79.5%, higher than the 75.3% last week and nationally, clearances were at 78% compared with 73.8% last week.

Our surveys suggest that investors are rushing to purchase ahead of the upcoming budget in May, as they fear the generous tax breaks may disappear. First time buyers are being beaten to the punch.

Brisbane achieved 47% on 138 auctions, Adelaide 64% on 79 scheduled and Canberra 77% on 78.

Capital gains tax concession is too generous: economists poll

From The Conversation.

As the federal budget approaches, the government is grappling with ways to enhance housing affordability, including reforming the current 50% capital gains tax (CGT) deduction on property investment.

The Economics Society of Australia (ESA) Monash Forum polled economists on this proposition:

Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices.

This is a deliberately more extreme measure than the proposal reportedly being considered by the federal government, which is to cut the current discount to 25%. But we wanted to assess more generally the effect of capital gains taxes on the housing market.

The poll found 44.4% of economists agreed with a statement that the tax deduction should be removed entirely (22.2% agreeing and 22.2% strongly agreeing). But 40.7% disagreed with the statement (22.2% disagreeing and 18.5% strongly disagreeing); while 14.8% of respondents were uncertain.

While some economists support the current role of the CGT discount to avoid taxing the capital gains that arise as a result of inflation increasing house prices, as opposed to the valuation in the land or property due to development (Saul Eslake, Rodney Maddock, Nigel Stapledon and Doug McTaggart), others believe the tax should also apply to the gains as a result of inflation (Kevin Davis and Margaret Nowak).

Many argued the principle of the CGT discount is not a bad policy, however the level of the discount is generous and is open for abuse.

They also pointed out that changes in one type of tax will distort the economy, especially if it is only targeted to one type of asset, in this case property. Instead some economists suggested the approach should be a holistic reform to fix tax inefficiencies, and tax treatment should be equal between all forms of investment and saving.

Most of the economists agreed housing affordability policies should be focused mainly on housing supply and housing market constraints (as well as transport and infrastructure) to solve the crisis. Other policies such as shared-ownership schemes and government-backed bonds are also being considered.

Capital gains tax

The capital gains tax (CGT) is calculated at the effective marginal tax rate of the investor, on the capital gains made at the time of sale of the asset. Investors who hold an asset for longer than 12 months receive a 50% discount on the CGT liability, at the time of sale. For superannuation funds, the discount rate is 33.3%.

Owner-occupiers are fully exempt from capital gains tax on the sale of their primary residence.

Some of the options reportedly being considered by the federal government include decreasing the CGT concession to 25%, decreasing it to 40% discount (as recommended in the Henry Tax Review) only for property investments, or some other reduction in the CGT discount for property investments.

Another option is completely removing the concession if the property is sold in the initial investment years; and phasing the discount in after the investment has been held for some specified number of years.

The economists’ arguments for and against

Economists who supported removing capital gains tax deductions for housing investment said the discount provides incentives to over-invest in property rather than other assets that provide income. So by eliminating or reducing the CGT discount, the cost of capital will increase and buyers will reduce their demand for property, resulting in lower, more affordable house prices.

Those who agreed with the statement argue any change in the CGT discount to address property speculation should also be accompanied by reforming negative gearing. They argue that eliminating the CGT discount for property only would push residential investors towards cheaper properties or towards investing in other assets that maintain the CGT discount.

Most studies find no evidence of capital gains advantages being a main incentive for investors holding residential property. However it appears to be a small factor in the intention of investing in residential property.

Those against the statement argue the timing may not be right as the housing cycle is currently at its peak, and the double digit house price appreciation rates are only seen in the inner-ring suburbs of metropolitan cities and only for houses and not apartments.

Economists would expect to see only a short-term drop in house prices if the CGT deductions are eliminated, as investors switch away from property and into other assets. So the remaining residential investors in the market would purchase cheaper properties, potentially still crowding out first-home buyers.

They would also hold the property for a longer period. In the medium to long-term, the reduction in residential investment would impact on the new and existing supply of housing, resulting in housing shortage and rising house prices.

You can read the economists’ individual answers by clicking below.


The ESA Monash Forum is a joint initiative between Monash Business School and the Economic Society of Australia. Maria Yanotti was a guest writer for the Forum.

Explainer: the financialisation of housing and what can be done about it

From The Conversation.

A recent United Nations report on the right to adequate housing identifies the financialisation of housing as an issue of global importance. It defines the financialisation of housing as:

… structural changes in housing and financial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth and often as security for financial instruments that are traded and sold on global markets.

The UN Special Rapporteur on the Right to Housing argued that treating the house as a repository for capital – rather than a place for habitation – is a human rights issue. Leilani Farha explains her role as the UN Special Rapporteur on the Right to Housing

The financialisation of housing has been central to wealth creation in Australian households since at least the second world war. Today, it underwrites the bank of mum and dad, amateur property investors as landlords, asset-based welfare, and foreign real estate investment.

Australia’s financialised housing system

Following Prime Minister Robert Menzies’ “Forgotten People” speech, Australian governments have effectively subsidised housing investment through taxation incentives for home ownership.

Capital gains exceptions, the exclusion of the primary home from pension calculations, negative gearing, tenancy policies that favour property owners, less restrictive mortgage financing arrangements and first home owner grants are commonly cited examples.

These policies and practices underpin many of the benefits of property investment. But they also change the way Australians think about their home. Houses have shifted from being valued as a place to live and to raise a family towards being viewed also as a place to park and grow capital.

This strongly influences Australians’ decision-making about buying and selling property. It also affects how they think about and use housing equity for business, retirement, family and other purposes.

21st-century winners

Owner-occupiers and property investors benefit most from a financialised housing system.

While many Australians own investment properties, these investors tend to be amongst the wealthiest in our society, challenging the myth of the “mum and dad” investor. The Household, Income and Labour Dynamics in Australia (HILDA) Survey shows, for example, that “over 50% of owners are in the top wealth quintile, and over three-quarters are in the top two quintiles”.

Property investors also tend to have higher incomes, with 70.3% earning in the top 40% of all incomes. They can access their housing equity by buying and selling when market conditions are right. The home can also be treated like an ATM via redraw mortgages.

Linked with foreign investment policies, this system can expose local housing markets to foreign investors and shifting global capital and financial markets. This can change the investment dynamics of local property markets and rental stock.

21st-century losers

Richard Ronald recently highlighted the emergence of “Generation Rent”. While some young people will eventually inherit from their parents, those whose parents rent or are over-leveraged mortgage-holders are increasingly shut out of home ownership.

This suggests a growing polarisation in housing opportunity.

People earning middle and lower incomes, younger people whose parents are not home owners and women who have lost a home or never gained housing wealth are among the most disadvantaged.

Pensioners who rent face housing insecurity and difficulties making ends meet. People remain homeless despite it costing government less to provide permanent supportive housing to end homelessness than to provide services to the homeless.

People living in public, social and other “affordable housing” can be doubly disadvantaged.

First, due to their affordable housing tenure, these groups have not built any capital in their housing.

Second, some residents face eviction through large-scale public housing redevelopments by governments that view their homes as key real estate assets.

Housing experts call for action

In their book, David Madden and Peter Marcuse explain how to definancialise the housing system.Verso Books

David Madden and Peter Marcuse have shown how to definancialise a housing system. They argue that even the term “affordable housing” is a financialised way of thinking about housing provision.

They call for an increase in public and social housing, and for an end to the eviction or rehousing of public and social housing tenants. Some affordable housing advocates agree, arguing for an increase of “at least 2,000 new dwellings a year for ten years” in New South Wales alone.

More affordable housing and low-cost social rentals, which peg housing costs to income, are needed. Government and not-for-profit builders could provide such housing. This would also require “new ways to finance affordable-rental housing”.

Private rentals need to be more secure, too, so tenants have the regulatory support to treat their housing like a home. Removing no-cause eviction is an important start.

A long-term plan for overhauling the taxation system is key. This would, however, need to limit the financial risks to current home owners and investors.

A slow winding back of tax breaks for investment properties would encourage property owners and investors to move their housing wealth into other asset classes over the long term.

This would help to ameliorate the current “distorted investment pattern that disadvantages the supply of affordable rental housing”.

 

Authors: Dallas Roger, Senior Lecturer, Faculty of Architecture, Design and Planning, University of Sydney;  Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University

 

The forgotten cost of the housing boom: your retirement

From The New Daily.

The house price boom is going to costing us thousands of dollars in retirement, according to a new report.

The entire retirement income system is based on the assumption that home ownership is affordable, and that anyone stuck in lifelong renting will be helped out by state governments.

But these assumptions are “increasingly dubious”, prominent economist Saul Eslake has warned.

The Australian Institute of Superannuation Trustees, which represents all not-for-profit super funds, commissioned Mr Eslake to dig into the potential impact of rising housing costs on retirement.

In 2013-14, about 88 per cent of households headed by Australians aged 65+ spent less than 25 per cent of their gross income on housing — down from about 92 per cent in 1996-97, the economist found, using official statistics.

Worse still, the proportion of 65+ households with housing costs of more than 30 per cent gross income has doubled from 5 to 9 per cent over the last 15 years.

This is partly because Australians are buying and paying off homes later in life because of price growth, Mr Eslake warned.

housing costs retirement

Many of us will never make it onto the property ladder at all, trapped for life in the private rental market, which a recent report estimated can cost an extra $500,000 in retirement.

Outright home ownership has fallen from 61.7 per cent in 1996 to 46.7 per cent in 2013-14, Mr Eslake found using official ABS data.

“Compared to 15 years ago when almost three out of five home owners owned their home outright, home owners with a mortgage are now in the majority.”

This is a serious threat to retirement balances, as renting in later life is a drain on income streams, and many more retirees will use bigger and bigger chunks of superannuation savings to pay off the remainder of their mortgages, he predicted.

“In other words, there is a clear link between deteriorating housing affordability and the adequacy of Australia’s current retirement income stream.”

While price growth is not the only explanation, it’s a big factor, Mr Eslake wrote. Other reasons include less state government investment in social housing, and adults spending more time in formal education.

So, not only are irrational prices in Sydney and Melbourne squeezing out first-time buyers, they are likely to punch big holes in the federal government’s coffers when today’s struggling buyers become tomorrow’s age pensioners.

Tougher home lending not the answer for WA: REIWA, UDIA WA

From The Real Estate Conversation.

The Real Estate Institute of Western Australia and the Urban Development Institute of Australia WA Division have spoken out strongly against applying tightener home lending conditions across the country.

REIWA President Hayden Groves said any decision to do so would be a knee-jerk reaction to market conditions on the east coast, in particular in Sydney and Melbourne, and would not be taking into account the varied market circumstances of all states and territories.

“Western Australia’s property market has softened considerably over the last couple of years. If lending conditions are made tougher for existing home owners, new home buyers and investors in WA, this will have a detrimental effect on our local housing market,” said Groves.

The Western Australian market is just beginning to show signs of stabilisation, said Groves, so any disruption at this point could have a particularly negative impact.

UDIA WA CEO Allison Hailes said imposing further lending restrictions may be viable on the east coast where the market is heated, but in Western Australia it will do more harm than good.

“Decision makers in the eastern states need to take Western Australia’s delicate economic and property market situation into account before introducing any changes, otherwise we could see the green shoots that are just starting to emerge killed off,” she said.

“Affordability remains a significant issue for West Australians, with the recent slowdown in the mining sector and challenging economic conditions continuing to present difficulties. Tightening lending conditions in Western Australia will have an adverse effect on affordability for West Australian home buyers, owners and investors,” said Groves.

Lending finance for investment represents a substantial proportion of the Western Australian property market, with 35 per cent of all lending in the state attributed to investors.

Even if tightened lending conditions were only applied to investors, increased borrowing costs “would mean investors have no choice but to pass this down to tenants and would also limit the number of investors entering the market,” said Groves.

Hailes said tighter lending conditions would also constrain the housing construction sector, and therefore would mean fewer jobs.

Spotting The Bubble

From The NewDaily.

Former Liberal leader John Hewson has openly said what others have been too afraid to: we’re in the midst of a property bubble.

Dr Hewson, who has a PhD in economics, said parts of Sydney and Melbourne (and possibly Brisbane) are in a “bubble” and a “housing crisis” that risks a US-style “big correction”.

“The bubble’s there because of the pace at which prices have risen. The market is now out of reach of so many people,” he told The New Daily.

“We have very strong demand from the natural rate of population growth plus immigration. But we’ve allowed that to be accentuated by investor demand, through artificial, favourable tax concessions; by foreign demand; and by self-managed super fund demand.”

This is a “difficult situation” to remedy, said Dr Hewson, a former Reserve Bank employee and Macquarie Bank director, because the Australian banks are “exposed” to high leverage on mortgages.

So any government intervention to slacken this artificially-stimulated demand risks dire consequences, he said. “There are no silver bullets.”

This followed his very frank comments to ABC Lateline on Tuesday night, where he repeated the warning of a property market “crisis” created by “neglect and drift”.

The former Liberal politician’s comments contrast starkly with those of major bank CEOs, big-name property developers like Harry Triguboff, Prime Minister Malcolm Turnbull and Treasurer Scott Morrison, who have all assiduously avoided the B-word.

An economic ‘bubble’ is when prices rise far above the true economic value of an asset — in this case, dwellings.
Dr Hewson is at odds with many conservatives who believe in the ‘efficient market hypothesis’. This is an economic theory that says ‘bubbles’ cannot, by definition, exist because prices always reflect economic reality.

But he’s in good company with former Commonwealth Bank CEO David Murray, ASIC boss Greg Medcraft and Treasury secretary John Fraser.

The Reserve Bank, tasked by Parliament with preserving the “economic prosperity and welfare of the people of Australia”, recently strayed as close to candidness as is possible for a regulator that can panic markets with a single word.

Its latest coded warning: there has been “a build-up of risks associated with the housing market”.

This was buried at the bottom of the minutes of the RBA board’s March meeting, published on Tuesday. It was the briefest of mentions, but many experts read into it deeply.

The bank noted rising property prices in Melbourne and Sydney, the “considerable” number of apartments coming onto the market over the next few years, resurgent growth in investor lending, and household debt rising faster than household income.

The implicit warning was confirmed later on Tuesday when the Financial Review reported that three regulators – the RBA, ASIC and APRA – have formed a working group to explore tougher mortgage lending rules on the banks.

Whether the word “bubble” passes their lips or not, the experts are worried.