Bubble, toil and Trouble?
Australia’s housing bubble turns Irish
at 12:10 am on May 17, 2016
By Leith van Onselen
https://www.macrobusiness.com.au/2016/05/australian-housing-bubble-turns-irish/
For years, Australia’s anti-housing bubble defenders have argued that the Australian housing market is “different” because Australia had not experienced the kinds of housing supply prevalent in places like Ireland, the US and Spain, therefore, Australian values were underpinned by a chronic “undersupply” of dwellings and pent-up demand.
For example, in September 2010, CBA released a presentation entitled “Australian residential housing mortgages: CBA mortgage book secure”, which was presented to the Group’s offshore shareholders and other investors interested in Australia and the Australian banking sector.
Included in that presentation was the below slide arguing that Australian housing values were justified because of strong population growth in the face of lackluster dwelling supply:
Oh what a different 5-plus years make. With dwelling construction launching just as population growth is fading:
Many commentators are now questioning the whole “undersupply” argument and whether Australian housing is really any different to the bubble markets of Ireland, the US or Spain.
For example, here’s Roger Montgomery’s arguing yesterday that Australia’s apartment glut is actually worse than
the US’ just prior to its housing bust in 2007:
… value investor Roger Montgomery [believes] if the United States is anything to go by, we’re in serious trouble.
After crunching the numbers, Mr Montgomery says the estimated 18 months local overhang is more than the 12 months oversupply the US had prior to the popping of its housing market bubble.
“It looks like Australia has a greater oversupply problem than the US did in 2007,” says Mr Montgomery in a note to clients. “And after their property market collapse, it took five years before property prices began recovering”…
Breaking down what will be constructed and what will be required, Mr Montgomery is left with an oversupply of 200,000 dwellings by the end of 2016.
While all housing bubbles have their own unique characteristics – for example in Ireland it was the far-flung ghost estates and in Miami it was the condo bubble – it seems clear as day that Australia is experiencing an apartment bubble.
One only needs to view the below chart showing the unprecedented boom in highrise apartments across the major capitals (the East Coast in particular):
Or Core Logic-RP Data’s recent report showing the huge number of apartments due for completion over the next 12 and 24 months:
The whole undersupply argument is now ‘dead in the water’ and Australia has joined its Anglo compatriots in
experiencing both a price bubble and a construction bubble.
This points to dangerous times ahead for Australia as the flood of new supply hits the market, foreign buyers
bail, and settlement defaults mount.