TIP: houses up and apartments down, record debt slowing economy, stimulus or surplus?

Bubble, bubble, toil and trouble


According to today's Fin, you don't need to be one of Macbeth's trio of witches to recognise a property bubble in the making. After another bumper weekend of auctions in Sydney and Melbourne, we had further proof of that age-old Australian tradition of debt without growth.


Jennifer Hewett's column today talks about the inevitable impact of a resurgence in property asset prices in Sydney and Melbourne without the economic prosperity to support it. The Reserve Bank will likely be forced further down the road of interest rate cuts in the face of a synchronised global economic slowdown, reinforcing an already tenuous situation.


Look at this in the context of Australia's existing household debt levels, which are second only to Switzerland. Household debt is already around 120 per cent of GDP - and according to the University of Melbourne's HILDA (Household Income and Labour Dynamics in Australia) study, has more than doubled since 2001. And as Monash University economics lecturer Zac Gross says, high debt creates cautious consumers.


It doesn't help that bank deposit saving rates are being eroded due to the low interest rate environment, or that job security is a growing concern among Australian workers.


The Morrison government is holding the line on protecting its surplus, saying that Australia doesn't need fiscal stimulus; Treasurer Josh Frydenberg instead announced over the weekend a series of reforms focused on industrial relations, competition and deregulation. He reckons this is what's needed to get businesses investing again, creating jobs and giving pay rises.


The incoming president of the Business Council of Australia, Tim Reed wasn't much help when he spoke to Sky over the weekend; his line of "protect the surplus but also give us some stimulus" couldn't have been a better example of fence-sitting.


One problem is that major fiscal stimulus measures already in place aren't even active yet. According to Senate estimates, only $2.2 million of the Morrison government's $3.5 billion infrastructure fund has been spent. Remember, deployment of this fund has been trotted out ad nauseum as the answer to Australia's domestic economic stagnation and the great creator of new jobs across the country.


Off-the-plan apartments worth less than their purchase price


Lendlease may have sold off-the-plan the top three floors of its planned One Sydney Harbour project for a record $140 million, but that's the exception to the rule according to the latest CoreLogic property data - which will be subject to a 7:30 story on the ABC tonight.


It found that 60 per cent of off-the-plan apartments in Sydney and 52.9 per cent in Melbourne are worth less than what their owners paid for them at settlement. A third of Sydney apartments that owners were moving in to in August were worth at least 10 per cent less. CoreLogic's Tim Lawless said this is partly a question of oversupply, and partly a hangover from cladding and structural defect issues that have plagued the sector.