More transparency needed in property markets

By Gavin R. Putland

In 2001, using figures dating back to 1972, my colleague Bryan Kavanagh discovered that the ratio of total property sales to GDP indicated whether the Australian property market was in a bubble — in which case the bubble would eventually burst, causing a recession.

But assembling these “figures” was no trivial task. Incredibly, Australia has no official national statistics on total property turnover. The ABS has numbers and median prices of residential sales, but not total sales by value; and these figures have been collected only since 2002 and cover only established house transfers in the eight capital cities. So Mr Kavanagh was obliged to accumulate data that came directly or indirectly from State and Territory governments, which are responsible for land-title transfers under our federal system.

The figures from different jurisdictions cover different time spans, and only Victoria's go all the way back to 1972. So the sales-to-GDP ratio for most of the time base could only be an estimate based on partial data. Time-resolution would be poor because most jurisdictions aggregate their figures annually (not quarterly or monthly). Worse, Victoria uses calendar-year aggregates whereas most other jurisdictions use financial-year aggregates, so that the national “annual” totals had to be approximations of some sort, and would cause further blurring of the time base. In spite of these odds, Mr Kavanagh managed to produce and maintain a index of the property market bearing an uncanny correlation with subsequent events in the wider economy.

Use of the sales-to-GDP ratio for forecasting was problematic not only because of the poor time-resolution, but also because the figures for Victoria were released up to 18 months later than the property transactions to which they referred, whereas the ABS figures show that a downturn in prices can follow as soon as three months after a steep fall in sales. So why not use the ABS figures from now on? Well, for one thing, the ABS sales figures are not released until six months after the corresponding price index! This in turn is because the ABS, like the LVRG, has trouble getting timely figures from the States and Territories (wherefore the most recent ABS price indices are based on figures from mortgage lenders and are subsequently revised in response to data from the States and Territories).

The opacity of the property market would never be tolerated in the stock market, in which participants expect up-to-the-minute information on both prices and volumes. Considering that we cannot avoid direct and heavy exposure to the property market, either as owners or as renters, should we not have a greater right to transparency in the property market than in the stock market?

The foregoing difficulties motivated the present writer to seek alternative measures of the state of the property market, some of which are mentioned in the previous post. But these measures are obviously not as comprehensive as the ratio of total sales to GDP (of which Mr Kavanagh is soon to release the latest instalment).*

The compilation of a statistic as fundamental as the total property turnover in the country should not be left to a private agency, let alone a shoestring operation like the LVRG. It should be done by the ABS at least quarterly, preferably monthly.

But perhaps there is hope. On September 22, the ATO announced that it will seek information from State and Territory land-titles offices and revenue offices on property title transfers dating back to 1999, in order to detect non-payment of income tax, GST, or capital gains tax (CGT). To work out whether a CGT liability exists, the ATO would need to check if the same title has been previously transferred since the introduction of CGT in 1985. It might be easier to demand all the data back to 1985 and be done with it. But, whether the complete data set goes back to 1999 or 1985, let's hope the ATO hands over the same data to the ABS (presumably stripped of identifying information, notwithstanding that such information would be far less dangerous with the ABS than with the ATO). National statistics on property sales by number and by value, by State and by category, aggregated monthly or even quarterly, dating back to 1985 or even 1999, would be very handy.

* Update (October 5): The media release went out on October 4 and led to a one-column story in the Australian Financial Review on October 5 (see also the .jpg version). In retrospect, one point may require clarification: the “build-up of inventory” (mentioned in the 2nd-last paragraph of the AFR story) is of course only the early evidence of slowing turnover, not the cause of it.