Chris Berg from the Institute of Public Affairs (IPA) has attacked the Abbott Government’s crackdown on illegal purchases of existing dwellings by non-residents, claiming that it is a diversion from the need to boost housing supply, as well as a “political gambit designed to play to the assumed xenophobic instincts of the electorate”. From ABC’s The Drum:
Lots of reasons have been advanced for Australia’s high house prices. Some people blame negative gearing. Others blame things like first-home owners grants, or loose lending standards by the banks, or the Reserve Bank’s monetary settings, or just an irrational market boom…
The most likely culprit is that government regulation has unbalanced the relationship between supply and demand. State governments have restricted supply at the outer fringes of our cities and placed strict limits on development in the middle. This creates artificial scarcity and pushes up prices…
If there is foreign demand for investment in Australia, then supply should grow to meet it – unless supply is constrained in some way…
So it’s a bit disturbing that the foreigners-make-housing-expensive thesis appears to be a central part of the Abbott Government’s economic agenda for 2015…
Anyway, the House Committee report was released in November. It’s 148 pages but the nub is this: “No one really knows how much foreign investment there is in residential real estate, nor where that investment comes from”…
We don’t have enough information. Anything more than that is insinuation…
This is a political gambit designed to play to the assumed xenophobic instincts of the electorate.
No one claims that foreigners buying-up pre-existing dwelling are the sole cause of Australia’s housing malaise. And yes, there are many other issues that also need to be addressed on both the demand and supply sides. But Berg’s assertion that if Australia simply liberalised the supply-side (reform I support), then foreign investment or negatively geared investment would not matter, is not realistic from a policy perspective.
Sure, if Australia operated Houston-style housing policies – i.e. liberal planning, minimal artificial restrictions on urban land supply, and adequate provision of housing-related infrastructure – then the opportunities for overall land prices to escalate would be reduced significantly. Any extra demand from investors (both domestic and foreign) would flow primarily into higher construction rather than increased prices.
But so what? Given these supply-side rigidities exist in Australia, and like it or not are unlikely to end anytime soon, then it makes absolutely no sense to allow unchecked foreign investment and, in doing so, further inflate prices. On this point, Berg has placed the cart before the horse: foreign investment into existing dwellings should not be allowed to go unchecked (and should in fact be tightened) until these supply-side barriers are sorted out.
Berg’s defence that “we don’t have enough information” about foreign investment into existing dwellings, and therefore should not seek to regulate it, is also circular argument.
There is no concrete “evidence” because the data surrounding foreign investment is dodgy, as acknowledged by the Australian Bureau of Statistics, real estate agents, industry professionals, UBS investment bank, and even the Australian Treasury. As a result, the foreign investment rules governing pre-existing dwellings have not been enforced by FIRB, which has made no prosecutions since 2006 and no divestment orders since 2007.
Indeed, the recommendations from the parliamentary inquiry into foreign investment in Australian real estate are aimed precisely at fixing the problems that Berg himself has identified, namely: implementing proper data collection systems and processes. Included amongst these recommendations is the establishment of a national register/database of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate, along with an alert system for the expiry of temporary visas to ensure that homes are divested.
Rather than playing the racism card, Berg needs to explain why adding transparency to the foreign investment regime and adequately enforcing the rules governing foreign investment into Australian property is undesirable?
***Please note that this article originally wrongly attributed Chris Berg to the Centre for Independent Studies (CIS), rather than the Institute of Public Affairs (IPA). We apologise to the CIS for this error. The CIS is a centrist think tank and has no alliance with the IPA***
