This article has failed to find a home, so I thought I would drop it here. I had to use a damp cloth to wipe away the dust first, perhaps it’s time to resurrect Translationsblog.
Reserve Bank governor Glenn Stevens was reported last week raising the spector of foreign investment in residential housing. It’s amazing that even the respected analysts at the Reserve Bank have fallen for the housing finance industries rent-seeking nonsense as they try to deflect from the real problems in our housing system.
As a society we need to acknowledge that housing markets are broken and need to be fixed. Courage and leadership is needed from our politicians, lest they break the singular principle underpinning elderly middle-class Australians out of poverty: mass home ownership.
Astute observers of the media would have noticed a recent increase of anxious hysteria about foreign investors, almost exclusively singled out as Chinese, swamping our housing markets and pushing out battling Australian first home buyers. This is a furphy to cover for the real causes of the housing crisis, but given recent coverage it seems to have been in the media and even the head of the RBA.
The evidence from both the Foreign Investments Review board and the Australian Bureau of Statistics shows this argument to be, at best, a myth. The more cynical amongst us might call it a lie, intended to misdirect the pressure building for housing tax reform.
Some facts to bring us down to earth: over the year to June 2013 FIRB approvals for foreign investment in residential real estate actually reduced from $19.7 billion to $17.2 billion, a reduction of $2.5 billion. It’s hard to understand how a reduction in foreign investment might be leading to pushing first home buyer rates to record lows, but that’s the tale that we’re being told.
While headlines yelp about absentee landlords from Shanghai causing havoc, around half of all foreign real estate investment are actually temporary residents working or studying in Australia (directly contributing to Australia’s economic growth) and living in the property themselves.
The value of non-residential investment in residential property in Australia shrank by over 30 per cent in 2012-13 compared to the year before. The value of off-the-plan purchases by non-residents decreased by 48 per cent. Quite frankly, foreign investment is not driving the price increases and the drop out of first home buyers that we’ve seen over last year, quite the opposite.
Australia does have a housing problem, nature of home ownership in Australia is changing and unless we arrest the decline our retirement systems will collapse. Foreign investors do add demand to supply constrained markets, but the impact is minimal, restricted by law to newly built properties and only of second order concern.
At the same that time non-resident investors have spent $4.7 billion less in our housing markets compared to the previous year, the ABS reports that total investor loans taken out Australia went up by $11.5 billion. It should be clear where the pressure on house prices is coming from, and who exactly is squeezing out first home buyers. It isn’t Chinese investors, and it’s not even foreign investors as a whole.
At a time when first home buyers have struggled to the lowest proportion of home sales on record, tax perks have allowed investors to squeeze out first home buyers and the growing majority of these are Australian.
Australia will not make inroads into the first home buyers crisis and the over-inflated rental market until it addresses the tax perks available through avenues such as negative gearing and self-managed super funds.
And here’s a tip for Treasurer Joe Hockey as he looks for budget savings: he could go a long way to fixing the housing system without spending a dime. These changes would help increase home ownership rates whilst also raising revenue.