Foreigners buying all our houses

There is strong opposition to foreign house and apartment buyers once again becoming prevalent.  Many seek to counter this, especially since it assumes a near racist paranoia centered on Chinese buyers.  Under closer examination many of these are in fact Australian natives. 

David Uren has a piece in the Oz today addressing the issue and seeking to deflate the xenophobic undercurrents.   He says,

Lost in the current debate is that foreign investment in real estate adds to supply. There is a difference in the rules regarding foreign purchase of established and new property.

Temporary residents may purchase a single established property while they are here but must sell on departure so, with relatively stable inflows and outflows of temporary residents, there is no net effect on the property market. However, foreign residents may purchase newly built property.

Well this is true to a point.  And if foreigners came over here seeking to buy up our Tim Tams this would certainly boost production and leave everyone better off. The same should also be true of housing.  After all, we have endless amounts of the basic raw material (only 0.3 per cent of Australia is urbanised and even in Sydney we could almost double the number of houses and apartments simply by unlocking land in the market gardening area of the County of Cumberland) 

And we can build new houses for $120,000 a pop while the roads, sewer systems, water supply and other utilities cost at most $60,000 a facility.  The land itself in its present usage is worth only around $1000 per housing block.  But the restraint on availability by planning controls lifts this to $200,000-$300,000 in all our capital cities. 

This regulatory land tax originally came about from Stalinists within the planning fraternity teaming up with anti-sprawl fanatics to prevent development and promote the development they themselves prefer to see.  This is only possible by forbidding development in alternative new build areas.  Where this philosophy has not taken root (e.g. in Germany where there is a constitutional right protecting landowners from the planning blight, or in Texas), new house prices have remained at under $200,000. 

Elsewhere, the tax on building at the periphery has a knock-on effect through the conurbation (and in Australia is compounded by apartment – but not house –  building under union control, therefore costing far more than they otherwise would)

The original impetus for restraint on land availability has developed its own set of vested interests as developers and new home owners have paid the tax and would be financially impaired if it were suddenly to be lifted.

And so when a whiff of demand increase occurs there is no relief other than a price explosion.  While a bonanza for those with their own homes, this seriously disadvantages those without their own homes.  But the incumbents hold the political cards and few politicians advocate land deregulation

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51 Responses to Foreigners buying all our houses

  1. feelthebern

    They took our jobs !

  2. manalive

    David Uren has a piece in the Fin The Australian.

  3. Manny

    What’s the “market gardening area of the County of Cumberland”. Do you mean Flemington?

  4. Token

    Don’t forget the natural instinct of people with money to invest it in markets which are least likely to arbitrary steal their property.

  5. braddles

    There are beneficiaries of price hikes: government, developers and investors, and realtors. Owner occupiers sometimes say they like values soaring, but they are kidding themselves. Unless you want to downsize, soaring house prices are about as beneficial as, say, soaring petrol prices.

  6. OldOzzie

    We have a brand new house 6 doors up purchased by a Chinese couple 3 years ago that has never been lived in – cleaners once a month and similarly gardens.

    The above seems to be a one off, there has been a strong move by Chinese into our area and they are extremely pleasant neighbours.

    The problem is the crowding out of young people due to spiraling cost, but local planning departments do not help either – little fiefdoms to themselves.

  7. Dan

    Unless you want to downsize, soaring house prices are about as beneficial as, say, soaring petrol prices.

    Well most people do eventually. But people like me benefitting from the boom have kids losing out (ie running back to me for financial help) so it doesn’t help us anyway. The population really are a load of lazy idiots to let themselves be screwed over like this

  8. Joe Goodacre

    Good article.

    Artifically making land unaffordable in my opinion creates side effects that make our society more left over the long term:

    a) mums go back to work earlier to help pay for the larger mortgage meaning children are raised in state subsidised childcare. There the children celebrate multicultural days and learn how to be green; and
    b) young adults stay at home longer as they are unable to afford buying their own home, becoming perpetual adolescents; and
    c) being adolescent longer, people marry later, have families later and have smaller families (if they have children at all). All of these things work to make families seem less important – a large government fills this vacuum.

    Since owning a home is almost universally desired and is the bedrock upon which families either become prominent or irrelevant, land use restrictions in my opinion are the most important culture war battleground out there.

  9. Andrew of Randwick

    In this debate, does anyone actually know what other countries do about foreigners and residential land ownership? Has a credible institution done a world survey?, e.g. PC, OECD, IMF….

  10. Joe Goodacre

    My preference is that the Chinese don’t own our land.

    The reason is that the culture of a place can change dramatically as a result of foreign ownership.

    However – I accept that if we want to buy goods manufactured in China, yet we produce few goods or services that they want then the only way the Chinese can spend their Australian dollars is to purchase land. Restricting Chinese buyers from purchasing land is to say in effect that we are happy to trade with the Chinese, but we don’t make anything and they can’t buy our led – this is hypocritical in my opinion.

    What I don’t like, is that market distortions force Australians to purchase goods manufactured in China where the only thing the majority of us have to trade is land. The carbon tax, restrictions on subdividing (meaning the cost of living is higher here, meaning wages must be higher), minimum wage restrictions, environmental regulations and welfare mean that cost competitive manufacturing is nigh on impossible here. This means that Chinese purchasers buying land is a result of artificial distortions – it’s those distoritions that I want to remove.

  11. Joe

    If you have money in China you’ll want to get it out of the country. All too easy for their government to take it if they need it or they don’t like you.

    Put it in Australian property.. And you don’t have to be a resident to do it. Simply set up an agreement with a resident to buy and “own” the property for you. Plenty of risk, but is there more risk in doing this than leaving your money in China.

    High property prices lead to larger mortgages, which require higher wages. Also the influx of foreign capital puts upward pressure on the dollar — though how much pressure I’m not sure.

    Seem like another two factors that help to make Australia a less competitive place to do business.

    It would be good to see whether our tax system is uncompetitive when compared to our Asian neighbours – our competitors. We seem to like comparing ourselves to France and Germany, but that’s not where our jobs are being exported to.

    One other point..

    Has anyone seen any research on migration pushing down wages and increasing the cost of property? Unlike previous generations where migration and its associated demand for goods and services created jobs in Australia, nowadays this demand is supplied largely from China, India, Vietnam etc. Does modern migration create the jobs it used to in Australia, or does it largely create jobs in other countries?

  12. johno

    My preference is that the Chinese don’t own our land.

    If you don’t want a Chinese citizen to own your land, that’s fine, but please don’t tell me that I can’t sell my land to a Chinese citizen.

  13. Elizabeth (Lizzie) B.

    Artifically making land unaffordable in my opinion creates side effects that make our society more left over the long term:

    Joe Goodacre at 8.06. More mums at work paying the mortgage, more left-influenced childcare, smaller families, dependent child-adults, more big brother State. What a tangled web interfering land regulations weave in the long run. But who or what will break the chain in this litany of unintended consequences?

  14. Craig Mc

    Unless you want to downsize, soaring house prices are about as beneficial as, say, soaring petrol prices.

    That would be: soaring petrol prices, with you having several hundred thousand litres stashed away, and no capital gains tax on any profit, but you have to sell it all at once.

  15. TerjeP

    But the incumbents hold the political cards and few politicians advocate land deregulation

    Family First senator-elect, Bob Day, has been vocal on the need for opening up the system. He advocates the Houston Texas approach to land zoning.

  16. Max

    Australians arn’t racist – its happening all over the world.

    http://www.theatlanticcities.com/housing/2014/03/londons-current-obsession-its-own-identity-crisis/8614/

    London’s role as a safe haven for global money – especially through property investment – is making it increasingly unlivable.

  17. It's a protection racket

    For years while in opposition our local Liberal MP had been making all sorts of assurances about relaxing the iron-fist prohibitions against subdivision of acreage in his electorate on the fringe of the city. But shortly before the Liberals won the last election, he did an abrupt about-face and has been openly hostile since. Obviously he was tapped on the shoulder by someone with power and connections and told his days in politics would be numbered if he continued down that road.

    It proves to me that the whole the planning system is nothing but a giant protection racket benefiting the big end of town. Incumbent property owners have been sucked into going along with it through the illusion of prosperity it creates, and others through all the rhetoric about ‘protecting’ the environment, ‘orderly’ development, the evil of urban ‘sprawl’, etc, etc.

    But as Alan alludes to, land use planning is an integral part of communism. In a free and prosperous society based upon the rule of law, as opposed to the rule of men, it should be completely outside the government’s domain.

    We must demand that the government protects property rights, instead of protecting everything but.

  18. Ellen of Tasmania

    The original impetus for restraint on land availability has developed its own set of vested interests

    ICLEI is a UN initiative that works directly with local councils around the world. It encourages the idea that it is desirable, for environmental reasons, to have smaller, denser living zones surrounded by agriculture, green corridors and large national parks.

    So not only can you have a vested interest, you can also feel noble and self-righteous about it.

  19. Elizabeth (Lizzie) B.

    in this litany of unintended consequences?

    Hmmm. On reflection, maybe they are not so ‘unintended’.

  20. Andrew

    The argument seems to be
    - prices are abnormally high
    - they are high well beyond fair value (ex-Fewfacts climate screecher Jessica Bingle says “twice the reserve”)
    - this is because of the Joooooooooooos – oh wait, because of the Chineeeeeeeeeeze

    So here’s the thing: we have some fuckwit prepared to buy our property for twice what it’s worth, provided it’s new and not coming from existing supply at all. Leaving aside the question of whether in a free country we should be allowed to do this, isn’t the real question “who are these morons, how do we market to them, and how can we ensure Austrade keeps them appraised of every new development in the country?”

    I someone was standing in the market to buy BHP shares at $70, would we be saying “should we slap a massive new BHP tax to prevent this”?

  21. dan

    Since owning a home is almost universally desired and is the bedrock upon which families either become prominent or irrelevant, land use restrictions in my opinion are the most important culture war battleground out there.

    I am surprised that the twentysomethings don’t seem to have realised they could run their social media campaigns about this rather than “March marches” or whatever crap they are up to. This – planning restrictions and stamp duty in particular – would get people in the streets. I have toyed with starting my own campaign to replace stamp duty, perhaps with a land tax, as that would help me too when I upgrade. As no-one else seems interested in doing it.

    Whether or not foreign investment should be banned in any way I think legislators should probably be aware that people smart enough to make enough money to buy expensive real estate overseas are probably smart enough to evade the restrictions we have set up. I can easily think of a few myself just looking at the rules.

    It’s all kind of ridiculous though, in my part of town no-one is buying from overseas but the fact I can’t put four units on my big block is a pretty bloody obvious reason my kids won’t be able to buy something in the area.

    The fact that mothers (or would-be stay-at-home fathers) need to work outside the house just to pay a mortgage is economically and morally obscene.

  22. dan

    I someone was standing in the market to buy BHP shares at $70, would we be saying “should we slap a massive new BHP tax to prevent this”?

    That statement is not logical. If the reason they and other people are willing to pay $70, and the yield was still the same, because the state governments ban anyone from ever opening new mines despite massive demand from China and India, that would indeed be a problem. Not one solved by taxing BHP but by allowing people to build new mines or expanding existing ones held by competitors.

    If this is a “free country”, where I can’t develop my own freehold property, and a cabbage farmer can’t sell his dirt to someone who wants to build a house, your understanding of “free” differs from mine.

  23. brc

    If you want a story on how insane land use, tenancy and other laws create perverse outcomes, take a read of this article:

    evicted in San Francisco

    You’ll be glad the madness of Sydney is but a mere irritation.

    The issue in the above case is insane rent control laws, which protect people from the market for decades, – until they don’t anymore.

  24. Joe Goodacre

    johno – I haven’t said that, and neither do I believe restricting people from who they sell their land to – which you could have worked out if you’d read the rest of the comment.

  25. dan

    OK brc how about this one:

    Herbert Sukenik, 73, wouldn’t budge. Will Zeckendorf describes Sukenik as “a nightmare. Hugely intelligent, a Ph.D., unmarried, embittered, a loner, disconnected from society, and too smart for his own good. ” Here’s an excerpt from House of Outrageous Fortune that reveals how one isolated old man with nothing to lose turned a shabby little apartment into $17 million:

  26. .

    Manny
    #1222562, posted on March 13, 2014 at 7:56 am
    What’s the “market gardening area of the County of Cumberland”. Do you mean Flemington?

    Around the outskirts of Liverpool and Blacktown, primarily around Eastern Creek/Cowpasture Road.

    There is even some of this around Elizabeth Drive and Claremont Meadows.

  27. brc

    Dan- yikes. Plenty of mafia informants have ended up in concrete for far lower sums. Seems developers are ethical after all.

    It irks me that ‘greedy’ is used whenever somene wants to take control of property they have paid for. Greedy to me seems to be people who want to live somewhere, subsidised by someone else. That is the essence of greed, to me.

  28. Joe Goodacre

    Lizzie B – it took a century for the Left to take control of our culture, it may take that long to win it back.

    My view is that the right needs to have large families!

  29. dan

    Seems developers are ethical after all

    If I had hundreds of millions of dollars of financing (OK this is hypothetical) and some old guy was blatantly extorting me like that, seriously, not even accepting say a $2m offer, I can’t help thinking my lawyers could identify some entirely legal contrivance that would get him out of there somehow.

  30. johanna

    The property market in Australia is about as free as the market for food under post-war rationing. Supply is strictly controlled, and satisfying demand is therefore rationed. It has been a bonanza for State and local governments, who use it as a milch-cow via a multitude of taxes and levies. Developers are also beneficiaries. As usual, it is taxpayers and consumers who are funding the scam.

    Tha canard about evil Chinese investors is just a variant of the other myth beloved of those who want to deflect the blame – i.e. that “investors are forcing first homebuyers out of the market by paying higher prices.” The solutions proffered are then to increase regulation and costs, by means of things like restricting certain types of purchasers, providing taxpayer subsidies to certain types of buyers and so on. Nothing could be more counter-productive.

    In terms of rentalaccommodation, governments on one hand saddle investors with taxes and mandatory costs, (at least the first $100 per week in rent where I live) and then bleat about greedy landlords and provide rent subsidies or public housing to a fortunate few.

    Housing policy is a shambles.

  31. brc

    The strata title system in Australia also creates perverse outcomes and last man standing issues. Near where I used to live was a shocking apartment block. It was full of nasty and cheap 1 and 2 bedroom apartments. The thing looked like it came straight from soviet central planning.

    It’s also on a massive block – over 2/3rd of the land is weed infested carpark.

    Many developers have run the ruler over it, but because it is a mess of various owners, all who want to be the last one standing, nobody can get it bought out.

    So the neighborhood has an eyesore, and the only tenants are undesirables, so much so it earns the nickname of junkie towers. And nothing will change.

    There should be a process whereby a takeover offer can be submitted an only needs something like 2/3 majority to accept to make it law. Otherwise the old strata title stock is going to degrade and be impossible to change/replace/move.

  32. brc

    My view is that the right needs to have large families!

    Demographics is destiny. The left will be outbred due to their own choices. But the Presbyterians will outbred everyone.

  33. Squirrel

    I will believe serious supply side measures when I see them. In the meantime, the cost of housing – indeed the cost of all accommodation, including commercial – in this country is causing all sorts of economic and social problems., and if something practical can be done to reduce unnecessary demand then it should be. If the latter happens to be anti-libertarian, too bad – interventionist market distortions have created the mess, so intervention to begin the alleviation would be quite in order.

  34. Token

    If you have money in China you’ll want to get it out of the country. All too easy for their government to take it if they need it or they don’t like you.

    Put it in Australian property.

    This is the challenge, for people to see our property laws make our property an safe way to warehouse cash.

    This should not result in stark results if governments were not artificially preventing supply to enter the market.

    This is what must be changed. All other “plans” will create Plibersek type loopholes which distort the market in other ways.

  35. johanna

    That’s right, token – it’s just foreign investment, which we should welcome. If supply-side restrictions were eased, everyone would be a winner. Since parking money in safe havens is a motive for all kinds of foreign investors (not just Chinese), and they still have to pay rates and taxes, we would all be in front.

  36. Combine Dave

    Australians arn’t racist – its happening all over the world.

    That’s not very logical, the rest of the world is in general much more racist than Australia :P

    This previous comment basically sums up my view:

    My preference is that the Chinese don’t own our land.
    - If you don’t want a Chinese citizen to own your land, that’s fine, but please don’t tell me that I can’t sell my land to a Chinese citizen.

  37. Combine Dave

    Artifically making land unaffordable in my opinion creates side effects that make our society more left over the long term:

    a) mums go back to work earlier to help pay for the larger mortgage meaning children are raised in state subsidised childcare. There the children celebrate multicultural days and learn how to be green; and
    b) young adults stay at home longer as they are unable to afford buying their own home, becoming perpetual adolescents; and
    c) being adolescent longer, people marry later, have families later and have smaller families (if they have children at all). All of these things work to make families seem less important – a large government fills this vacuum.

    a) Wouldn’t being away from mum and dad encourage kids to be more independent and less likely to cling to the skirts of their mama?
    b) True. But this seems to be the case in most countries in general, even where housing prices are much lower than Australia. Why pay for rent or food or do your own laundry when you can sponge off of mum and dad? With rents relatively cheap, so long as your children can work kick them out. Moving out on your own doesn’t mean you should be immediately be inserted as owners of 600k house in a capital city. Try renting while saving up for a deposit.
    c) Can’t argue with that. Across the board people are more childish and more included to believe they are entitled to every and anything in life they desire.

  38. Combine Dave

    Has anyone seen any research on migration pushing down wages and increasing the cost of property?

    Has this really happened in Australia? Australia has been an immigrant nation for a long time, I don’t recall my wage (or anyone else’s?) declining at any stage.

    While in a free market scenario the additional supply of migrants might decrease wages, Australia has a terribly rigid system, using high minimum wages and such. I guess lots and lots of unskilled immigrants would just result in more unemployment as the government doesn’t allow wages to fall?
    - Although the fact immigration is restricted means that immigrants who do get in (disregarding the aberration that was the ALP’s boat people policies) are more likely to be in demand types; doctors, specialists, engineers etc probably blunts this effect.

    As for property, if restrictions and regulations on developments within Australia were lifted immigration wouldn’t add to housing shortage driven price hikes, rather the additional demand would subsidize the supply of additional housing which would ultimately benefit the rest of us.

    To some extent this must be happening already, given the large amount of foreign investment into new developments in Australia. As outlined in the following article:

    “Mellor estimates 17,000 apartments will be built in inner Melbourne during the next three years – with many of the projects undertaken by Asian developers.”

    http://www.theaustralian.com.au/business/property/chinese-new-wave-rocks-property-market/story-fn9656lz-1226747147870

    Unlike previous generations where migration and its associated demand for goods and services created jobs in Australia, nowadays this demand is supplied largely from China, India, Vietnam etc. Does modern migration create the jobs it used to in Australia, or does it largely create jobs in other countries?

    Would be both. Although I imagine in this age of globalisation that the number of jobs created locally in Australia due to immigration would be less than in the past. For example; Previously an immigrant would have no choice but to purchase goods and services locally (and in many cases this is still the case), however now they have the ability to import the consumerables that they are familiar with from their home country. In terms of entertainment, if dissatisfied with Australia’s poor free to air selection, rather than paying for fox as an alternative they can now readily use satelite or IP TV from their home country.
    - However aside from these examples they’d still be dependent on many local services and products which would in turn create more work for Australian businesses.

    I don’t think you can blame dem foreigners for manufacturing moving out of high cost and uncompetitive locations such as Australia to China/Korea etc.. especially when every other Australian consumer is quite happy buying electronics, cars, furniture etc.. made in Asia.

  39. MT Isa Miner

    Joe Goodacre

    #1222573, posted on March 13, 2014 at 8:06 am

    Good article.

    Artifically making land unaffordable in my opinion creates side effects that make our society more left over the long term:

    a) mums go back to work earlier to help pay for the larger mortgage meaning children are raised in state subsidised childcare. There the children celebrate multicultural days and learn how to be green; and
    b) young adults stay at home longer as they are unable to afford buying their own home, becoming perpetual adolescents; and
    c) being adolescent longer, people marry later, have families later and have smaller families (if they have children at all). All of these things work to make families seem less important – a large government fills this vacuum.

    Since owning a home is almost universally desired and is the bedrock upon which families either become prominent or irrelevant, land use restrictions in my opinion are the most important culture war battleground out there.

    Thanks Joe G. This is something I never thought about as a lever for our kids and our future society. The general point seems to make sense.

    Steve Sailer who has written a lot about the US housing market agrees with you; he calls it affordable family formation. He writes about the low planning states like Texas voting conservative and the high planning and expensive ones voting leftist.

  40. ar

    People upset about “foreigners” forcing up prices and preventing them from buying that property they wandered through during a recent open house. On the other hand, people selling their houses are not so upset.

  41. LABCR-TV

    There was an article on the ABC online site a couple of weeks ago that suggested only 14% of new house purchases were made by Chinese foreigners. It also stated that there were quite a few Americans and other nationalities adding to the purchases.
    Then there are reports by native Aussies when they turn up to an auction all the other bidders are Chinese. So I don’t really know what is going on here, maybe Chinese prefer auctions?
    There are some foreign financial commentators who claim that the Chinese buyers are basically corrupt businessmen and women fleeing from China after they have rorted their own system, and want to park their loot into Canadian, British and Australian property. It is true that China has produced a lot of millionaires in recent times.

  42. Infidel Tiger

    The idiot lefties keep insisting it’s all negative gearing’s fault. They won’t hear a word about the supply side restrictions.

  43. Combine Dave

    Then there are reports by native Aussies when they turn up to an auction all the other bidders are Chinese. So I don’t really know what is going on here, maybe Chinese prefer auctions?

    Misidentifying local Australian born Japanese, Vietnamese, Korean, Chinese, Taiwanese, Hong Kongers (various other 2nd/3rd generation Asian immigrants) as o/s born Chinese house thieves?

    Back when I was still house shopping there was always an Asian family at each of the open houses I attended (only one mind you, the rest were Australians).

    Sometimes this Asian family was from O/S other times they were clearly local, more than a few times the sole Asia family present were not Chinese in origin ie; speaking in Korean or another nonchinese language.

    I know of quite a few Chinese (and Taiwanese) families who have bought property in Australia, however this was usually either following obtaining citizenship or while they held PR (awaiting citizenship).
    - Not as a method to hide money from their own gov, but to ensure they had a safe family home here rather than entrusting their loved ones and valuables to a Chinese or foreign (from their perspective) landlord.

  44. Elizabeth (Lizzie) B.

    Doing my best on the large family stakes, Joe. Four kids do you?
    If I had the years all over again I’d make it six. I’ve always loved having children.
    I was a leftie for too long but Da non-leftie Hairy Ape helped me to catch up. :)

  45. Joe Goodacre

    MT Isa Miner,

    Another trend we’re likely to see is that as families are artifically made smaller by making suitable family sized accommodation unafordable, these smaller families will be less likely to have the resources to look after their parents as they age. Who steps in – big government. Another example of the Left slowly ratcheting control over our culture.

    I hadn’t thought about Texas conservatism in that light – thanks for the further reading material.

  46. Joe Goodacre

    Lizzie B – we’re pregnant with our first at 12 weeks.

    Hopeful for many (4), but any will be a blessing.

  47. Joe Goodacre

    12 weeks pregnant – not a 12 week newborn… big difference!

  48. calli

    Congratulations Joe!

    Always wanted four…but ended up with three little trimmers. And when they got married (a long way off for you), and marry lovely people with character and intelligence, you get all the extras…for free. And then there’s the wee grandchildren.

    That’s what I call a good investment.

  49. Combine_Dave

    That’s what I call a good investment.

    Quite so.

    Btw, Congrats Joe!

  50. Joe Goodacre

    Thanks Calli and Combine_Dave!

  51. Senex Bibax

    The same concerns about foreign (Chinese) buyers driving up real estate prices is prevalent in Canada, especially in Vancouver and Toronto. Vancouver in particular reminds me very much of Sydney.

    The perceived problem is not with the ethnicity of the buyers per se. Rather, it is the fact that they tend to purchase outright for cash rather than via a mortgage, that people are suspicious of the source of such wealth in a country like China, and the fact that so many properties are being purchased as an investment by an absentee owner, rather than as a personal residence.

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