Should Foreigners Be Allowed To Buy Australian Houses?

AN ARTICLE appearing today in The Australian canvasses the prospect of increasing stamp duty on residential stock purchased by “foreign investors” by 5%; with house prices again nearing record highs and millions of young Australians locked out of a prohibitive market, the measure falls far short.

This contentious issue is one of a number of “agenda items” that — as a conservative — I would dearly like to see addressed by the Abbott government, but we’ll see.

In any case, calls by former Macquarie Group banker Bill Moss to add an additional five percentage points to the rate of stamp duty levied on purchases of residential property “by foreign investors” is welcome as a starting point, but is inadequate as a complete solution.

Readers can access the article in question here.

Just to be clear, this column has no problem with foreign investment per se; investment in our companies, infrastructure, and commercial and industrial sectors generally is welcome, and of enormous benefit to Australia’s economy.

I do have concerns about foreign investment — especially from China — in the agricultural sector; we’ve discussed this before, in reference to the “northern foodbowl” project that was developed by Trade minister Andrew Robb in opposition.

We can’t compete against their labour, but they can’t grow enough food; it seems perverse to sell control of one of Australia’s great strengths (and sources of income) to the exclusive benefit of the Chinese (and, of course, whoever pockets the windfall from the sale of the assets).

But I draw the line on houses, apartments and the like.

Chinese investment in Australian residential property “could increase tenfold,” according to Moss — who then goes on to cite the example of Vancouver in Canada, where Chinese investment in residential stock has been at least partially responsible for pushing average house prices over $1 million.

I have to be emphatic about this: housing in Australia must be the preserve of the people who live in Australia, and not form part of an investment asset pool increasingly acquired and controlled by offshore interests.

In case anyone thinks this position is motivated by xenophobic or racist sentiments, I should add that I have no problem with foreign nationals who are permanent residents in Australia owning houses here, or even acquiring investments whilst they live here.

But far from simply adding a “hassle tax” to the purchase price (and with the oceans of cash available to the increasingly wealthy middle classes of Asia, a rise in the stamp duty rate of 5% represents a drop in the bucket), I think non-resident foreign nationals should be barred from owning residential property in Australia at all.

It wouldn’t stop, for example, a Chinese property development company from acquiring land zoned for the construction of apartments, building them, and selling them: in terms of such commercial opportunities, what I am suggesting would make no difference.

But it simply isn’t appropriate for domestic housing stock to then be accrued and stockpiled by people in other countries, or — even worse — to funnel rental income streams out of Australia, whilst ordinary citizens of this country can’t afford to buy a house.

Some of the controls around foreign ownership of Australian residential property were abolished by the government of Kevin Rudd in 2008; soon enough, stories of vacant houses left empty began to emerge from suburban real estate agents, who speculated (no pun intended) about strategies to drive up the value of the investments by restricting the availability of supply in the areas in which the properties had been purchased.

I reiterate that I have no problem with Chinese people (or people from anywhere else, for that matter) buying a house whilst they live in Australia.

But once they leave the country, they should be forced by law to divest the asset within a reasonable timeframe — say 90 days.

There are, to my mind, two issues at play here.

The first is the obvious one about the affordability of housing, and it affects the rental market as well; by allowing foreign investment in residential stock, it restricts the supply for Australian citizens and residents, driving prices up and preventing rising numbers of Australians from becoming home-owners.

Consequently, more people are competing for that portion of the residential supply available to rent, driving rents through the roof, too — and perpetuating the cycle of housing unaffordability, because the higher the rent, the less disposable monies can be saved, and the harder it becomes for putative first home buyers to enter the market.

But the second issue speaks to those sections of the community who seek to avoid offending overseas interests at any cost: our national interest and our conduct as an international citizen are both extremely important considerations, but they are not the same thing.

The prospect of median house prices in this country hitting $1 million is unpalatable, and clearly far from ideal. But it is by no means unrealistic, given the overall skyward movement of property prices in Australia over the past ten years or so.

Should overseas investors be allowed to buy houses here if they don’t live here? Should they be able to stockpile residential properties and either leave them vacant to increase their value, or rent them out to take Australian monies out of the country?

Or are our apartments and houses the preserve of those who live there, with nary enough to go around as it is without external forces putting them further out of reach?

I’ll be interested to see what readers have to say.

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8 thoughts on “Should Foreigners Be Allowed To Buy Australian Houses?

  1. Rather than 90 days I think the better limit is the old “A year and a day”. Forcing people to sell within 90 days when the move overseas might have been outside their control (transfer perhaps) would result in fire sale prices and a loss to the owner. This is simply unfair and they should get more time.

    Similarly there should be an exception that allows overseas companies to purchase houses/units that their employees in Australia (either Australians or short term International transfers) can live in as part of their salary package. The caveat is of course that employees actually live there and the property is not left vacant.

    My 2 cents.

  2. Yale

    I totally agree with you on this one.

    In the economy it should be foreign investment welcome, foreign ownership approved sparingly.

    For Land foreign ownership should be totally forbidden, whether that land be for farming or housing.

    Mark Moncrieff
    Upon Hope Blog – A Traditional Conservative Future

  3. I’m an unashamed left-winger, but I wholeheartedly agree with the notion of discouraging foreign ownership of a nation’s housing stock. Homes should not be a commodity, traded and exploited like any other investment. Over in London, we’ve seen what it does to property prices when well-off business people snap up homes and leave them empty for most of the time, whilst pricing ordinary fol out of the market.

    • Hi Jack, welcome — good to have you with us. I think there are some issues that transcend the political Left/Right divide (or at least they should…you should try getting any sense out of the Australian Greens).

      Clearly, this is one of those issues, and you will have seen exactly what I am talking about in London. Ownership by foreign residents isn’t the ONLY factor fuelling house price growth in Australia but it is certainly a powerful component of the problem; one which is obvious and which could — and should — be brought to an immediate end.

      I’ll have a look through your blog later tonight, notwithstanding the fact I sit on the mainstream Right 🙂 UK politics is my big “external” political interest if I can put it that way, and it will be interesting to see what you have to say…

  4. This is where Labor (if they are smart) should focus.

    Australia’s is the western world’s most expensive country to buy a house. This should be the number one issue for a party that claims to have the working poor as its base.

    A set of Labor policies to massively increase the supply of new housing and restrict foreign ownership would be very popular with their younger base.

    Conservatives are very vulnerable here as their base is older and wealthier and has a vested interest in keeping house prices high so when they downsize in retirement they make a killing (i.e. turn their children and grand children into debt slaves).

    • Hi Scott, thanks for your comment — and welcome.

      Labor is compromised on this to some extent because the foreign ownership controls on housing were virtually abolished by Kevin Rudd. That said, whichever of the main parties takes up the cudgels on this is likely to reap a significant electoral dividend. Because of the crossover into state responsibilities it would need to be co-ordinated (which nominally puts the Liberals in the box to have the first crack at it) but as you say, there is probably a correlation between property wealth and political inclination.

      Unsure where you’re writing from, but Labor did have a crack at it here in Victoria with its Melbourne 2030 blueprint when Bracks and Brumby were in office; the practicality of it was local communities in outrage over high-density development ripping through their suburbs (including where I live in the Bayside). The NIMBY factor knows no political boundaries, of course…

      The root cause is property speculation, irrespective of who or where the speculators are based — a solution will involve hurting those people. So you might, in the end, be right.

  5. I feel angry with the Government that they are allowing Foreign investors to buy property in Australia. The argument is that they cannot take it home, however it is a racquet for foreign investors to get into the property market and exploit Australian citizens who can only afford to rent. Foreign investors are leasing out properties and using the car parks in these properties to park their expensive Mecedes to avoid paying car parking fees. This may seem trivial but in major cities in Australia the cost of car parking is very expensive. Foreign investors are also pushing up the price of real estate and making it even more difficult for first home buyers who are Australians to purchase their first home.

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