Hitting foreign buyers with extra fees is an ineffectual solution to a mythical problem
It makes absolute sense that a parliamentary committee would propose hitting foreign investors with extra fees.
If politicians are silly enough to bring on a lengthy, costly, pointless inquiry into a mythical problem (housing affordability), it follows that they would come up with “solutions” that are equally ineffectual.
The idea which reportedly is being considered by the parliamentary committee investigating housing affordability is to charge foreign buyers of Australian property extra stamp duty or other additional fees.
The “logic” goes like this: there is an affordability crisis; foreign investors are causing it and therefore if we hit foreign buyers with lots of extra costs they’ll all go away and there won’t be a problem any more.
Housing will be affordable once again and young Australians will all live happily every after.
Here’s the problem with the solution: we don’t have an affordability crisis, foreign investors are not pricing young Australians out of the market and charging them additional stamp duty will not have the slightest impact on the cost of dwellings for first home buyers.
The Reserve Bank and many commentators from the property research sector have said they believe the impact of foreign buyers is being overstated. I think they’re right.
None of that should prevent the committee from proceeding with the idea of punishing foreign investors. This whole exercise, remember, is being run according to the 'Boys Own Manual of Bureaucratic Smokescreens' written by Sir Humphrey Appleby.
Foreigners account for a small percentage of residential property sales. Their numbers are dwarfed by local investors and in particular by the most powerful force in Australian real estate, home buyers other than first home buyers.
Foreigners are not out-bidding Australians at Sydney and Melbourne auctions because foreigners are restricted in what they are allowed to buy (although there are claims they are sidestepping the rules in the some cases). The “debate” has got to the point where anyone Asian-looking who buys at auction is deemed to be a foreign investor.
Most foreign buyers are purchasing off the plan apartments in locations such as inner city Melbourne and the Gold Coast. These places are not first homebuyer territory so they are not competing with young Aussie wannabes.
My interpretation is that the impact of foreign investors on Australian house prices is close to zero.
Here’s the great irony in all this: if you really wanted to bring down the price of city real estate, you should be providing incentives for foreigners to buy off the plan apartments, not disincentives.
The only way to reduce property values is to create a massive oversupply. Simply increasing supply a little won’t do it. You need a serious glut, with vacancies at 10% or 15%.
The only markets around Australia where values have dropped a lot (such as mining towns and resources regional centres) are locations with major vacancies caused by oversupply.
Several of the inner city markets in our biggest cities already have high vacancies but developers are bringing on more and more new towers. Why? Because they think they can flog them to foreign investors. At least half of the apartments being built around Australia are being developed by Asian companies.
These apartment towers are not being built for Aussie first home buyers or Aussie buyers of any genre. They’re being built for gullible Chinese investors. Some of our cities, headed by Melbourne, will end up with scary oversupplies, big enough to crash rentals and prices – and not just in the inner city areas.
If politicians scare off foreign investors by hitting them with onerous charges, many highrise developments will be scrapped. No oversupply, no collapsing property values, no cheap dwellings for first home buyers – and, incidentally, no construction boom and none of the jobs it would generate.
On that basis, I think deterring foreign investors is a good idea – not because it will help housing affordability but because it will prevent a disastrous oversupply of apartments in Melbourne, Brisbane, Perth, the Gold Coast and, eventually, Sydney.