Concept of “foreign horde” responsible for driving up Australian house prices misplaced: Philip Soos
While the data may be scant, Deakin University’s Philip Soos says there is enough in the most recent annual report of the Foreign Investment Review Board (FIRB) to suggest foreigners investors are not the one’s driving up real estate prices.
Soos, researcher at the School of International & Political Studies at Deakin University, says even using the “scant” information in the FIRB’s 2010-2011 annual report “a picture emerges that is at odds with the conception that a foreign horde is responsible for a flood of investment into the real estate market”.
“It is impossible to mount a case that foreign investment is a driver of increasing housing prices.
“This is no different to the National Housing Supply Council suggesting that homeless people and caravan park residents are a cause of an undersupply, pushing up prices,” he says in an article for academic commentary site The Conversation.
“The blame game in the US says that the Chinese were partially responsible for the housing and financial crises on the basis that the Chinese government’s purchases of US bonds kept interest rates artificially low, setting off the housing boom.
“Blaming foreigners for astronomical prices is nothing but a scapegoat for the policies enacted by government on behalf of bankers and landowners that makes housing unaffordable. Those who are discontented with the current states of affairs should focus their attention on our own government rather than searching for foreign influences.”
Soos says the annual report shows that the residential real estate was the primary target of investment comprising 98% of the 9,771 real estate applications made to FIRB.
However real estate applications totalled only $42 billion (23%) out of $177 billion of investment across all sectors.
“This is due to the relatively small nature of investment in real estate, compared to the larger scale of business investment,” he says.
Soos says Victoria was the target for most real estate applications, at 4,398 (45%), with New South Wales coming in at a distant second with 2,598 (27%).
“Given Victoria’s 2.2 million dwellings, with an estimated 40,000 new dwellings constructed last year, the number of foreign applications amounts to 11% of all new dwellings, a fraction compared to the total dwelling stock.
The report shows that the top country by real estate investment is the UK at $4.6 billion, followed by China at $4.1 billion, and the US in third place with $3.4 billion.
China headed the pack with the largest number of applications across all sectors, at 5,033 (47%) of the total.
Soos says the appeal of Australian property to Chinese investors combined with a steadily growing Chinese economy has resulted in concerns about foreigners “interfering” in the health of the property market.
“The evidence, however, shows that foreign investment in real estate is relatively small. Apprehension of Chinese influence (the “yellow peril”) is unwarranted, as the US and UK are collectively responsible for double the amount of Chinese investment,” he says.
Soos also noted the reluctance of the FIRB to reveal more details about foreign investment applications, highlighting that Chris Vedelago, The Age’s property reporter, used a Freedom of Information Act (FOI) request in an attempt to gain some insight into this issue, but was rebuffed by the FIRB.