Foreign investors not to blame for Australian housing affordability problems
The Australian authorities recently instigated an enquiry into the Australian real estate market amid concerns that the general public were being priced out of the market due to affordability issues. Australia is this just one of many countries around the world which have been investigating the impact which foreign investment is having on their domestic real estate markets. The findings of this enquiry will surprise many people and force critics back to the drawing board.
Foreign investment in Australian real estate
Before we look at the findings of the enquiry into the Australian real estate market it is worth noting that at best it accounts for 6% of total Australian housing market investment. Some experts believe the actual figure is nearer 2.5% but even 6% only equated to $24.8 billion in the year ended March 2014. Admittedly this is a significant increase from the $17.2 billion from the previous year but in the overall picture it is minimal and unlikely to have any major impact upon Australian real estate prices.
House prices in Australia
The main data to emerge from enquiry is that capital city house prices across Australia increased by an average 13.2% during the 21 months to January 2014. This data was provided by RP Data with an International Monetary Fund (IMF) report putting further meat on the bone confirming that the ratio of Australian house prices to average incomes is currently just over 30% above the historic average. This is the crux of the problem with regards to first-time buyers unable to climb aboard the property ladder, the fact that income does not seem to be keeping track with rising property prices in Australia’s capital cities.
Emotive arguments about foreign investment
Many governments around the world have been fighting fires with critics suggesting that foreign investment is having an undue impact on property prices. We may well have seen a rise in property prices in Australia but Australia is not alone with London property prices now well in advance of their 2008 highs. However, the enquiry into the Australian real estate market has found that domestic buyers in Australia, including first-time buyers, tend to go for a very different price bracket to their foreign investment counterparts.
This information has to be correct as each and every Australian real estate investment by foreigners needs approval by the authorities. There was sporadic evidence that international investment can impact relatively small niche markets, often at the luxury end, but on the whole there are many additional factors to take into consideration.
Other factors impacting the Australian real estate market
It is very easy to blame overseas investors “taking advantage” of Australian property prices and a strong economy. However, there are many other factors to take into consideration such as: –
Low interest rates leading to higher than average mortgage arrangements
Above average population growth in Australia’s major cities
A lack of suitable land
A strong economy leading to employment hotspots and excessive demand for property
Planning and red tape issues
The conclusion of the report is that while foreign investment does have a minimal impact on property prices, and can a greater impact on relatively small niche markets, this is not the reason why the affordability issue is rearing its head. Indeed many people forget that foreign investment has also assisted the Australian economy which has performed far better than any other Western world economy since the 2008 worldwide recession.