Huge chunks of Australia’s biggest cities wouldn’t exist without Chinese cash
Aussies are overwhelmingly in favour of Peter Dutton’s vow to block wealthy Chinese investors from snapping up properties Down Under. But there’s more to the story.
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Vast parts of Australia’s biggest cities wouldn’t exist if not for the flood of foreign money pumped into the real estate sector over the past few decades, particularly by cashed-up Chinese investors.
That’s the view of leading experts who warn political campaign ploys to blame migrants for the country’s economic challenges could backfire.
New polling published this week showed an overwhelmingly proportion of voters back a plan by Peter Dutton to restrict foreign investment in real estate should the Coalition win the election.
The research for the Sydney Morning Herald found a whopping 69 per cent of those surveyed supported Mr Dutton’s proposal to implement a two-year ban on foreign buyers of existing dwellings, with just nine per cent opposed and 22 per cent uncertain.
And a majority in favour came from across the political spectrum, with 60 per cent of Labor voters giving it the tick of approval.
But the consequences of that reform could deliver a major economic blow while having minimal impact on the country’s housing crisis.
Lot to thank foreigners for
Nerida Conisbee, chief economist at Ray White Group, said chunks of Melbourne, Sydney and Brisbane probably wouldn’t exist if not for foreign investors – and the “wave of Chinese investment in the past decade specifically”.
“Foreign investment into Australia is already very low at the moment,” Ms Conisbee said. “It’s also restricted to new property only, so that investment is able to contribute to new housing supply.”
That would remain the case should Mr Dutton be the next prime minister, as the Coalition’s two-year ban would exclude brand-new properties, but Ms Conisbee said activity could be impacted anyway.
“Foreign investors aren’t really that active at the moment anyway – too many taxes in place and other countries where they can put their money,” she said. “If things became even more prohibitive, then yes, it would put them off.”
If that’s the case, affordability could actually take a hit – not improve.
“We have a lot of affordable apartments in Australia because of foreign investment,” Ms Conisbee said.
“New buildings can’t get off the ground without a certain number of presales. Australians aren’t as used to buying off-the-plan as foreign investors are, so we’ve relied on foreigners to get projects started.
“Most of Melbourne’s CBD wouldn’t have been developed without Chinese investment. Many of those projects wouldn’t have gotten off the ground.”
Apartments also form a major component of the Federal Government’s ambitious goal of building 1.2 million next homes before mid-2029, in a bid to dramatically boost supply and ease affordability constraints.
“We have never built that many homes,” Ms Conisbee said. “The only time we got close was at the end of last decade and foreign investment drove it. The money has to come from somewhere.”
Tiny impact of ban
Would-be foreign buyers would still be able to snap up brand-new homes, such as house-and-land packages or off-the-plan and recently completed apartments.
The Albanese Government has criticised Mr Dutton’s plan, saying it would have little impact on foreign investment activity.
For example, in the 2022-23 financial year, there were 5360 residential real estate purchases made by foreigners, the Foreign Investment Review Board reported.
The total value of transactions was $4.9 billion.
Drilling down into the data, 66 per cent of those purchases were for newly built dwellings or vacant land, which would not be impacted by Mr Dutton’s proposal.
So, based on those figures, the Coalition’s two-year ban would see 3644 fewer properties sold to foreign investors.
“That’s not going to resolve the housing crisis,” Professor Alan Morris from the Institute for Public Policy and Governance at the University of Technology Sydney, said. “What we’re dealing with is a very, very deep crisis.
“What’s required is significant change. We need to build a lot more social housing. We need to look at the entire tax regime surrounding property investment. We need to reorient the entire housing market to being a source of shelter, not of wealth.
“Things have to change on that level. This proposed policy is incredibly minor tinkering at the edges that won’t do much.”
‘Convenient blame game’
In his budget reply in May last year, Mr Dutton vowed to implement a range of measures addressing immigration-related matters.
As well as slashing the permanent migration rate and limiting international student numbers, the opposition leader committed to new restrictions on foreign property investors.
Mr Dutton told parliament the Coalition would “implement a two-year ban on foreign investors and temporary residents purchasing existing homes in Australia”.
Trent Wiltshire, deputy program director of economic prosperity and democracy at think tank The Grattan Institute, described the policy as “one that seeks to place blame on migrants for a crisis they didn’t create”.
Economists and researchers who’ve examined the rent price boom from 2022 onwards had little to do with migrants – especially in that first year when international borders remained closed.
“The biggest cause of the housing crisis over the past few years, particularly in the rental market, is actually Australians wanting more space,” Mr Wiltshire said.
“During Covid, there was a race for space among people who wanted bigger homes, more bedrooms, work from home, or who moved to different areas. That was the real driver of the increase in housing demand.
“That high demand fed through to higher rents, in combination with a declining rate of housing construction.”
Extraordinary price growth continued, with dwelling rents at a national level surging by 8.8 per cent in 2022-23 and 7.8 per cent in 2023-24, CoreLogic data shows.
“That’s not to say that the run-up in migration had no effect,” Mr Wiltshire said.”
Some 800,000 migrants, the majority of them temporary, poured into Australia in a two-year span, in a mammoth rebound in arrivals when borders reopened. Typically, 250,000-odd foreigners come to the country each year, with some 100,000 here temporarily.
Accounting for the difference of 300,000 and using the accepted model of a one per cent price increase per 100,000 migrants, it might’ve equated to an additional three per cent in value hikes.
By comparison, rent prices at a national level rose by a total of 16.6 per cent, while they jumped by 18.6 per cent across the capital cities and 11.4 per cent in the regions.
Current settings work well
Australia’s restrictions on foreign investment in real estate function relatively well, Mr Wiltshire said, ensuring those from abroad help grow housing supply.
In limited instances where an overseas buyer is approved to buy an existing dwelling, they can only do so in order to redevelop the land.
And in rare instances, someone might be approved to buy an existing home to live in, but they must sell it when they leave the country.
“Overall, I think the way we deal with foreign investment in real estate is pretty good,” Mr Wiltshire said.
Ms Conisbee said robust rules surrounding foreign investment are important, but so too is making that money “work for us”.
“It has kickstarted new projects and led to a lot of new rental supply. Letting foreigners buy just anything is terrible. It’s why there are lots of vacant homes in London, for example. But we don’t allow that.”
Originally published as Huge chunks of Australia’s biggest cities wouldn’t exist without Chinese cash
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