Foreign investment has long been a staple of the Australian economy, in order to provide capital to ensure the solid, robust growth that Australia has enjoyed in the modern era, with 26 consecutive years of economic growth.
In recent times, one of the main ways in which this investment has been procured has been within the property sector, with official figures from the recent KPMG commissioned Demystifying Asia report stating that Chinese investment into Australia increased by 11.7 percent for the 2017 calendar year, with 36 percent of the total spend coming within the commercial real estate sector.
However, it is within the residential real estate sector that most of the castigation of foreign investment occurs, with a new study released on Wednesday by the University of Sydney (USYD) indicating that over 50 percent of residents in Sydney blame foreign investors for the rising housing prices, despite data that clearly indicates that these purchases constitute less than 15 percent of the total sales.
In the report, Dr Dallas Rodgers from the Sydney School of Architecture, Design and Planning at USYD, said that just under two thirds of those surveyed believe that the majority of foreign investors in Sydney were Chinese.
Furthermore, when presented with the statement “Foreign investment is driving up housing prices in greater Sydney”, 77.9 percent of the residents surveyed agreed with the sentiment, while when reversed, over two-thirds disagreed.
Rodgers went on to outline that Sydney’s main newspaper, the Sydney Morning Herald, used the terms “China” or “Chinese” to define foreign investment 38 percent of the time between 2013 and 2014, and the more general term “foreign” or “overseas” investment 24 percent of the time.
“These concerns about foreign investors and investment were consistent with participants’ views about the government’s foreign investment policies.” Rodgers said.
Yet, this belief that foreign investment is the cause of the housing affordability problem is not driven by any analysis of the data that is widely available, and in many cases, is based on a flawed empirical analysis, driven by the plethora of reporting on the subject from within the Australian media construct.
Earlier this year, Rodgers said that blaming the influx of capital from China was the simple way for the housing affordability issue to be presented, despite all data to the contrary.
“I think an easy answer people have come up with about the housing affordability problem is to say, well, it’s all the Chinese capital,” Rodgers said.
“The housing affordability problem is a very complex problem, and the ways that you might address it can be quite confronting to people.”
Datasets, such as the report commissioned by the Australian Federal Treasury in December last year which indicated that “the increase in prices attributable to foreign investors is small when compared to the average quarterly increase of property prices”, and during the study calculated that of the 12,800 Australian dollar (9,497 U.S. dollars) average increase, only 80 to 122 Australian dollars (59 to 90 U.S. dollars) was attributable to foreign demand.
“Foreign demand has accounted for only a small portion of the increase in property prices in recent years.” the report said.
In fact, recent CoreLogic-Moody’s Analytics data for the first quarter of 2017 suggested that the drive in housing activity experienced in Sydney was a result of the strong local economy, with the labour market approaching full employment, along with stability in rental prices.
Aside from this, Chinese investment into Australia’s residential development sites accounted for 51 percent of the total investment in 2016, with increased activity in greenfield and major medium density developments, further increasing the housing stock available to Australian buyers.
In an appearance on a local television show on Monday, Federal Treasurer Scott Morrison was adamant when asked by an audience member his thoughts on investors buying into the market, that one of the real issues is housing availability.
“The something that’s wrong is we’re not building enough houses, and what we need to do is build more houses,” Morrison said.
In a separate answer, Morrison covered one of the other main reasons for the continuing housing price dilemma plaguing the major centers, lending practices.
“I’ve been arguing you’ve got to use the scalpel, not the chainsaw. We have used the regulatory controls on the banks to restrict. You will have to have a tighter control on interest only lending now from the banks, it will fall from 40 per cent and it’s got to come down to less than 30 per cent,” Morrison said.
“We’ve also put controls on the growth on investor lending to get it down below 10 per cent growth. So, that’s the scalpel and we’re already seeing the impact of that in the market.”
Despite this, Rodgers believes that people in Australia remain skeptical about the way in which the ever inflating housing prices are being handled, despite stringent new measures being imposed on overseas investors.
“The recent federal budget saw the government come down hard on foreign investors, which demonstrates the dilemma that the government is facing as it attempts to manage foreign investment alongside a disenchanted Australian public.” Rodgers said
However, one of the most telling findings contained within the USYD report was that of the perceptions of Chinese investors and investment, to which Rodgers stated that the results show the opinions of those surveyed “map quite closely to the images and discourses” relating to Chinese foreign investment in the mainstream Australian media.
“In other words, they largely follow the often negative reporting of Chinese investment in the mainstream media.”