The Australian Property Bubble (2015), Foreign Investment and Dr Day (1969)

A few months ago a knock-down home in Middle Park, Melbourne, sold for almost $1.8 million over its reserve price, smashing expectations and selling for A$4.51 million. It is a bay front property, but it represents the craziness that is the housing market in Australia.

208 Beaconsfield Parade. 

Australia doesn’t seem to make stuff anymore. It is a land of baristas, tour guides, hoteliers, foreign fruit pickers… and politicians. For the moment, the gentry just need to own houses – and then sell them to foreign buyers. But then what?

A Vietnamese associate, who dabbles in Melbourne property, told me a few months ago that the Chinese government was secretly funding individuals to come and buy up Australian real estate. He was “told”  of groups of buyers – 40 at a time – would be loaded onto buses to scout specific suburbs and go on auction bidding sprees. He claimed that the Australian government were aware of this, but remain silent as they are concerned about rocking the buoyant market – and the “asset” that keeps our economy functioning. True? I have absolutely no idea. It is second hand information.

But even way back in March 2014, a Sydney Morning Herald (SMH) article, Cashed-up Chinese are pricing the young out of the property market, reported that:

“(a survey found that) …one-third of affluent Asians own overseas property, and Australia is their number one destination.”

Another SMH article (7 May 2015) – China’s $60 billion Australian property splurge – forecast that Chinese buyers will to pump $60 billion into the market over the next six years. “Pump?” Would “wealth transfer” be more appropriate.

In The Australian (16 Oct 2014) they reported:

Chinese investment is flooding into Australia’s dairy industry, with four multi-million-dollar mega-deals in progress that are likely to see Chinese state-owned companies taking big stakes in all Australia’s largest dairy farming operations. In western Victoria, about 50 dairy farmers have signed individual option deals to sell their farms, worth a collective $400 million, to a secretive ­Chinese-dominated dairy conglomerate…  The 50 farms together run 90,000 cows producing 500 million litres of milk a year.

To slightly sidetrack, now the big winner in the Free Trade Agreement with China is the Dairy Farmer. An ABC (18 Nov 2014) headline:

“Free trade agreement: Dairy farmers set to be big winners in deal between Australia and China”.

Then a 23rd June Age headline…

Corrupt Malaysia money distorts Melbourne market.

“…Australia has become an investment hot spot for the crooked and corrupt.” (Age article here)

And in today’s Daily Telegraph, Legal loophole lets foreign ­investors snap up huge numbers of older Sydney homes. 

Wealthy overseas investors are taking advantage of Australian ownership rules and buying up huge numbers of Sydney homes. And that this directly contradicts the claims by politicians and the property industry that foreigners are restricted to buying newly built homes only.

Macrobusiness.com.au writes about the Gen Y perspective on the property bubble (12 June 2015):

“Hockey and Abbott cannot pull the veil back down over the hideous monster that is Australia’s 16 year long housing bubble. That veil has now been permanently lifted. The cat is out of the bag and roaming the remorseless realms of the internet meme, destined to immortalise 2015 as the year Australia woke up to the giant private debt and housing parasite leeching the country of prosperity, equality and egalitarianism.”

And…

“Australian housing has been in a nation-wide bubble since 1999, when John Howard cut the capital gains tax rate on residential property. Combined with falling interest rates, this set off an orgy of speculative investment, where speculators predictably saw the combination of negative gearing and capital gains tax concessions as the perfect tax shelter and a government sponsored get rich quick scheme.”

“…at the heart of the problem is always the cost and availability of debt.”

The article goes on:

“…economists, journalists, politicians and the landed gentry that they represent, who occasionally advocate for housing reform and solutions to housing affordability, are asking the next generation of Australians to assume all of the risks of the massive imbalances in the housing market, while ensuring that the market is held up long enough for them to pass on that risk.

…What a conceited set of leaders and commentators we have. I vainly hope for royal commissions and criminal charges to be laid in some not-so distant future when our livelihoods have been destroyed by the peddlers of Australian real estate who do know better.”

There has been talk about the Australian property bubble for a decade or more – and many predict a demise at some stage. But maybe with foreign investment Australian real estate might be buoyant and bubbling for many years to come? (…until much of Australia is under foreign ownership?)

“No worries” – our politicians are looking after your best interests.

But I just don’t know how the average person can purchase a home without becoming a slave to (banker’s) debt. I have suggested in a satirical article – We Need Aussie ‘Bantustans’ – that setting aside cheap enclaves for the “second class” citizens to build shack dwellings at super low cost is an option.

It is interesting to reflect on what Dr Richard Day had to say in 1969 (full article here). He predicted home ownership would be a thing of the past. Many of his other “predictions” have come true – but this one hasn’t really happened (yet). Australians still desire to own their own home and will go to extraordinary lengths (and debt) to do so.

Dr Day, “Everything Is In Place And Nobody Can Stop Us Now”

So what did he have to say? These are the recollections of Dr. Lawrence Dunegan (recorded in 1991) of Day’s lecture on March 20, 1969 at a meeting of the Pittsburgh Paediatric Society. At the time, Dr Day was Professor of Paediatrics at Mount Sinai Medical School in New York and had previously served as Medical Director of Planned Parenthood Federation of America’. This is what Dunegan recalled of the lecture:

“Home ownership a thing of the past.

Privately owned housing would become a thing of the past. The cost of housing and financing housing would gradually be made so high that most people couldn’t afford it. People who already owned their houses would be allowed to keep them but as years go by it would be more and more difficult for young people to buy a house. Young people would more and more become renters, particularly in apartments or condominiums. More and more unsold houses would stand vacant. People just couldn’t buy them. But the cost of housing would not come down. You’d right away think, well the vacant house, the price would come down, the people would buy it. But there was some statement to the effect that the price would be held high even though there were many available so that free market places would not operate. People would not be able to buy these and gradually more and more of the population would be forced into small apartments. Small apartments which would not accommodate very many children. Then as the number of real home-owners diminished they would become a minority. There would be no sympathy for them from the majority who dwelled in the apartments and then these homes could be taken by increased taxes or other regulations that would be detrimental to home ownership and would be acceptable to the majority. Ultimately, people would be assigned where they would live and it would be common to have non-family members living with you….”

Note to self: I wonder if any of the politicians in Canberra have heard of Dr Day’s lecture?

But talking about “bubbles”. Canberra is operating in an alternative reality – fed by a cocktail of mainstream media and a squeeze of corporatism. It would be easy to legislate foreign ownership to give local Aussies a “fairer go” at owning property – but that would be like turning off the hot tap in a bath. The existing investors would start shivering.