High-Cost Structure

The world is jostling for a seat at the most competitive free market table for the first time in over half a century and the Australian government is continuing to dally with the discarded priorities.  Australia is facing a record national debt of well over $1 trillion or 38% of GDP, nearly $70,000 per individual (non-business) taxpayer.  The fact that some other OECD countries are carrying a higher debt-to-GDP ratio doesn’t make ours any less risky or unsustainable.

The PLA Navy circumnavigated Australia, practising live firing, in March 2025.  Their three warships, one of which is the type-055 destroyer, together carry more vertical (missile) launch systems than does the Royal Australian Navy’s full inventory of ANZAC Class frigates.  The short and sharp Pakistan-India and Iran-Israel air and missile wars involving the largest number of combat aircraft since the Vietnam War reminded us starkly that the world is not done yet with kinetic warfare and how quick the Info-Pacific situation could turn.  The conflict involving states with nuclear weapons sprang up while the Ukraine-Russia war is still not showing signs of ending, making it imperative that Australia treats national defence with utmost urgency.  But we are not, trapped in our bloated public sector spending and own climate change ideology straight-jacket.

We are neglecting defence, our industrial base and critical technology development such as AI because of unlimited climate change program costs, over the top government recurrent spending and excessive regulations. Government expenditures lead directly to inflationary pressure due to competition for resources with the private sector, while mounting social-engineering regulations strangulate the supply of private goods and services.

Housing costs surged due to the same reasons, high energy costs, poor public housing policy, and mismanagement of the immigration intake composition that is pitching Australians against Australians.  Cost of living is a major issue and it’s a product of sustained negligence and arrogance on the part of Government while it focuses incredulously on global warming, which has been shunned and ignored by all the largest economies in the world.

For an energy intensive economy, we have imposed on ourselves a complex and high-cost electricity supply system that is less reliable and more dependent on the vagaries of foreign (mainly China) supply chains.  Our high-cost structure is placing the economy at a significant disadvantage against trading partners with no baggage in carbon emission reduction policy.  It is limiting the economy’s capacity to increase supply to meet demand.  With the impact of excessive money printing in the last 5 years to accommodate a permissive fiscal policy, we are facing an underlying inflationary condition that keeps bobbing, just as we are containing demand via higher than otherwise interest rates.  Our demand “soft landing”, caused by loss of real disposable household income in recent years, is masking this inflationary undercurrent.

The patterns of excessive government regulation are repeated everywhere.  The labour market is an example.  In the horticulture industry for instance, where farmers require high labour productivity and labour market flexibility to deal with their seasonality and export competition, they need low-skill labour for fruit and vegetables picking.  Rather than letting farmers and workers decide on their needs, the government treats them like 9-to-5 year-round office pen-pushers.  When the season is low, farms still must carry the minimum monthly wages (minimum hourly rates at minimum number of hours) when there is no work.  Government deliberately discourages the piece rate arrangement, which is pay-by-volume picked, the most efficient regime for both farms and workers, who want to be paid more for faster work.  Instead, blanket labour regulations force farms to either cut back on labour hire and losing redundancy to cater for variations in produce availability due to season and/or weather, or price the products far higher than an efficient market would do.  For domestic supply, farms can raise prices to cover costs, adding directly to local inflation, but in the fruit and vegetable export market, they cannot.  Loss of margin has repercussion on farm size, low-skill labour participation and eventually retail price inflation due to product shortages in the Australian market.  Then the government blames supermarkets for price gouging!

Loss of productivity has been caused by misinformed and uneducated government guesswork in the application of regulations in many industries’ own labour market.  Non-sensical regulations are usually pushed by shortsighted unions that pay no heed to the unique challenges facing the sub-broadacre agriculture sector and other export-oriented industries.

Meritocracy

A free labour market in a capitalist system ensures decision making reflects the value that labour brings to the market.  This enterprise value can be from an individual or a group, and its rewards are untainted by any distortion.  Monetary return doesn’t care for creed or race or any private preferences.  If you are of value to society, the market will seek to acquire and pay you.  Discrimination comes in when socio-political interpretation of market results is brought into the picture.  A free market can have externalities, the “public good” factors perceived to not have been incorporated in the market price for private exchange equation.  We try to measure these externalities and apply a cost to them, resulting in a “social price” that displaces the market price.  If this is not done carefully and transparently, down the rabbit hole we shall go.

There is sometimes misperception about what a market price represents.  It’s not purely a commercial face value placed on a good or service.  It represents the entire value of that purchase to you, the buyer, with a conscience.  If you are willing to buy something, knowing what it means to you, where it comes from, broadly how it’s made, of what material, and the impact of your consumption of it, then the price represents the entire socio-economic political value of that merchandise to you.  If someone criticises you that you haven’t accounted for its social value, they are wrong.  This truism applies to any so-called non-market activity or characteristic.  If you have not done what others consider moral, it’s because you are not convinced it is moral.  The onus is on them to convince you, not you to follow their view.  Your moral boundaries are already set in the values of the society you live in – do unto other what you’d want them to do unto you.  Your value system is about being fair and reasonable, with an eye on potential reprisal so you want to be civil in how you treat others.  In that regard, there is no reason for reverse discrimination.  There is only need for information and education about discrimination so that you can be fully informed when making a judgement call on whether to approve or support it in your own volition.

We should ensure freedom to choose at all levels of society.  This freedom shines from a free competitive market.  The more suppliers of jobs there are, the more able the workers are in negotiating wages and employment conditions.  Labour unions can be useful in limited circumstances where there is employer monopsony – ie, buyer monopoly.  If there is only one (or dominant) employer in a particular industry, that employer may have monopsony power.  It can pick and choose employees among competing workers.  The best value (highest productivity, lowest wage) workers get picked first.  The others move to another industry.  In this case, even if there were organised labour, the competition between worker groups would be the same in terms of outcome for individual workers.  Those with the highest productive value get picked first.  The only way organised labour could provide equal standing with the monopsony employer would be if it could present itself as a single block – a monopoly supplier.  A smaller than optimal number of workers would be picked, the larger rest finding another industry.  Under the monopoly supply union, wages and conditions may be a bit better than otherwise, forcing employers to hire a smaller number of workers.  The union protects the employed workers, abandons the least productive.  Employers end up paying the same labour budget, a bit more for each of the smaller total number of workers.

Unionisation does not protect the workers at the low end of skill, experience and productivity.  In fact, it makes them even more unemployable because of the higher floor wage that must be paid to those employed.  This arrangement is the antithesis to equal opportunity and inclusion.  It is far better to ensure an economy is free and competitive, with the largest number of suppliers, employers and employees alike, vying in the market for assignment.  This dynamic efficiency will beget growth in associated and new markets, improving employment opportunities, giving workers the best chance to gain experience and then move up the ladder quickly.  There is nothing more anti-human rights than having a class of permanent or even long-term unemployed, the obvious outcome of heavily unionised labour.

  As a society, we should ensure equal opportunity but not steer towards, much less mandate, equal outcome in any way or form.  The latter destroys incentives to put in extraordinary effort.  If there is discrimination, distortion, an “externality” of some sort, it must be identified whether it affects equal opportunity or equal outcome.  There might be justification in rectifying it for the former but never for the latter.  Affirmative Action, quotas or any such reverse discrimination practices depends on this distinction.  Equal opportunity is equivalent to perfect information in a free market.  If we all have equal access to the market and have eyes wide open upon entering a contract or engaging in an activity, whatever the outcome of that activity it will be as fair as humanly possible.

The paradox of big government intervention in the free talent and labour market is that it can only make things worse.  "In the academic world, diversity means black leftists, white leftists, female leftists, and Hispanic leftists”, said Thomas Sowell, “demographic diversity conceals ideological conformity."  The quote appears in his March 1994 Forbes article titled “Multicultural Charade,” where Thomas critiques the concept of diversity in academia, arguing that it often prioritises demographic representation over intellectual diversity.

Monetary Policy

Monolithists have returned their thoughts to having the cake and eating it to try to go around the age-old constraint of supply and demand in the real economy. Modern Monetary Theory (MMT) is an economic framework that is purported to “rethink” the role of government spending, taxation, and money creation in economies with fiat currencies (currencies not backed by commodities like gold).  It emphasises the unique powers of governments that issue their own currency, particularly in nations like Australia, the U.S., or Japan, which control their monetary systems (ie, unlike the E.U.).

The core principle is that Governments that issue their own fiat currency like the AUD and borrow in that currency cannot go bankrupt.  They can always create more money to meet obligations, unlike households or businesses.  Money is created by government spending, not by taxes or borrowing.  Taxes and bonds serve other purposes, like managing inflation or demand, not funding spending.  Taxes as a tool don’t “fund” spending but regulate demand, control inflation, and address inequality.  They remove money from circulation to prevent overheating.  In their views, governments can and should use deficit spending to achieve full employment and public goals (eg, infrastructure, healthcare), if inflation is controlled.  The real limit on government spending is not debt but the economy’s productive capacity (labour, resources).  They acknowledge that spending beyond this causes inflation!

MMT advocates a government-funded job guarantee to ensure full employment, stabilise wages, and provide a buffer against economic downturns.  MMT suggests governments can fund ambitious programs – such as Australia’s National Disability Insurance Scheme or renewable energy transitions – without worrying about “balancing the budget,” as long as resources are available and inflation is managed.  Like Argentina’s President Javier Milei said, in a similar analogy, if printing money can solve economic problems, then printing college degrees can solve stupidity.  Ours may become the first civilisation destroyed, not by the power of our enemies, but by the ignorance of many of our teachers and the dangerous nonsense they are teaching our children.  Nothing screams petulance more than this voodoo theory of MMT, the concept that if no-one is watching then we can gorge until we pass out.  It is the same mentality of the hooligans ransacking department stores and supermarkets in the U.S.  At least, MMT proponents give themselves a caveat – “as long as resources are available and inflation is managed”!

That is the whole point of economics.  You have limited resources in an economy, you use them as best you can to maximise society’s welfare, balancing today’s consumption against tomorrow’s needs, in a way that doesn’t destabilise prices too much by letting the market adjust demand and supply quickly.  Regulating prices, one of the monolithists’ favourite pastimes, only kills vital market signals for us to manage our resources.  Of course, you can add to demand and/or supply if there are sufficient resources to increase supply so that you don’t have inflation.  This is the essence of classical economics.  The notion that it’s because you can print your own currency so you don’t face market discipline is 1) a rebuke of MMT’s own caveat of “as long as…”, and 2) it is not true even if there is no caveat.

Printed money is a component of money supply and is a function of prices and goods and services.  If you have 10 chairs in the economy and zero inflation with a money supply of $10 and full employment, then the price of each chair is $1.  If the government prints $5 and throws it into the mix to buy more chairs, the price of each chair goes to $1.50 if there are no more resources to increase production.  If you have some spare labour but no spare plant or equipment, you can throw $5 into the economy, which encourages suppliers to employ more labour, with the added labour potentially bringing down per capita productivity because there are no extra plant or equipment to use.  More money and lower productivity mean inflation.  The price of chairs still goes up because there won’t be enough total resources to satisfy that $5 higher demand.  Only when there are excess resources to satisfy broadly the added demand that additional liquidity leads to higher output, with productivity still not guaranteed since it will depend on whether the new output results from less resource use per unit of output or not.  Without that improvement, productivity stays the same.

Public sector crowding out private sector is a perennial problem because government tends to spend to buy votes without considering or knowing the state of supply and demand in each industry or in the economy.  Government spending today means higher tax in future because government does not have money, only taxpayers do.  Throwing $5 into the economy means taking it back out at some point to rebalance the book.  The idea is to take it out when there is full employment and prices threaten to go up, needing fiscal contraction by taxing workers higher.  Taking money from the people also involves cutting liquidity from the market, driving up interest rates.  How long does the fiscal or monetary transmission mechanism work to raise or lower demand in the economy is a fool’s guesswork.  By the time we see inflation or recession, the horse has bolted long before.  Then government acts and we must wait for the impact.  This fiscal / monetary policy lag has overshot and undershot the economic cycle throughout economic history.  The best that the Reserve Bank of Australia can do is watch the economy like a hawk and swing the policy instruments as fast as it can every first Tuesday of the month, in the least extent possible.  For if it leaves it too long then the policy swing would have to be bigger and the potential impact more severe.  Whether this swinging game is better than having money supply growth fixed at 2-3% per year – the RBA’s target inflation rate – as proposed by Milton Friedman is still the unanswered question.  Politicians want to spend during hard times as they want to be seen to be doing something.  But they don’t want to take responsibility for the resulting dislocation of prices and / or resources.  Usually, they cannot anyway, as the consequence takes some time to show up in the economy due to the transmission mechanism from policy strike to price instability, by which time they would have left government.

Keynesian economics says that in a high-unemployment situation, government can run deficits by spending to increase overall demand and fund that by issuing Treasury bonds to the market.  But if the market doesn’t buy the bonds for any reason, MMT says no worries, the central bank can buy them by printing new money to pay for them.  That, in short, is what “monetising the debt” means and was the story of Quantitative Easing (QE).  In response to the 2008 financial crisis and subsequent economic challenges, QE was exercised by the U.S. Federal Reserve, who engaged in large-scale purchases of Treasury securities and mortgage-backed securities (MBS) to inject liquidity into the economy, lower long-term interest rates, and support recovery.  The tranches were:

• QE1 (Nov 2008 – Mar 2010):
  Announced by Chairman Ben Bernanke shortly after the Lehman Brothers collapse.  The Fed purchased USD1.25 trillion in agency MBS, USD175 billion in agency debt, and USD300 billion in longer-term Treasuries.  This was the initial response to frozen credit markets and aimed to stabilise the housing and banking sectors.

• QE2 (Nov 2010 – Jun 2011):
  Relaunched amid slow recovery and high unemployment.  Involved USD600 billion in purchases of longer-term Treasuries at a pace of USD75 billion per month.  Critics, including the three Stanford economists (Michael Boskin, John Cogan, John Taylor), warned in an open letter on 15 Nov 2010 that it risked inflation and currency devaluation without sufficient stimulus.

• QE3 (September 13, 2012 – October 29, 2014):
  An open-ended program under Bernanke (transitioning to Janet Yellen in Feb 2014).  Started with USD40 billion/month in MBS purchases, expanded to USD85 billion/month (including Treasuries) in Dec 2012.  Tied to improving labour market conditions; tapered beginning of Dec 2013 and ended in late 2014 after accumulating $1.6 trillion+ in assets.

• QE4 (Mar 2020 – Mar 2022):
  The final major round, launched during the Covid-19-19 pandemic under Chairman Jerome Powell.  Involved unlimited purchases initially (USD120 billion per month in Treasuries and MBS), scaling to over USD3 trillion in assets to support markets amid lockdowns and recession fears.  Tapering began in Nov 2021, ending as inflation surged.

These programs expanded the Fed’s balance sheet from USD900 billion pre-2008 to over USD8.9 trillion by 2022.  No formal QE5 was designated, though temporary bond-buying in 2019 (repo market intervention) and post-2022 rate hikes marked a shift to quantitative tightening (QT).

In his book Intellectuals and Society, Thomas Sowell makes a crucial argument against government fiscal expansion.  In Chapter 5, “Government and the Economy”, Sowell examines how federal interventions under Presidents Hoover and Roosevelt prolonged and worsened the Great Depression, drawing on unemployment data and economic studies.  He notes that unemployment fell from 9% to 6.3% by June 1930 after the 1929 crash, but the Smoot-Hawley Tariff Act that month reversed the recovery, pushing it into double digits within six months.  Successive New Deal policies, like the National Industrial Recovery Act and Agricultural Adjustment Act, kept unemployment above 20% for 35 months and in double digits for the entire decade.  Sowell cites a 2004 study in the Journal of Political Economy concluding that these interventions extended the Depression by about seven years, contrasting it with quicker recoveries in prior downturns without major government action.  The economy was rebounding until interventions began, and each major one (tariffs, wage/price controls, monetary tightening) led to deeper slumps and higher unemployment.  Sowell expands on this in his column “The Myth of How the Great Depression Was Resolved” (Washington Examiner, June 2010) and similar pieces, using the full historical and empirical foundation in the book.  There is no question the series of QEs led to inflation, which triggered the Fed’s tightening of money supply.  This yo-yo effect on the economy stemming from active countercyclical government intervention was warned by Milton Friedman in the 1970s and Sowell later.

It should have been clear to the Fed that QE3 was unnecessary following critics’ strong warnings and QE4 was pure panic reaction to the Covid-19 pandemic.  The resulting inflation was predictable and so was the Fed’s reaction in tightening money supply to rein in price hikes.  But it’s always too late.  Inflation is a tax on everyone, not confined to the rich.  If you have $10 in your bank account and the central bank starts printing more money, it is stealing the value of that $10, and that's the same thing as a tax, an inflation tax.

The reason why we have these yo-yo policies is due to incentives in our politics industry.  If politicians don’t have to show that they are doing something about economic policy, even though they have no idea what or when and how policy impacts various parts of the economy, then the public will be better served.  Free market economics is not an ideology; it is empirically based over centuries of observations and experiences.  We could do much worse than just setting money supply and fiscal budget on autopilot, with a specific framework for Parliament to change only under certain circumstances.  Critics of autopilot monetary policy point to the fact that money supply nowadays has a dozen definitions from M1 (cash and deposits) to Mn due to proliferation of liquidity and credit creation in the economy.  But these are tactical issues.  The goal and strategy must be to get the size of government down to sustainable levels and consistent with a free market liberal society and refocus government on being umpire and impartial leader of the commonwealth.

As a total government budget, twenty percent of GDP is not small by any imagination.  If a government cannot manage the nation effectively at 20% of GDP spending, it will not be able to at 30% or 40% or 50%, even if it wishes to trade all the human rights for economic performance.

Having a clearly defined cap will prevent politicians pressure spending, curb their ability to run larger deficits for kickback and other shenanigans, and return government incentives to the right place to relieve public officials from things they cannot control.

Rather than multiplying the gigantic regulatory traps and sticking its fingers into everything for control, government, capped by the auto-budget, must work with the private sector to come up with industry and market-based solutions.  No rent-seeking, no subsidies, no unwritten coercion, no kickback on a wink and a nod.  This will lead to lower tax for citizens over time, allowing them to freely choose what’s on offer in the market, from education to health insurance to any infinite number of products and services at their disposal.

At present, big government fails to convey what society needs.  The pervasive distortion of the pricing system in many industries has led to government guesswork, acting like a central command economy.  Why do we have subsidies for products and services, unless it’s because we don’t want them at the properly costed price.  This means some of the supplies should withdraw from the market, releasing resources to some other sector of the economy that needs them.  By prodding up unwanted products, government causes inefficiency to pile up, productivity to come down, income to fall and put pressure on it to tax more.  That’s what is happening to Australia right now.  Government is not strategising, persuading and umpiring climate change policy, it actively intervenes as market participants in all industries through vast sums of public money, creating mountains of costs with the most obvious being in the energy supply sector.  Public servants, with a trillion dollars to play direct and indirect capital allocator with, essentially run a monolithist system.  The market, the people, don’t want any of this monstrous distortion of prices, that’s why the distortions had to be coerced in by both mandate and bribery.

When government subsidises stamp duties for new apartments only, it creates false demand for something the market is judging not worth the full value compared to alternatives.  The government imposes a large cost on accommodation and uses it to swing the market from one segment to another, preventing accurate price signals from being delivered.  Worse, the government creates a moral hazard by issuing an unwritten IOU to builders and sellers and buyers of new apartments for it to call upon when an election comes around.

Public spending for no real need is corruption, of the type that forces segments of the public to take for fear of missing out as others accept it.  It makes people feel bad because they know that excess spending will come back to bite them or their children later.  They must rationalise it by socialising the negative effect (too far off, somebody else’s problems) and personalising the benefit upfront.  And here, charlatans are always ready to help alleviate doubt: “Let’s tax the rich more, none of you will have to pay for the consequences”.

Taxing someone with the capacity to pay for demand in the economy is a fool’s errand since any contraction of that income cascades with a cut in goods and services across the economy.  That contractionary value (tax) goes at present to one-third to public servants (the government machine, the middleman) and two-thirds to someone “in need”.  But that someone in need consists of cronies of government as well as the token in need recipient.  Without cronies there are no kickbacks, and without kickbacks there is no financial or electoral benefit to the parties in charge of government.  Meantime, the private suppliers that could have provided goods and services to the “rich” are missing out.  Total productivity goes down, society becomes poorer, except for the government middleman and their cronies in both the public service and outside, for a while.  Thus, excess spending creates a new group of captured hand-out recipients, with the crowding-out taking effect and slowly and quietly spiralling out of control until recession hits.

Excessive government spending also degrades the real value of the public service.  There is no doubt someone must cast an eye over the big picture, to ensure true public services are provided where the market cannot do for practical reasons and monitor market development to change policy accordingly.  An example is the electricity network.  A hundred years ago, government needed to invest in nation-building infrastructure outside the scope of private enterprises.  Today, it doesn’t need to because the capital market can handle such size investment, and capital recovery methodology has improved for early investors.  National defence and law and order, foreign affairs, regulatory framework and core social security remain areas of critical importance for government.  The rest, semi-public goods such as health, education, and a vast array of non-essential whatsoever social engineering areas, should be reviewed with strict funding caps within the 20% of GDP budget.

The “value” that MMT adds to the policy mix is the mad view that government can spend without having to worry about the resulting debt.  This is the hogwash that monolithists want to sell to the public.  Reality is that we are all constrained by the same thing:  the availability of productive resources and the productivity of the economy in employing those resources.  Only the free market open society system can give us the right results.

Housing Costs

The housing crisis lies within the bloated and misdirected government expenditures that also cause the manufacturing crisis that Australia suffers.  High budget deficits and national debt require the RBA to keep interest rates high to control housing input cost and wages inflation, hitting home buyers and renters with a double whammy.  The factors that attract and retain developers and suppliers which Australia is increasingly at risk of losing are:

• Low inflation and low mortgage rates

• Reasonable taxes

• Streamlined regulations for new developments

• Cheap energy to lower supply chain costs

• Available affordable and flexible resources and workers for the building industry

• Correct policy incentives for overseas and investor purchases of new constructions

• Matching immigration with supply side needs and business cycles

Over the last 20 years (2005-25), data on Australian housing purchases is typically proxied by new housing loan commitments (excluding refinancing), as published by the Australian Bureau of Statistics (ABS) and analysed by sources like the Reserve Bank of Australia (RBA) and private reports.  These commitments cover purchases of established dwellings, construction of new dwellings, and alterations/additions, serving as a strong indicator for purchase activity.  Cash purchases (without loans) are not captured in this data, though they represent a smaller share of transactions; investors may use cash more frequently, but loan data remains the standard benchmark for proportions.

The proportion of investor vs. owner-occupied purchases has fluctuated significantly, influenced by factors like interest rates, tax policies (negative gearing and capital gains tax discounts), regulatory changes (APRA lending caps in 2014-18), housing affordability, and economic conditions (Covid-19 impacts in 2020-21).  Investor activity tends to rise during property booms and fall during downturns or tighter lending.  The key trends in proportions are calculated as investor share of total (investor + owner-occupied) new housing loan commitments, primarily by value (in AUD billions), with number of loans following a similar pattern but typically showing a slightly lower investor share, as average investor loan sizes are often larger than owner-occupied ones due to higher property values in investment hotspots.

By value of properties

• Early 2000s (2005-10):  Investor share averaged 35-40%.  It rose steadily from lower levels in the 1990s (about 20% in 1993), driven by tax incentives introduced in 1999 and capital growth.

• 2010-15:  Continued rise, peaking at 55% in mid-2015 amid a housing boom and low rates.

• 2015-18: Declined to 42% by 2018 due to APRA regulations capping investor lending growth at 10% annually and limiting interest-only loans.

• 2018-21:  Further drop to a low of 22% around 2021, influenced by Covid-19 uncertainty, border closures reducing migration/rental demand, and higher caution among lenders.

• 2021-25: Rebounded sharply as rents rose and yields improved, reaching 38-40% by mid-2025. For example, in the year ended December 2024, investor lending grew 30% year-over-year (vs. 13% for owner-occupiers), pushing the share higher.

Overall average investor share by value over the 20-year period is 35-40%, with owner-occupied making up the remainder (60-65%).

By number of properties (new loan commitments)

The trends mirror those by value, but investor proportions are typically 2-5 percentage points lower due to larger average loan sizes for investors.

• Early 2000s (2005-10):  Investor share 30-35%.

• 2010-15:  Rose to 50% at the 2015 peak.

• 2015-18:  Fell to 38-40%.

• 2018-21:  Dropped to 20-22%.

• 2021-25:  Recovered to 37-40%.  For the year ended Dec 2024, there were 192,800 new investor loans vs. 322,300 owner-occupied, giving an investor share of 37% (total 515,100).

Overall, average investor share by number over the 20-year period is 30-35%, with owner-occupied making up the remainder (65-70%).  Investor engagement in housing supply is not a negative factor unless it is incentivised by policy and regulations to focus on existing stock.   Breakdowns of investor purchases by new dwellings (including construction and off-the-plan purchases) versus existing/established dwellings are not consistently available in standard ABS lending data, as investor loan commitments are aggregated under “purchase of dwellings” without separating new from established.  However, construction loans for investors (a subset of new dwellings) are reported separately and have typically represented a small share, 3-5% of total investor loan value.

Based on ABS trends, investor construction lending was approximately $1 billion quarterly in mid-2025, compared to total investor lending of $33 billion.  Estimates from 2020s data for the full proportion of new dwellings in investor purchases indicate 23% of investor loans are for new housing with the balance for existing dwellings.  This reflects investors’ preference for established properties in high-capital-growth areas, where they can leverage rental yields and tax benefits like negative gearing.  Over the 20-year period, this proportion has varied but averaged around 20-25% for new dwellings.  Investor activity in new dwellings rose during booms, when low rates encouraged development investment, but fell during downturn due to lending restrictions and Covid-19.  For context, total new dwelling completions have averaged 170,000 annually, with investors accounting for an estimated 20-40% of new dwelling sales in peak periods, but their overall portfolio remains dominated by established properties, which make up 70-80% of total market transactions.

The high level of investor participation in the housing market coupled with low new build financing for this buyer category points to imbalance between higher marginal demand and lower marginal supply, leading to price rises.  Policy should aim at eliminating disincentives for investors to engage in new builds to increase new supply.

Proportion of overseas buyers

Overseas buyers (foreign persons under FIRB regulations) are primarily restricted to new dwellings for investment purposes, with limited approvals for established dwellings (typically for temporary residents intending to occupy).  Data comes from FIRB approvals and actual purchase insights, which show fluctuations driven by policy changes like increased foreign buyer taxes post-2016, and economic factors.  Proportions are calculated relative to total market turnover (450,000-550,000 residential sales annually, valued at $400 billion).

In Total Investor Purchases

• Overseas buyers have represented a varying but small-to-moderate share of investor purchases over the last 20 years, averaging around 10-15% by number and value. This includes both non-resident foreign investors (mostly buying new for rental) and some temporary residents.

• Peak period (2013-17): Up to 30-37% of investor purchases, with foreign approvals reaching $17-30 billion annually (eg, 60,000 dwellings in 2015-16, 13% of total market sales, translating to 37% within investors given their 35% overall market share).  

• Recent years (2021-25): Declined to 3-5%, with 4,228 foreign purchases ($3.9 billion) in 2021-22, representing 1% of total market but 3% within investors.  A 27% rebound in 2024 was noted, but from a low base post-regulatory tightening.   

• Trends: Rose from 5% in the early 2000s ($6 billion annually) to peaks in the mid-2010s due to Asian demand (China, India), then fell sharply after surcharges and capital controls.  Concentrated in new dwellings (52% of foreign purchases in 2021-22) and states like NSW, Victoria, and Queensland (80% of activity).

In Total Owner-Occupied Purchases

• Overseas buyers in owner-occupied purchases are limited, mainly temporary residents buying established dwellings which they must sell upon leaving, forming 1-3% over 20 years.

• Peak period (2013-17):  Up to 4-5%, with established approvals around 3% of total market turnover value (5,000 approvals in 2012-13). 

• Recent years (2021-25): 0.3-0.5%, with established dwellings at 32% of foreign purchases in 2021-22 (1,340 transactions, 0.25% of total market, or 0.4% within owner-occupied total). 

• Trends:  Stable but minor, as policies favour new dwellings for foreigners. Established purchases dropped post-2016, with a temporary ban on foreign established buys from April 2025 onward (except for occupation by temporary residents). 

• These proportions use loan commitments and sales data as proxies, excluding cash purchases (which may slightly understate investor and foreign activity).

Proportion of migrant buyers

In the same 2005-25 period, based on available estimates from lending data, census trends, and migration studies (Treasury scoping studies and AHURI reports), this group represents a small share of total owner-occupied purchases.

By proportion in number of dwellings

• The proportion fluctuated with migration levels and economic conditions but averaged 1-2%.

• This is derived from loan commitments data (where recent permanent migrants account for 0.4-0.6% of owner-occupied loans for <5 years residence, adjusted for the subset <2 years and outright purchases not captured in loans).

• Annual owner-occupied purchases have averaged 300,000-350,000, with permanent immigrant buys within first two years of 2,000-4,000 (varying with annual migration intake of 160,000-190,000 people, household formation, and low initial purchase rates among new arrivals).

• Trends show lower proportions in recent years (post-2016) due to affordability issues, with higher rates in the early 2000s amid stronger economic growth.

Proportion by value of properties

• Like the number-based proportion (1-2%), as average property values for recent permanent migrant purchases are comparable to the market average or slightly higher (concentrated in capital cities like Sydney and Melbourne, where prices are elevated).

• No significant difference in proportions by value vs. number, as data does not indicate recent migrants buying many premium properties (they often start with modest dwellings).

• These estimates are proxies, as direct breakdowns by residence duration are rare, and many recent migrants initially rent rather than buy.

• Data on the proportion of permanent immigrant buyers purchasing owner-occupied dwellings within their first 10 years in Australia over the last 20 years is sparse and not directly tracked in standard sources like ABS Lending Indicators or RBA reports.  However, estimates are that permanent immigrants within their first 10 years of residence form a small but rising share of owner-occupied purchases, with higher participation than those within two years due to increased financial stability and integration over time.

Proportion by number of properties

• Estimated Proportion:  Over the 20-year period, permanent immigrant buyers within their first 10 years in Australia likely accounted for 4-6% of total owner-occupied purchases by number.  This is based on:

  • Annual owner-occupied purchases averaging 300,000-350,000 (derived from ABS lending data and estimated cash transactions).

  • Permanent migrant inflows of 160,000-190,000 annually, with 50-60% forming households within 10 years (Longitudinal Survey of Immigrants to Australia and censuses).

  • Homeownership rates among migrants rising from 20% within 2 years 50-60% within 10 years, with 10,000-15,000 purchases annually adjusted for those buying without loans.

• Higher proportions (closer to 6-7%) in the early 2000s and 2010–2015, driven by strong migration, economic growth, and relatively affordable housing.

• Lower proportions (closer to 3-4%) post-2016 due to affordability constraints in capital cities, where migrants concentrate (Sydney, Melbourne).

• A slight rebound in 2021-25 as migration recovered post-Covid-19 and incomes grew, though high prices continued to limit early homeownership.

• State Variations:  Higher shares in Victoria and New South Wales (where about 60% of migrants settle), lower in Tasmania or Northern Territory.

Proportion by Value of Properties

• Estimated Proportion: like the number-based estimate, 4-6% of the total value of owner-occupied purchases, with no significant deviation.

• Reasoning:  Average property values for recent permanent migrant purchases align closely with market averages, though slightly skewed toward higher-cost urban areas (median dwelling prices in Sydney/Melbourne, $800,000-$1.2 million in 2025).  No evidence suggests these buyers disproportionately target premium or low-cost segments within their first 10 years.

• Total annual owner-occupied purchase value is $200-250 billion (based on 300,000-350,000 transactions).  Migrant purchases within 10 years contribute $8-15 billion annually, consistent with the 4-6% share.

Key Influences and Caveats

• Migration Patterns:  High migration periods (2005-08, 2012-17) saw increased migrant purchases, while low migration (2020-21 due to Covid-19) reduced their share.

• Affordability:  Rising house prices and stricter lending (post-2014 APRA rules) delayed homeownership, with many migrants renting longer (homeownership rates for migrants <10 years fell from 65% in 2006 to 50% in 2021 per census data).

• Data Limitations:  Estimates rely on proxies (eg, loan commitments, census homeownership rates) and exclude cash purchases, which may slightly understate migrant activity.  ABS Census 2021 and Longitudinal Survey of Immigrants data provide snapshots but lack annual granularity for the full period.

• Comparison to <2 Years:  The 4-6% estimate for <10 years is significantly higher than the 1-2% for <2 years, reflecting migrants increased financial capacity and intent to settle over time.

In summary, the data shows that:

• Overseas buyers make up 10-15% of total housing purchases (in number and value) every year, mainly in new dwellings for investment purposes and not for owner-occupation.

• Migrants make up 1-2% of total purchases (in number and value) within the first few years of settlement, and 4-6% within 10 years of arrival.

• The impact of overseas buyers and migration are opposite on the housing sector.  The former impacts house price inflation while the latter impacts rental inflation.

• Housing affordability, when defined as house price rises or rental shortages, has different drivers.  Cutting immigration eases rental significantly – given the relatively low ownership entry of migrants in the first 5 years.  The rental shortages, however, can be alleviated by local and overseas investors’ purchases that concentrate on new dwellings.

• Both house price and rental inflation currently occurring in Australia are the result of lack of supplies in general due to a combination of low incentives, difficult land subdivision and low availability of trades for new builds.

We cannot solve the housing crisis with tax money and government whack-a-mole games.  The cause lies clearly in excess government spending overall and the regulatory and structural problems embedded in land provision and the resourcing in the construction industry and other sectors of the economy as discussed above.  Demand is not short so there is no need for more government spending, which can only add to supply shortages.  We need to free up the supply side through urgent industry and labour market reform, cutting public sector interference in the economy and unwarranted demand on congested areas for public housing that tends to lower the number of dwellings given a level of public expenditure.  Immigration and foreign student intake should be cut back materially for a short period, 2-3 years, to deal with the rental crisis while allowing time for the housing industry to catch up on the supply side.