Just a word of warning from an Australian expat living in Las Vegas. Since the housing bubble burst in Las Vegas, house prices have fallen almost 60% from their peak. The old adage that house prices cannot fall has clearly been disproved around the globe in the latest crisis.

In fact, the ratio of housing prices to income in Melbourne and Sydney is much higher than anything ever seen in Las Vegas (and has even exceeded the worst excesses of LA and San Francisco). This should be a big red flag to those considering entering the housing market.

The massive Chinese credit stimulus is unwinding and US consumption is not coming back anytime soon (most Americans are up to their eyeballs in debt, unemployment is at record highs, and incomes have been stagnant for more than a decade).

P.S. I am also with the author is seeing this as a huge hijacking of productive investment in the Australian economy.

As the writers say:

>>>To be fair, there isn't much data yet on how much of last year's national price surge was fuelled by foreign buying. And let's face it. By "foreign," most of the media accounts mean Chinese. And you know, from a Chinese perspective, buying real Australian houses with money not subject to Australian interest rates is probably a great investment.<<<

So in fact much of this article is pure speculation. If it isn't true then we've wrongly blamed China for the affordibility crisis. Personally, I love how its called an affordibility crisis now that it affects middle class Australians! But at any rate, negative gearing and the fact that many baby boomers own two or more properties, combined with the fact that we only really have five major cities probably accounts for most of the crisis.

How much do houses cost in Dubbo, Mudgee and Whyalla?

A good summary from a well known exponent of that somewhat less than common,"common sense".

Australia has been misgoverned for at least the last 30 years.That is due to the philosophy in the oligarchy of Growth At Any Cost.The only real beneficiaries of this are big business,developers and their hangers on.

It is particularly noticeable in immigration policy,artificial stimulation of the birth rate,selling off resouces,exporting jobs and the housing bubble.

Really,most of the Australian economy is a bubble and it will inevitably burst.Many relatively innocent people will be badly hurt.
The perpetrators of the disaster will get off scot free or even benefit.

Time to sharpen the pitch forks.

I'm not against foreign investment - but not
if it's to the determent of our citizens.
There should be laws put in place that allows
property ownership only for permanent residents.

At present the current laws are extremely unfair
especially to young families wanting to purchase
their own home. Overseas investors are pushing
the prices up and making home ownership for many
Australians simply a dream.

Things need to change.

Foreign investment is not the problem, and would allow the housing crisis to be resolved more quickly were the fundamental cause addressed. And the fundamental reason is the severe and opaque regulation of the right of people to develop their property, so restricting supply. The restriction allows great corruption of the development approval process in much the same way as drug prohibition creates a multi billion dollar illicit drug industry.

People critical of immigration and foreign property investors as a cause of the property bubble should realise that these are very much secondary to the effect of restricting supply. As an analogy, imagine a marijuana production and distribution network. The operators have bribed various officials to keep their operation going, and the authorities are vigilant at keeping any competition in check. Now what would hurt this operation more; a gradual reduction in the population they are servicing, or decriminalising the supply of marijuana? The former action might reduce the profit a little, the latter would kill the organised crime operation.

Fester:

>> People critical of immigration and foreign property investors as a cause of the property bubble should realise that these are very much secondary to the effect of restricting supply. <<

This is a canard. ABS statistics show that over 800.000 houses were empty on census night. Allowing for several obvious explanations (simply out visiting; holiday houses; waiting for a rental lease etc.) that still leaves a huge number of unoccupied buildings. The chief cause of the bubble is the availability of credit. It would not matter if the physical 'supply' were much smaller than it is now, actual demand would be determined by how much people could borrow. The term 'demand' should not be used to mean the clamour of people for more houses to be put up for sale, but the total amount of money ie. credit available for buying ever more expensive houses. Prices are being driven by a mania, one which includes both home buyers and so called investors. I say so called because in reality most of them are speculators who are 'investing' in nothing. A bubble is self-perpetuating, but requires more and more credit, or debt, to fuel it; for a time it runs on euphoria and the shaky belief that there will always be another purchaser willing and able to pay more for the same house later. Price rises merely reflect this belief, or the fear of missing out that is spread by articles in the media that are nothing but media releases by the real estate industry.

So called 'investors' are buying houses with 40% of the available bank credit. Many of them lie vacant, simply because they were purchased for their rapidly appreciating value and on the strength of our insane negative gearing terms and artificially low capital gains tax. It defies logic to argue that there is an under-supply when such a large proportion of houses are bought by speculators; those houses as physical entities exist and either lie vacant or are rented to those who cannot afford to buy and often can barely afford to rent them...