By Andrew Mackinnon

Last updated: 18th February, 2023

High house prices in Australia are caused by…

> immigration, which increases demand for residential property in all forms by increasing the size of the population of Australia and thereby causes house prices to increase.

Immigrants to Australia generally don’t buy residential property in Australia as soon as they arrive. It generally takes time for them to get their finances in order and save up a deposit in order to buy residential property. There is generally a lag, often of years, between immigrants to Australia arriving and demand for the purchase of residential property in all forms increasing as a result of their arrival.

Importantly, immigration provides a strong stream of tenants to create demand for residential rental properties, so that residential property investors can confidently earn rental income from their residential properties. Immigration leads to an increase in demand for residential rental properties and an increase in rents. In the 1990s and 2000s, passive income from residential investment properties, being income earned without working for it, was marketed by the residential property industry in Australia as the holy grail of income. Australia’s economy has been built around this concept of passive income ever since.

> allowing people who are not citizens of Australia to purchase and own residential property in Australia, which should be banned. That the Australian federal government has not banned non-citizens of Australia from purchasing and owning residential property in Australia shows that the Australian federal government does not govern exclusively for citizens of Australia but for non-citizens of Australia also, of whom there are more than 7.5 billion. Allowing non-citizens of Australia to purchase and own residential property in Australia leads to an increase in demand for housing and an increase in house prices.

> bank lending to residential property investors for residential investment properties, which should be banned. This includes bank lending to residential property investors who are using their superannuation in order to fund part of the purchase price of their residential investment properties. The very definition of investment entails purchasing an asset out of savings. No bank in Australia should be allowed to lend for the purpose of the borrower purchasing an asset for investment with the objective of making a capital gain over time, such as real estate, shares, precious metals, coins, antiques or art. Borrowing for such a purchase is not investment. It is speculation. However, if such a purchase is financed out of existing savings, rather than borrowings, then it can correctly be called an “investment”.

Without bank lending to residential property investors, the overwhelming majority of residential property investors would not be able to afford to buy residential investment properties. Bank lending to residential property investors therefore leads to an increase in demand for housing from investors and an increase in house prices.

> negative gearing, which increases demand for residential property by illegally allowing the tax deductibility of residential investment property losses against other sources of income, such as salaries and wages, even though it is not necessary to incur those losses in order to earn those other sources of income. A bedrock principle of income tax law in Australia has always been that deductions against income must be expenses that were necessarily incurred in order to earn that income. The deductibility of residential investment property losses against other sources of income violates this principle and should be banned.

Without negative gearing, the overwhelming majority of residential property investors would not be able to afford to meet the repayments required by the mortgages they took out to purchase their residential investment properties and therefore would not be able to purchase these properties. Negative gearing therefore leads to an increase in demand for housing from investors and an increase in house prices.