## The Economics of Housing

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**Canonical URL:** [The Economics of Housing](https://www.imf.org/-/media/files/publications/fandd/article/2024/12/petrakis.pdf)

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### Foreign buyers and policy responses
- High-end international demand remains strong in cities such as Melbourne, driven by factors including “waterfront homes, private estates, newly built properties, and move-in-ready homes.”
- Example transactions and prices:
  - 9 Kensington Road: $A 8 million (US$5.4 million) for a four-bedroom Victorian terrace house.
  - Two-bedroom apartment at No. 10 Kensington Road sold for $A 855,000, about $A 70,000 above the top asking price.
- Government and policy actions cited:
  - Australia tripled fees for foreigners to buy existing houses and doubled taxes for those who leave dwellings vacant.
  - New Zealand passed a law preventing foreigners from buying some residential properties in 2018.
  - Canada: a two-year ban on foreign ownership, due to end January 1, 2025, has been extended to 2027.
  - Dubai offering residency in the United Arab Emirates to those who invest in real estate, are entrepreneurs, or have specialized skills.
- Market commentary:
  - Top-end buyers are reported as “less concerned with additional fees or taxes and remain focused on securing high-value assets.”
  - Australia remains the top choice for wealthy Chinese buyers seeking an overseas property, according to Knight Frank.

### Domestic affordability pressures and drivers
- Housing affordability indicators (Australia):
  - Proportion of income required to service a new 25-year mortgage: 50.3 percent (record high).
  - Average time to save for a down payment on a home: 10.6 years.
- Role of intergenerational transfers:
  - “Bank of Mum and Dad” dynamics: parents borrowing or providing down payments to help younger buyers (example: purchase for a daughter at No. 10 Kensington Road).
- Population and demand drivers:
  - Australia’s population: 27.1 million on March 31, 2024.
  - Recent population growth: slowed from a peak of 2.6 percent in July–September 2023.
  - Net overseas migration: 510,000 in the year ending March 31, 2024, and 134,000 in January–March 2024.
  - More than 80 percent of new arrivals to Australia are renters, ANZ estimates.
- Policy levers and IMF guidance:
  - The IMF calls for a comprehensive approach to address a significant housing supply shortfall, including:
    - More construction workers.
    - Relaxed zoning and planning restrictions.
    - Re-evaluation of property taxes (including tax concessions to investors).
  - Government cap on international student numbers (imposed in August) seen partly as an attempt to alleviate rental housing pressure.
- Divergent views on causes:
  - Some analysts argue foreign ownership is not the main cause; suggested common threads include high immigration versus low construction.

### Golden visas, residency-for-investment, and regulatory pushback
- Historical and policy context:
  - Golden visa programs: residency or citizenship in return for investment (often in property) expanded as a way to attract dollar inflows.
  - Examples:
    - Greece launched its golden visa program in 2013.
    - Portugal offers arrangements for “non-habitual residents,” who are taxed at lower rates.
- Political and legal responses:
  - Spain announced in April this year that it would wind down its program.
  - The European Commission considers citizenship-by-investment plans illegal under EU law and has taken Malta to the Court of Justice.
- Broader trend:
  - As public debt escalates and housing affordability diminishes across advanced economies, policymakers are poised to scrutinize wealth and property more closely, influencing strategic considerations for ultra-high-net-worth individuals.

### Illicit finance and market distortion (Hidden Fortunes)
- Mechanisms of distortion:
  - Criminal networks, corrupt politicians, and tax evaders use global real estate to park illicit wealth, often via shell companies, trusts, and offshore accounts created by professional enablers.
  - Developers rarely question the source of funds; purchases by anonymous entities can lead to high-end empty properties.
- Empirical example:
  - In London in 2018, foreign companies held £73 billion worth of properties, with about 90 percent of these purchases made by entities registered in tax havens (paper by Jeanne Bomare and Ségal Le Guern Herry).
- Geographic scope:
  - Problem affects New York, Miami, London, Dubai, and African cities such as Lagos, Nairobi, and Johannesburg.
- Regulatory gaps and proposed reforms:
  - Two decades after recommendations, real estate agents are not consistently held to strict anti–money-laundering standards comparable to banks.
  - Policy measures under consideration or recommended:
    - Require property buyers to disclose their “beneficial owner.”
    - Public agencies should verify ownership information and make it accessible to authorities investigating suspicious transactions.
    - If privacy laws allow, making beneficial ownership information public to enhance transparency.
- Consequence of inaction:
  - Without more transparency and enforcement, real estate will continue to serve as a safe haven for concealing illicit fortunes, further distorting housing markets and making homeownership more distant for ordinary people.

*Article: "The Economics of Housing" and "Hidden Fortunes" by Maria Petrakis and Chady El Khoury (F&D, December 2024).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/12/petrakis.pdf_