16. Oct, 2017

Australia - Immigration - A Ponzi Scheme?

IMMIGRATION – DEVELOPMENT – INFRASTRUCTURE – A Ponzi Scheme?

            Due largely due to large scale immigration Sydney has some of the most expensive real estate in the world, up there with cities like London and New York. Melbourne is not far behind and in fact most large cities in Australia suffer the same problem.

            As real estate in our big cities increases in value at a much higher rate than just about anything else, it attracts investors, including people trying to create a nest egg for their old age, superannuation funds of various kinds and rich Chinese looking for some where to park their money. It’s got to the point where some investors buy up home units (apartments) where no one will live just to cash in on the expected capital growth.

            So we have people buying homes they will not live in hence adding to the prices which are increasingly out of reach of many families, causing them to rent (admittedly the large supply of new home units in Sydney has led to a drop in rents) or move away from the cities. For those who do buy homes getting a roof over their heads is almost incidental to purchasing an investment, a speculative one at that. They pay an exorbitant amount in the hope the investment will continue to increase in value and be able to be sold at a healthy capital profit. The value of the home is not so much in land, bricks and mortar as in the chance to buy an asset expected to increase in price at a much higher level than inflation. In many ways it’s a Ponzi scheme where we pay more than the property should be worth in the expectation that someone will be silly enough to pay an even more inflated price when we want to sell it, and they in turn will be expecting to sell at an even higher price. And like any boom there is likely to be a bust.

            Meanwhile billions of dollars are spent on over-priced real estate that should have been invested in other areas where it would have raised our productivity and export potential.

            The big winners in the real estate boom of course are the developers and real estate salesmen. To make things worse many of the developers are foreign-owned and their profits will largely end up going overseas. For instance the Chinese-backed developer JQZ has bought the old Darrell Lea chocolate factory in Sydney and plans to turn into a residential community. The Chinese construction giant Qingjian Group is taking over the Northcliffe Residences on the Gold Coast worth $107 million.

            Then there is the question of railways, major roads and other infrastructure. These are belatedly provided, directly or indirectly by the taxpayer. One source of funding is the fire sale of government properties or, as in the case of New South Wales, the long-term leasing of electricity infrastructure to the private sector. One wonders why, if there is enough profitability for the private sector to make money, how come the government can’t do the same? Or why the government could not use the profits of sales and leases to invest in areas where they could make a handsome profit and use this to reduce taxes. But then they would not have the money for roads and railways. So who benefits? The big construction companies, again including many foreign-owned firms.

            All this activity does create jobs but only for a minority of the workforce, most of whom are lucky if they are getting a full-time wage that is keeping up with inflation. In fact as Graham Richardson tells us incomes in this country have actually fallen in the last 12 months, and while the unemployment rate has dropped to 5.6%, full-time employment has actually fallen. More and more workers have to settle for part-time work.

            There you have it: Declining living standards, people priced out of the housing market, masses of taxpayer money spent on infrastructure, and all pushed along by a much-too-high level of immigration. The benefits going to the, often foreign-owned, developers and infrastructure companies. Just like a Ponzi scheme where most people lose and a handful of rich people make a huge profit.

Sources:

Alicia Wood, “Faster, Higher, Stronger”, Daily Telegraph, 4 October 2016

Simone Fox Koob, “Sweet Dreams for Choc Factory”, The Australian, 29 September 2016

Rosanne, Barrett, “Qingjian Takes up Full Rights at Tower”, The Australian, 29 September 2016

Graham Richardson, “Leaders Ignoring Our Disgruntled Masses”, The Australian, 30 September 2016