OPINION

With the government kicking so many political own-goals, Treasurer Joe Hockey must be chuffed to have found something that both raises revenue and is likely to be popular with voters – namely, the plan to charge foreigners at least $5,000 to buy a residential property in Australia.

The ‘fees’ (which sounds much better than ‘taxes’) are on a sliding scale up to $50,000 to apply to buy a residence worth $5 million, which overall should tip $200 million a year into consolidated revenue.

That’ll come in handy. Hockey is promising to use some of the money to repair the federal budget, and some to provide resources to police Australia’s strict foreign-ownership laws, that govern not just purchases of homes, but business properties and agribusiness properties as well.

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The politics add up – it is not hard to convince voters that Johnny Foreigner is ruining our lives by out-bidding locals for flats and houses and pushing prices through the roof. And since a lot of that activity breaches Australian foreign investment law, it must be stopped!

Never mind that so far there is little evidence to back up these assertions. The xenophobically inclined will continue to assume that ethnic Chinese buyers, say, are ‘foreign’, when even Hockey concedes that such buyers turning up to auctions might just as easily be “fifth generation Australians”.

The policy taps into the nation’s addiction to property speculation, the younger generation’s fear of being priced out of the market for ever, and the lazy assumption that people abroad caused our housing affordability crisis, not us.

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That’s why this policy is unlikely to backfire politically as so many other Coalition policies have done.

But what about the economics of the proposal?

Soon after the announcement there were predictable wails from the real estate and finance industries, who with some credibility argue that any slackening of the recent residential construction boom would be a disaster for the economy. (Not to mention for all those be-suited mortgage brokers and auctioneers who might have to wait another year to upgrade to the new Porsche Cayenne. Poor darlings.)

One News Corp columnist even complained the new fees were “likely to really hit the one thing standing between Australia and a recession – Chinese investment in our apartments”.

Well to an extent they all have a point. The economy is more fragile than many appreciate. Super-low inflation and interest rates, stagnant wage growth, high unemployment and continuing job losses in the mining and auto manufacturing industries are bad news, and consumer sentiment is remaining low as a result.

If foreign new-apartment buyers pulled out of purchases – which, by the way, are entirely legal because they add to the nation’s housing stock – the consequent hit to construction jobs, plus the possibility of sharp falls in house prices could push sentiment and economic activity into recessionary territory.

That’s why this policy is so bemusing in economic terms.

If there really are large numbers of overseas investors holding ‘estabilished dwellings’ – which is illegal unless they are temporarily resident here – the idea of forcing them all to sell at the present time would be a disaster.

And if there are not a large number of such illegal property holdings, why launch the policy now?

Chair of the House Economics Committee Kelly O’Dwyer. Photo: AAP

When rising-star Liberal Kelly O’Dwyer tabled a report on this subject authored by the House Economics Committee, which she chairs, the strongest language she could find to describe the supposed flood of illegal foreign investors was that “There have been no prosecutions since 2006 and no divestment orders since 2007. Suggestions by officials, that this is due to complete compliance with the rules is simply not credible. The data on foreign purchases of Australian houses and apartments is inadequate, making policy evaluations very difficult.”

So we don’t know if there is a large problem, but it’s not credible to say there is not problem at all. That’s a house of straw if ever there was one.

The Treasurer’s aim of more tightly policing property investment is, in itself, laudable. However, attacking this ‘problem’, at this time, comes with significant economic risks.

If there is a big problem, then the hit to house prices and construction work will be very damaging to economic growth. Moreover, as Tony Abbott’s comments over Australia’s tsunami aid payments to Indonesia have proved, stories like this have a habit of being ‘mis-read’ by journalists in neighbouring Asian nations and further damaging Australia’s reputation.

They might, for instance, jump to the conclusion that we’re xenophobic, money-grabbing, economically illiterate fools. Imagine!

Given the size of such risks, a more prudent policy would have been to start with fees more like the $1500 suggested by the O’Dwyer-led committee, and to ensure that legal bidders on multiple properties only paid the fee when the purchase was successful. There is some ambivalence on that last point in Hockey’s discussion paper.

Most Australians would like to see an orderly return to housing affordability. And most would not like to feel their greatest household expense – rent or mortgage – was being pushed up by super-rich foreigners.

However, plunging in to fix this problem at this point in time – while being good short-term politics – could end up being an economic time-bomb in the longer term.