Looking For Examples of Overregulation? Watch Australian Real Estate

Property rights are a key area of interest for most Libertarians, as is the belief that overregulation is generally bad for any free market. In order for self-stabilizing market forces to exert their influence, the less friction that is introduced into the market, the better. Anyone looking for a perfect example of this concept need only look to the real estate market in Australia.

Australia is an economy with very little in the way of government overregulation. Since the late 1970’s, successive governments have stripped away many of the unnecessary legal frameworks that had burdened the economy. The result: growth. Their real estate market has been booming lately as well. That isn’t to say that everything is perfect. There are some growing signs that the market is starting to cool off, and how the government reacts could prove to be an instructive lesson to U.S. policymakers that may soon face the same situation.

A Transactional Market

When left to their own devices, the participants in any real estate market follow a simple pattern. Sellers decide to list a property for sale, compare real estate agents to find the right fit, and find a buyer. On the flip side, in an unfettered market, the interest level of available buyers determines property values. That’s just what has been happening in Australia. There are signs now, though, that demand for real estate there is beginning to weaken. This will lead to a market correction, as is proper. If the market has its way, prices will fall exactly to the level that they should reach to maintain stability between buyers and sellers. The problem is that the central government may be on the verge of interfering.

Government Overreach

Oddly, the primary agitator for government oversight in the Australian real estate market is coming from a coalition of real estate agents. They’re pushing for the installation of a property minister at the federal level who would determine how, when, and how often the government will intervene in the market. In this case, it should be obvious that those pushing for the post to be created have a vested interest in keeping prices high. This is the only way to ensure profitability in a business based on earning sales commissions. If that intervention succeeds, it’s a bubble in the making. Instead, stakeholders should examine why the correction is coming in the first place.

Cost of Living Exceeds Wages

Although the real estate market across much of Australia has been tremendously profitable in recent years, wages haven’t kept pace with the escalating housing costs. This fact guarantees that under normal conditions, prices in the market must decline to a level that inhabitants can afford, or the market itself will grind to a halt. It should be obvious that the correct course of action for the government to take is to stay out of the way and let prices fall to reasonable levels, yet it looks like they’re on the verge of doing the opposite. This is why U.S. policymakers should start to pay careful attention.

A Reflection

In the U.S., housing prices are at historic highs and wage growth is still weak. If you have read the preceding paragraphs, this should sound very familiar. This quick glance at the real estate market forces in the U.S. reveals that they appear somewhat similar to Australia’s, but have yet to push the market to a correction. We still appear to be in an earlier phase of the same price cycle that is now causing a cool down in the Australian real estate market.

If they choose a big-government intervention to keep their market artificially inflated, the consequences will be disastrous. Right here at home, we’d do well to monitor their situation. There is a very high likelihood that our friends down under are about to give us an object lesson in the consequences of government overreach. If not, they will have done something even better. They will have helped to prove that in a free market, less government is good government.