The Australian housing market has long been a subject of economic concern, with rising property prices, slow construction, and increasing immigration often blamed for the affordability crisis. However, one critical factor that frequently goes unnoticed is the impact of financial regulations. Overly restrictive compliance and licensing requirements have inadvertently funneled capital into real estate, worsening the crisis instead of solving it.
The Role of Financial Regulations in Australia’s Housing Crisis
Australia’s fintech industry has consistently urged the government to provide clearer regulations, yet legal uncertainty has stifled progress. The lack of supportive conditions for crypto businesses has led to debanking and hindered fintech development. As a result, investment in alternative financial products remains restricted, driving more capital toward real estate, which already accounts for 58% of household wealth—far above the global average of 46%, according to Credit Suisse.
The Bigger Economic Consequences
Beyond an imbalanced investment landscape, the real economy suffers from a lack of funding. Traditional financial instruments like shares and bonds are essential for economic growth, yet restrictive regulations make them less attractive. This forces investors to opt for real estate speculation instead of funding businesses and technological innovation. A study by the Mercatus Center highlights how complex financial regulations deter entrepreneurship and divert capital away from productive sectors.
Even small businesses feel the effects. Entrepreneurs looking to expand often resort to franchise models instead of traditional securities due to high regulatory costs and bureaucratic red tape. As NSW Chief Justice Thomas Bathurst aptly put it, “An individual should not need a senior counsel, junior counsel, and a small army of solicitors to tell them what the law they must comply with is.”
High Barriers to Financial Innovation Perpetuate the Housing Bubble
The financial sector’s high barriers to entry prevent innovative financial products from emerging. Instead, investment capital continues to flow into property speculation, creating a cycle where prices rise because people invest, and people invest because prices rise—a phenomenon Nobel Prize-winning economist Robert J. Shiller describes as a classic speculative bubble.
Regulatory Changes: Another Missed Opportunity?
In February 2024, the Australian Securities and Investments Commission (ASIC) closed responses for its INFO 225 Update proposal. ASIC aims to extend existing financial regulations to digital assets, treating crypto under traditional legal frameworks. However, rather than addressing the root causes of financial stagnation, the approach reinforces outdated regulations that already distort the market.
Crypto and DeFi: A Solution to the Housing Crisis?
The crypto and DeFi industry presents a unique opportunity to bypass the excessive regulatory burdens in traditional finance. Blockchain technology inherently provides transparency, immutability, and self-regulating mechanisms, reducing the need for overly paternalistic regulations. With progressive fintech policies, alternative investments could become more accessible, ultimately cooling down the housing market by diversifying investment options.
Unfortunately, rather than embracing this financial revolution, political leaders seem more inclined to expand restrictive policies—the very ones that exacerbated the crisis in the first place. If regulators fail to adapt to the transformational potential of crypto, they risk deepening Australia’s housing crisis and stifling financial innovation for years to come.
