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The Australian housing market has long been the focus of economic debate. Many blame the affordable crisis against slow construction and the rise in immigration, but another important factor is often unaware, financial regulations. Limited licensing and compliance in the financial sector create uneven playing fields, pushing more capital into real estate, further exacerbating the crisis.
Unintended consequences of financial overregulation
Over the past few years, Australia’s fintech industry has repeatedly urged the government to implement clear regulations. Current legal uncertainty has led to a break-down, slowing down the development of fintechs. I personally advised large financial groups on investment in fintech startups because there are no favorable conditions for Australian crypto companies.
The Australian regulatory environment makes investing in real estate much easier as the financial sector cannot compete for Australian dollars. Approximately 58% of Australia’s household wealth is tied to non-financial assets (mainly housing), compared to the global average of 46% (according to Credit Suisse). This is not just a market trend, but a result of regulations flowing into real estate, limiting financial innovation, not providing capital alternatives.
However, this problem is greater than the imbalance of investment choices. As a result, production, commerce, technological innovation – a real-world economy with far less capital. Stocks and bonds are more than just abstract financial products. They are important gearing mechanisms for economic development and growth. When financial regulations block alternative investments, businesses struggle to secure funding, and the economy as a whole is struggling. A system that forces capital into property speculation rather than business expansion will slow job creation, reduce technological advancements, and reduce economic resilience. A well-documented economic pattern is that investors flock to “safe” assets when faced with uncertainty and high barriers to entry into alternative markets. Research from Mercatus Center shows that complex regulations dislike entrepreneurship and push away funds from productive uses.
I recently discussed with a businessman who is still considering expanding his successful, small business expansion. I asked why they tend to choose a franchise model instead of bonds and shareholders’ equity. I knew the answer, but he confirmed my opinion. Operating securities is much more expensive for businesses. Financial products and services face widespread regulatory hurdles at every step: records, market entry, promotion, operations, and more. “Individuals should not need individual senior counsel, junior counsel and a small number of counsels to communicate what the laws they must follow.”
Unlike financial experts, real estate investment advisors scream freely from the roof.
High barriers to entry into the financial sector prevent the emergence of innovative financial products that can provide real-world alternatives. Instead, investment capital continues to flow into real estate, creating a loop where prices rise and people invest in investment, and prices rise as people invest. Nobel Prize-winning economist Robert J. Schiller describes this as a classic speculative bubble. And now there are indications that the Australian government is trying to make the problem even worse.
Regulation Changes: Have you missed another opportunity?
In February 2024, the Australian Securities and Investment Commission (ASIC) accepted responses to its Information 225 update proposal to extend existing financial regulations to digital assets. The ASIC consultation form contains other suspicious ideas, but my main concern is that I have not been able to see beyond narrow legal research. The real question is not whether the law is technically neutral, but the entire framework is distorting the market. The lack of a broader economic vision is discouraging innovation and exacerbating imbalances.
The emerging crypto and debt industry is more than just technical and financial innovation. Utilizing the transparency and immutability that blockchain technology offers inherently is an opportunity to reduce restrictive licensing and bureaucracy. It eliminates the paternity of unnecessary regulators that microcontrolled retail investors. This technology already incorporates self-regulation and protection mechanisms. It is the government’s role to set good standards and ensure that the fintech industry follows them. With a good approach, fintech regulations can be much more flexible without sacrificing consumer protection, and as a result, they could cool the housing market by offering more accessible financial options in the market.
But instead of seizing this opportunity to correct the confusion, many regulators either do not want or lack a vision to see it. Rather than embracing innovation, political leaders are trying to expand the very policies that contributed to the crisis in the first place.
