If house prices are pushing aspiring home owners to something harder than liquor for comfort, they will only be making their predicament worse.

There is no denying the link between Australia’s world-leading cocaine use and our equally robust housing affordability issues.

The latest update from the Australian Federal Police-led Criminal Assets Confiscation taskforce shows criminals have added artworks, shoes and crypto to their spending wish lists, but they don’t come near real estate.

Since mid-2019, of the $1.23 billion in assets “restrained” by authorities, about $800 million related to property.

These assets ranged from waterfront mansions in Queensland bought by a Russian couple to launder criminal proceeds from home, to a Chinese crime syndicate buying up mansions and apartments in Sydney, and Melbourne gangland bosses funnelling money into property there.

Just last week, it was a unit complex in Sydney’s outer suburban Merrylands linked to the notorious Alameddine organised crime group.

This is a small portion of the tens of billions of dollars of proceeds of crime that need to be laundered each year – including the $12 billion annually spent on illicit drugs such as cocaine. The vast majority is channelled into houses, apartments and commercial properties, said financial crime watchdog AUSTRAC.

AUSTRAC’s deputy chief of regulation and reform, Bradley Brown, laid out the implications to a Senate inquiry in 2021.

“The logical economic consequence of an unequal market means that if a person like you and I was competing next to a person who had illicit proceeds of crime, then it’s an unfair situation,” he said.

Current AUSTRAC boss Brendan Thomas was more direct in a speech last month, saying Australians competing against drug dealers and money launderers to buy a home was definitely jacking up prices.

“It pushes up property prices,” Thomas said. “It takes a property that would otherwise have been purchased by a hard-working Australian and puts it in the hands of organised criminals seeking to line their own pockets with ill-gotten gains.”

‘Dirty money invested in real estate is a source of market demand that is not linked to local incomes, and the investments are made for reasons other than the pursuit of normal expected rates of return.’

Canadian government report

The issue is a combination of Australia’s world-beating real estate boom and the complete lack of money laundering safeguards at the three essential gatekeeper professions – real estate agents, accountants and lawyers – which makes us fertile ground for criminals looking to legitimise their ill-gotten gains.

Australia sits alongside Haiti and Madagascar as one of few countries yet to expand anti-money laundering and counterterrorism financing laws to include these three professions.

That is about to change. From July 1, 2026, they will be forced to know exactly who their clients are and report any suspicious source of funding – just like our banks and casinos.

From the same date, anti-money laundering and counterterrorism financing obligations will apply to professions such as real estate professionals, lawyers, conveyancers and accountants, who must undertake customer due diligence, including verification of the identity of a prospective customer and “suspicious matter” reporting requirements.

The enticing question is: what happens to real estate prices if this flood of money is successfully kept out? The recent experience of our casino operators, such as Crown Resorts and Star Entertainment, suggests it could be significant, as both Chinese high rollers and pokies revenue dry up with stricter enforcement of regulations.

No one in Australia has tackled this real estate question, but Canada has – and in a market with many of the characteristics of Australia’s coastal cities: British Columbia’s Vancouver.

Like Australia’s cities on the Pacific Rim, Vancouver is close to Asia and subject to many of the same ills when it comes to money-laundering crime. This has helped to make it one of the hottest real estate markets in the world.

A panel of academic experts was assembled by the British Columbia government in 2019 to assess the impact of this criminal money on house and apartment prices in its red-hot market.

They estimated it raised prices about 5 per cent, but said the impact on prices could be as high as 7.5 per cent.

The issue is not just the billions of dollars involved.

“Dirty money invested in real estate is a source of market demand that is not linked to local incomes, and the investments are made for reasons other than the pursuit of normal expected rates of return,” the report said.

So how has Canada fared since introducing anti-money laundering and counterterrorism financing laws to its real estate sector? It’s too soon to tell, as its rollout won’t be complete until July 1, next year.

But the report highlighted two significant factors that determine the impact on house prices. One is whether money is targeted at fewer trophy waterfront properties, or whether its impact is spread more evenly throughout a metropolitan area on more modest homes and apartments.

The second factor is more significant given Australia’s housing shortfall: in a market short on supply, the real estate demand created by money laundering has a greater impact, experts found.

The lack of supply means prices rise in response to any fresh demand. Most turnover of housing represents households upgrading, or downgrading, so they are buying and selling in the same market.

The Canadian report points out that illicit funds from money laundering could be considered “new demand for real estate” and have an outsized impact if supply does not keep up with this fresh demand.

That’s great news for current home owners in Australia’s undersupplied market. A 5 per cent price lift from organised crime in Sydney and Melbourne alone would add $185 billion to the value of homes and apartments in these two cities.

It’s another reason why anyone wanting to enter the market should be hoping AUSTRAC succeeds in making life very difficult for our criminal underclass.

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