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Australia’s three-year property boom is leaving Melbourne awash with empty homes.

In the country’s second-biggest city, growing numbers of local landlords and absent overseas owners have locked up their properties -- forgoing rental income as they focus instead on price gains, a report by Prosper Australia said Wednesday.

Some 82,724 properties, or 4.8 percent of the city’s total housing stock, appear to be unused, said the report, which estimated occupancy rates by gauging water usage. In the worst-hit areas, a quarter of all homes are empty, said Prosper. The Melbourne-based research group is lobbying for more affordable housing through tax reform.

Driven by a wave of Chinese buyers and record-low interest rates, average home prices have soared to about A$700,000 ($505,000) in Melbourne and around A$1 million in Sydney. But with prices now cooling, the empty accommodation also masks a hidden glut of supply that could worsen any housing slump.

“Those properties need to be utilized,” said Catherine Cashmore, author of the Prosper report, Speculative Vacancies. “Having property sitting vacant has a very high cost on the economy. It’s very destructive to our national prosperity.”

Water Use

The study, now in its eighth year, assessed 1.7 million residential properties in and around Melbourne during 2014. Those using less than 50 liters of water a day -- the rough equivalent of one shower and a flush of a toilet -- were deemed vacant.

Sydney, where high-rise blocks have sprouted in the inner suburbs, is also likely to have a vacancy problem, said Cashmore. Data on water usage at individual apartments isn’t as comprehensive in Sydney as in Melbourne, she said.

Surging home prices triggered a boom in high-rise construction in Melbourne’s inner-city suburbs, squashing rental yields and leaving landlords with little incentive to find a tenant, said Cashmore.

Chinese Buyers

Analysts at Credit Suisse Group AG estimated this year that Chinese buyers were on course to take out 20 percent of new homes across Australia in 2020, up from the current 15 percent.

While the Prosper report doesn’t identify overseas-owned properties, it said a “significant proportion” of foreign-owned real estate is empty, inflating prices.

“There is a wall of money that is trying to get into Australia,” Cashmore said. “To fight those forces is going to be very difficult.”

Cashmore, who also helps find homes as a buyer’s agent, is seeing the legacy of that foreign investment spree. In some apartment blocks in Melbourne, she said entire floors have been sold and lie vacant. She said it’s not unusual for her to walk through a building and be told the owners are from Asia and rarely seen.

“It’s a growing problem,” said Cameron Kusher, a Brisbane-based analyst at property information provider CoreLogic Inc. “If these properties aren’t being occupied, it doesn’t do a lot to fix overall housing supply. It’s always going to be the risk when you sell to offshore investors.”

Artificial Scarcity

The report questions the assumption that Australia’s property affordability barriers can be overcome by building more homes. There’s no housing supply crisis, according to Prosper. Rather, unused property has created an artificial scarcity, Prosper said.

Sudden property price declines or an economic slowdown risk unmasking the vacant supply. Owners would start to sell up or look for rental income to cushion the blow from falling prices, she said.

“Suddenly, you find there’s no one there to buy it or nobody to rent it. That’s a common pattern in a housing crash,” Cashmore said. “What we’re trying to do is it to make it visible before it happens.”

— With assistance by Andreea Papuc

( Updates with comment from property analyst in the fourth-from-last paragraph. )