As easy as it is to point the finger at Chinese buyers amid rising tensions over housing affordability, the real culprit is right here at home, writes Ian Verrender.

For all the hullaballoo about the flood of Chinese cash into domestic real estate, there's one Aussie house that is seriously on the nose with our northern neighbours.

Actually, make that three.

For the past year or so, James Packer has been snubbed by Chinese punters, who for years were so enamoured with his Macau gambling dens that he eventually built three of them.

After plummeting 40 per cent last year, revenues for the year so far are down a further 37 per cent.

It's not just our James and his good mate Lawrence Ho suffering either. All the Macau casino operators have seen their earnings decimated, with the industry notching up 11 straight months of heavy declines, and now dropping to a mere $US3 billion a month.

The reason? The Chinese government has cracked down on corruption. Money laundering has come under the watchful gaze of Beijing.

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Perhaps it's a huge coincidence. But the casino crackdown seems to have coincided with the latest deluge of Chinese cash washing through property markets around the Pacific. If you can't launder your money through Macau, best to get it out of the country altogether.

Australia - and particularly Sydney and Melbourne - are favoured destinations. But Auckland is high on the list. So too is Vancouver. And in California, Chinese purchasers are swamping the San Francisco market.

Headlines around the Pacific are eerily similar. Take this one from The Diplomat from a few weeks back: "Chinese Buyers Fuel California Property Bubble."

In Vancouver, the average price for detached houses sits just under $2 million, after rising 173 per cent in the past decade.

The Globe and Mail tells the story of a couple who, having paid $C488,000 for a house in 2000, put it up for sale in March. Within two hours, they had an offer for $2.29 million and accepted $2.48 million to a mainland China buyer.

Australia recently signed a Free Trade Agreement with China and the final draft of that deal is due to be delivered within weeks.

While we've been regaled with promises of vast trading opportunities and fabulous profits, it will be interesting to see whether anyone among the vast army of advisors to the deal has bothered to ask this simple question: if it is illegal to take more than $US50,000 out of China, why are so many Chinese nationals capable of splurging millions of dollars on individual properties?

There is a simple answer to that: China doesn't enforce its rules.

The most common way to secrete cash out of China has been through "padding" of trading company invoices - a play on transfer pricing. The second most popular method was through Macau gambling dens.

When combined with the rorts surrounding Australia's Significant Investor Visa scheme - where a $5 million investment buys foreigners permanent residence - Australia was open for business when it came to real estate.

Despite all the evidence, all the media reports and the outcry within the community, the Significant Investor Visa loophole - where foreigners simply borrowed the $5 million back from an investment bank to buy real estate, using their $5 million investment as collateral - has only just been closed.

So far, the FIRB and the Treasurer, Joe Hockey, have found just one foreign investor - Xu Jiayin, one of China's richest individuals - who has breached foreign investment guidelines. His $39 million Sydney harbourside mansion, was forcibly sold recently amid a publicity blitz.

The buyer, however, was a wealthy Chinese national, Lola Wang Li; a woman who maintains she has no links with Xu.

The Chinese incursion into Australian residential real estate - and the unwillingness of Australian regulatory bodies to enforce the law - is part of a broader malaise that has seen regulators from the FIRB and the Department of Immigration through to the banking regulator, the Australian Prudential Regulatory Authority, and the Australian Tax Office reluctant to act.

As easy as it is to point the finger at Chinese buyers amid rising tensions over housing affordability, the real culprit is right here at home.

This is the result of a lack of oversight and enforcement from a federal bureaucracy denuded of staff for the best part of a decade and a federal government that appears unable or unwilling to identify a problem.

No one, it seems, has had any interest in reining in the runaway housing market, a point hammered home by Prime Minister Tony Abbott last week when he expressed a desire for prices to keep on rising, despite a blunt warning from new Treasury head John Fraser.

The following day, as he ramped up the notion into a political fight - Bill Shorten wants your house to decrease in value - Hockey attempted to argue that soaring house prices and affordability were separate issues.

What seems to have eluded our political masters is that market adage - the bigger the boom, the more painful the bust.

Then of course there is the constant moan from the business lobby; Australia is too costly, wages are too high. There is a reason for that. It's called real estate. For the past 15 years, rents have dictated wages. Not the other way around.

No matter how you measure it, Sydney and Melbourne real estate is in dangerous territory, fuelled by a heady mixture of cheap cash from foreign and domestic investors.

When it unravels, the pain will reverberate through the banking system, causing enormous damage to the real economy.

A major reason for the official inaction is that this is a bubble that has been deliberately contrived.

In 2012, when the Reserve Bank began its easing bias, it was determined to create a housing boom - so residential construction could fill the gap created by the decline in resource project construction.

But as investors, rather than owner occupiers, plunged in almost from day one, APRA and the RBA should have taken action. Instead, they were happy to watch the bubble inflate and now, rather than admit a mistake, reluctantly are playing catch-up.

A large portion of the investor action emanated from self-funded retirees, taking advantage of changes to superannuation rules that allowed them to gear up their super funds.

While as a nation we boast about the extent of our national savings pool, little attention has been devoted to the fact that a significant amount of that pool is now exposed.

As the Storm Financial collapse graphically illustrated, the capital losses on a property market bust will be magnified by debt. That could wipe out a significant number of super balances and put more pressure on the federal budget.

After months of procrastination, APRA finally has begun to enforce its own rules on high risk lending. But it may be too late.

In 2010, capital city property prices, particularly in Sydney, declined by 10 per cent in what was a relatively orderly retreat.

But the enormous gains of the past two years, which clearly has the new Treasury head concerned, will ensure the next decline will be anything but orderly.

Ian Verrender is the ABC's business editor.