Australia’s house prices are determined by a wide range of social and economic factors. But there is another, less visible source of demand: money generated by crime and corruption. With Australia’s expanded anti-money laundering and counter-terrorism financing (AML/CTF) regime, so-called Tranche 2 laws, taking effect on 1 July 2026, an important question is whether closing loopholes used to move illicit money into property could also ease pressure on house prices and housing unaffordability.

While the updated AML/CTF regime will not solve Australia’s housing affordability crisis, reducing the flow of illicit funds into property will remove one source of artificial demand and help improve the integrity of the housing market.

Housing is a key target for money launderers

The amount of money laundered globally each year is estimated to be between 2 per cent and 5 per cent of global gross domestic product (GDP), equivalent to approximately $800 billion to $2 trillion.

Property is particularly attractive for laundering illicit funds. According to AUSTRAC, criminals may be drawn to property because it can be purchased with cash, beneficial ownership can be concealed, property is relatively stable in value, and renovations can increase its value. In 2020 alone, criminals linked to China are estimated to have laundered around $1 billion through the Australian property market.

Australia has long faced gaps in its AML/CTF framework, particularly in sectors such as real estate and other professional services. The Australian Parliament passed the AML/CTF Amendment Bill 2024 on 29 November 2024, substantially updating the regime and extending obligations to additional high-risk professions. The reforms are intended to bring Australia closer to international standards established by the Financial Action Task Force (FATF).

The expanded Tranche 2 AML/CTF obligations aim to enhance AUSTRAC’s ability to deter, detect, and disrupt money laundering and terrorism financing, and to reduce the ability of illicit networks to exploit weaknesses in Australia’s financial system.

But these reforms may have an economic consequence that receives less attention: if illicit money contributes to demand for Australian property, then reducing its entry into the housing market could also affect property prices.

Illicit money can create artificial housing demand

The connection between money laundering and house prices follows a relatively straightforward economic mechanism. When illicit funds enter the housing market, they add purchasing power unrelated to households’ legitimate income, savings, or the property’s underlying utility. In other words, some property demand is generated not by the conventional economic fundamentals of the housing market, but by the need to conceal or invest criminal proceeds.

The most obvious channel is the high-value property market. Money laundering can increase demand for high-end properties, pushing up prices in that segment. But the effects need not stop there. Higher prices at the top of the market can spread to lower-priced segments through what researchers describe as house-price diffusion or ripple effects. Illicit funds can also be invested directly in other types of housing, creating additional demand outside the luxury segment. Artificial demand may also encourage speculative behaviour among legitimate investors, further increasing prices and potentially contributing to greater housing market volatility. There is also a supply-side effect. If developers respond to increased demand from wealthy buyers and investors by concentrating capital on high-end properties, fewer resources may be directed towards affordable housing.

The result is not necessarily a dramatic or immediate increase in national house prices. Rather, money laundering can become one additional source of demand in markets that are already under pressure.

International evidence points to a relationship

Evidence from other countries supports the idea that illicit money can affect housing markets.

In British Columbia, Canada, approximately 5 per cent of the value of real estate transactions and housing prices could be attributed to money laundering investments. Evidence from Italy points in a similar direction: higher levels of crime (including drug dealing and receiving stolen goods) were, in turn, associated with increased housing demand and contributed to higher prices.

If illicit money contributes to In the United Kingdom, announcement and implementation of the Economic Crime Bill (ECB) in 2022 were associated with a decline in property purchases by companies based in tax havens. Cyprus provides another example. The termination of its Citizenship by Investment Program in late 2020 negatively affected total property sales in 2020 and 2021. The program was abolished following an Al Jazeera investigation that exposed concerns about high-ranking politicians facilitating access to citizenship for convicted criminals.

The strongest evidence for the broader relationship comes from recent cross-country research using data from 31 OECD economies, including Australia, finding that effective AML measures are associated with lower upward pressure on real house prices.

These cases do not prove that every AML intervention will reduce house prices. They do, however, demonstrate that changes in policies governing illicit capital flows can have measurable effects on property market activities.

Strengthening Tranche 2 reforms for housing market integrity

The introduction of Tranche 2 AML/CTF laws means that services including real estate professionals are recognised as being at high risk of criminal exploitation. The reforms should make it more difficult for criminals, organised crime groups and corrupt officials to use professional intermediaries and property transactions to disguise and store illicit wealth.

This does not mean that Australian house prices will suddenly fall when the new rules take effect. However, AML/CTF reform removes one source of excess demand and will be more significant in major cities (Sydney and Melbourne) and property segments (luxury properties) that have historically attracted illicit capital.

This has an important implication for policymakers. Housing markets are not governed solely by housing policies, and combating money laundering is not merely a law enforcement exercise. It is also an economic policy aimed at protecting the integrity of asset markets. The new AML/CTF regime should be viewed as part of a broader housing market strategy.

To be an effective housing-related strategy, the upgraded AML/CTF measures should be implemented and enforced rigorously to reduce the flow of illicit funds into the housing market. As FATF recommended in 2022, the Australian Government should consider several key actions, including stronger customer due diligence, verification of ultimate beneficial ownership, greater transparency in ownership structures and effective suspicious transaction reporting. Robust supervision of real estate professionals and enhanced information sharing among regulators, financial intelligence units and law enforcement agencies will also be required.

Arguably the most critical step is improving the ability of real estate agents to identify and report suspicious transactions. While real estate agents have a commercial interest in facilitating property transactions and earning commissions, regulators could introduce incentives, protections and clearer guidance to encourage the reporting of suspicious property purchases. Strengthening agents’ awareness and capacity to report suspicious behaviour would significantly enhance the effectiveness of the broader AML/CTF framework in the housing market.

While these measures may be effective in the short run, Australian authorities may require additional regulatory responses given the rapid advancement of artificial intelligence in facilitating criminal activities and the increasing complexity of cryptocurrencies in concealing the origin of illicit funds.

Anti-money laundering regulation cannot substitute for increasing housing supply, improving affordability or addressing planning constraints. But it can help ensure that the demand competing for Australia’s limited housing stock is legitimate rather than artificially inflated by criminal proceeds, and that Australia’s housing market is not being quietly reshaped by money derived from crime and corruption.

Dr Hassan Gholipour Fereidouni is an Associate Professor of Property in the Western Sydney University Business School and a Research Fellow at the Whitlam Institute.

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