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Foreign Investors Are Not The Problem

The general tactic of politicians when they haven’t got a clue how to resolve an issue – which is most of the time – but want to give the appearance of doing something, is to blame an unpopular minority for the problem.

A very popular choice when it comes to housing affordability issues is foreign investors.

You can slam foreign investors without any direct electoral consequences, because foreign investors don’t vote in Australian elections.

As politicians, they can present themselves as big and tough by banning foreign investment – or, even better, slug them with major new taxes as a way to raise more revenue from the housing industry – while claiming in front of the media that they’re doing it to improve housing affordability and help first-home buyers.

The problem is – it doesn’t work.

Foreign investors are not, and never have been, the cause of unaffordable housing in Australia or anywhere else.

In 2018, New Zealand banned foreigners from buying residential property and this was presented by the NZ Government as a solution of the housing affordability problem in that country.

But a  few years later, the NZ housing market experienced massive increases in property values in a property boom that was even more startling than the one we experienced here in Australia.

Banning foreign investors did not prevent a major deterioration in housing affordability right across New Zealand.

What it did do, however, is contribute to a significant shortage of rental properties in that country.

The issue of whether it’s a good idea to stop foreigners buying real estate has come up again, because Canada has decided to take that step.

The rationale, once again, is that it will take some of the heat out of their property market and make homes more affordable for young Canadians.

And Australian media has speculated that we should perhaps do the same here in Australia.

The thing is, Australia already has, effectively, banned foreign investment.

In 2017, after a couple of parliamentary inquiries into housing affordability, the Federal Government decided that it made political sense to scapegoat foreign investors.

It changed the rules so that foreign investors were no longer allowed to buy existing properties in Australia. They could buy only new properties – which meant, fundamentally, off-the-plan apartments.

But, at the same time, the Federal Government introduced major new taxes on foreign investors in Australia.

In other words, they cynically used the affordability issue as an excuse to raise even more revenue from every politician’s favourite cash cow, the housing industry.

At the same time, they proclaimed that this would improve housing affordability for young Australians.

As a result, foreign investment in the Australian residential market dropped significantly. In 2022 foreign investment in Australian residential property was at a 15-year low.

So, in the aftermath of this genius political decision, has housing affordability improved?

As we all know, it hasn’t – it has got notably worse.

Effectively banning foreign investors did not prevent a spectacular rise in Australian home values in 2020 and 2021.

And now, while property values are no longer rising dramatically in many parts of Australia, housing affordability is deteriorating even more because of the Reserve Bank’s thoughtless and counter-productive interest rate rises.

What the effective ban on foreign investment did do, similar to the outcome in New Zealand, was contribute to the serious shortage of rental properties in Australia.

Foreign investors were, until the Federal Government decided to meddle with the market, a major source of investment in apartments – and those in turn were added to the national pool of dwellings available for rental.

But the prohibitively high taxes charged on foreign buyers means that this source of rental properties has been greatly diminished.

It’s another example of how political meddling with property markets has created more problems, rather than solutions.


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