The Liberal’s Kelly O’Dwyer has written a good piece in The AFR today providing some further context and guidance around the upcoming House of Representatives Inquiry into Foreign Investment in Australian housing.
According to O’Dwyer, transparency around foreign investment and compliance with the rules will be the main focus of the Inquiry, along with ensuring that foreign investment does not simply raise housing demand without offsetting increases in housing supply:
…we don’t know how much of the newly developed housing stock is re-sold or rented to locals – or conversely, how much stays empty for vast periods and is used simply as a store of value or an occasional holiday home.
The lack of information on this front is surprising. After all, Australia’s foreign investment policy as it applies to residential policy is intended to boost the supply of new housing, and thus provide both economic and social benefits. Foreign investors cannot generally buy established dwellings as investment properties or homes. Temporary residents can apply to purchase one established place to live in, but are expected to sell it when they leave Australia…
The clear policy objective is to ensure foreign investment drives an increase in housing supply.
It’s too early to judge what areas will receive the most attention and scrutiny. But it is fair to expect that transparency and compliance will make the short list.
For instance, are requirements for temporary residents to sell properties when they leave Australia, being observed and enforced?
The Inquiry’s focus on transparency and compliance seems reasonable. Under the existing system, data on foreign purchases is opaque, and there are big question marks over the enforcement of the rules, particularly those requiring temporary residents to sell their property when they leave the country.
While I would prefer to see temporary residents banned from purchasing existing dwellings altogether – since they do not add to supply or economic activity, and simply put upward pressure on house prices (at the expense of younger locals) – if the system can be made more robust to ensure that homes are definitely sold when temporary residents leave, then it would go a long way to alleviate the public’s concerns.
Meanwhile, late last week, the Stephen Kirchner from the Centre for Independent studies penned a good article in The Age arguing that Australia’s housing woes are home grown:
It is pointless blaming foreigners for inflexible elements on the supply-side of the Australian economy. For that, we should blame local politicians…
New dwelling construction responds to overall demand, not just demand from foreign investors. Whether this demand is accommodated through increased supply or rising prices is not a function of where the demand comes from, but the costs embedded in the supply-side of the housing market…
If politicians are concerned about housing affordability, they should examine taxes and regulations rather than seeking to make scapegoats out of investors who supply much of the capital that funds new dwelling construction…
Concerns have been raised that some foreign buyers leave property vacant. But…it is often rational to leave property vacant when prospective capital gains provide a sufficient return on the investment. This too is a function of the supply-side constraints Australian politicians have inflicted on property markets.
I obviously sympathise with Kirchner’s view. It is true that foreign purchases are only a minor cause of Australia’s unaffordable housing, and the lion’s share of the blame rests on distorted tax policies (e.g. negative gearing) and the myriad of constraints on housing supply implemented by state and local governments.
That said, there are legitimate concerns about whether foreign buyers are adding unnecessarily to demand, without adequately raising supply, and in the process accentuating structural problems in the market. On this basis, the foreign Investor inquiry is still necessary, if not sufficient.
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