Scapegoating foreigners for home-grown policy failures

kirchner-stephen The debate over housing affordability is over-populated with scapegoats and under-populated with policy solutions. The most popular scapegoats are domestic and foreign investors.
 
Foreign investors are an odd target because by definition they do not live here (although they or family members may be resident in Australia temporarily). Foreigners are also restricted from buying established housing. The rationale for this restriction is weak since it still gives rise to indirect competition for established dwellings, but most of the Australian housing stock is technically off-limits to foreign buyers.
 
When foreigners buy domestic property they transfer overseas wealth to Australians, making us richer. In the first instance, this will likely be to property developers building specifically for foreign and domestic investors. Once built, the property is available for rent or subsequent purchase in the secondary market. The developers' profits can be used to fund further investment in housing. Foreign and domestic investors induce new dwelling supply.
 
Chinese buyers have become a particular source of angst in recent years, although they remain minority players compared to investors from countries such as the US, the UK and Canada. These more traditional sources of foreign investment attract less attention, no doubt because buyers from these countries are harder to distinguish from the locals at auction.
 
When the federal government established a 'community hotline' in 2009 so that locals could snitch on buyers supposedly breaching the foreign investment rules, it turned up some 'Chinese' buyers whose families had been in Australia since the 19th century. The so-called 'hotline' is just a 1800 number for the Foreign Investment Review Board (FIRB).
Concerns about foreign buying of residential property are driven more by anecdote than data. The oft-quoted FIRB statistics are not very insightful. They do not distinguish between residential and other forms of property, only reflect approvals rather than actual investment and are not even comparable over time.
 
Foreign buyers play a much greater role in the London market, which does not have Australia's restrictions on foreign investment. In the UK, Australia is now unfortunately seen as a model for how to turn away transfers of foreign wealth to locals. In reality, Australia demonstrates that housing affordability problems are entirely home-grown, not imported. The enemies of affordable housing are not investors who live abroad, but the taxing and regulating activities of Australian governments that raise the supply price of new housing.

Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies.