It's not because of foreign investors that Australia has record low numbers of first home buyers.
Prime Minister Tony Abbott yesterday signaled his intention to implement the recommendations of a parliamentary inquiry into foreign investment, but erroneously linked foreign investors to low numbers of first homebuyers despite the inquiry finding that a continuous lack of supply is the key driver of price increases.
In his first formal address at the National Press Club since winning the election 16 months ago, Abbott said yesterday that Australians were “anxious about our economic sovereignty” and he wanted foreign investment to be "on our terms." The speech was a chance for the Prime Minister to try and win back the electorate now that his leadership is in question and the Coalition is reeling from a stunning electoral defeat in Queensland.
“I am a friend of foreign investment but it has to come on our terms and for our benefit,” he said. “The government will shortly put in place better scrutiny and reporting of foreign purchases of agricultural land and better enforcement of the rules against foreign purchases of existing homes so that young people are not priced out of the market. These laws were not legally enforced by the former Labor government – not once.”
The Prime Minister made the remark equating low levels of first home buyers with foreign buyers despite the House of Representatives Standing Committee on Economics finding that overseas buyers mainly operate at a different price bracket from first home buyers and buy different types of properties.
The committee, chaired by Kelly O’Dwyer, said it was satisfied that foreign investment is not causing the market distortions that have been advocated in some quarters, particularly for first home buyers. “This is because foreign investment levels are not large enough to do so overall and because overseas buyers mainly operate at a different price bracket from first home buyers and buy different types of properties,” it stated.
The committee found that although foreign buyers represent only a small percentage of the housing market, they are vitally important to the continuing development of this sector. “The housing supply issues that have been ongoing in Australia would worsen if foreign investment was curtailed,” it found. “One of the likely outcomes of any restrictions on foreign buyers could therefore be further price increases – the opposite to what some in the community believe would occur if foreign investment was further restricted.”
“The evidence points to a continuous lack of supply in Australia as a key driver of price increases. Importantly, industry experts as vital to increasing this supply regard foreign investment. Rather than causing price pressures, the evidence suggests that foreign investments may actually help keep prices lower by increasing supply."
In its submission to the inquiry, the Real Estate Institute of Australia noted that it is because of an inadequate supply of housing that questions are raised about the efficacy of foreign investment. “Addressing housing supply would avoid any future questioning about impact of foreign investors in residential real estate,” the REIA stated.
At a public hearing on May 30, 2014, the committee asked Treasury officials whether foreign investment was sufficient to have a material impact on housing affordability. Brenton Goldsworthy, Principal Adviser, Macroeconomic and Conditions Division, responded, “I think the best way to answer that question is to point to the role that low interest rates are clearly having on house prices. It is certainly fair to say that the stimulus incentive that is provided to domestic investors and also to domestic owner occupiers would likely be having the much larger impact on house prices.”
The Property Council of Australia also submitted that there is not enough foreign investment to influence house prices and that “there is no evidence that international investment is swamping the residential housing market or influencing prices.” Urban Taskforce Australia stated in its submission that housing affordability needs to be addressed by looking at planning laws and supply constraints. “If the Government is truly concerned with housing affordability it should look more closely at the complex state and local planning systems and risky development approval process.”
Responding to the Prime Minister’s remarks, REIA CEO Amanda Lynch said she welcomed the news that the government would follow the Inquiry’s recommendation to more strictly enforce existing laws for foreign investors. “We believe that the current regulations are appropriate with foreign investors requiring residency or citizenship to purchase an purchasing an existing home,” said Lynch. “Temporary residents on visas of more than 12 months can purchase just one existing home to live in while they are resident in Australia, but must sell this home on their visa expiring within three months. This clause in particular needs enforcing.”