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The problem with housing supply is government, not foreign investors

Media release

The problem with housing supply is government, not foreign investors

Media release
The following is to clarify information reported in today’s Daily Telegraph article by James O’Doherty.

“In order to address the acute shortage of housing stock, governments need to attract more foreign investment, not increase taxes on them,” stated HIA’s Chief Economist, Tim Reardon. 

“There are two very common misunderstandings about the shortage of housing in Australia. One is that there is a large volume of vacant homes, and the second is that foreign investors are the cause of the housing shortage,” added Mr Reardon.  

Firstly: Foreign investors are leaving homes vacant.

“Each Census the Australian Bureau of Statistics reports that around 10 per cent of homes were vacant on Census night. 

“Around half of these ‘vacant homes’ are people away from their primary residence on census night as they are on holidays, some are for sale, some being renovated or are in regional areas away from employment opportunities. 

“The ABS has reported that around 10 per cent of homes are vacant in each census since 1986. This figure is consistent with other developed economies and is not the cause of Australia’s housing shortage.

“It is a fallacy to think that 10 per cent of homes are unoccupied and unhelpful for policy makers to suggest that homes are being withheld from the market when a core problem is that governments continue to increase tax imposts on hew homes. 

“In February 2024, the Australian government introduced a bill (Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2024) further increasing taxes on foreign investors if they leave properties vacant. 

“This increase in tax on housing occurred without evidence of a problem.

“The Australian government has also not published data showing the value of revenue raised from this tax over recent years.

“They have not provided estimates of the value of additional revenue to be raised from this tax increase. 

“Given that the Australian government prohibits foreigners buying established homes, and taxes them if they are left vacant, it is not clear why the NSW Government would need to consider additional taxes, over and above the ‘belt and braces’ approach adopted by the Australian government.

Secondly: Foreign investors are buying established homes in Australia.

“The “Foreign Acquisitions and Takeovers Act 1975” prohibits foreigners from purchasing established homes in Australia, including Sydney, without prior written consent from the Australian Treasurer.

“In the most recent year that the Australian government has published data, 2021/22, there were just 1339 homes (established dwellings) approved by the Australian Treasurer to be purchased by a foreigner. This is in a market of 583,039 transactions or just 0.23 per cent of homes.  

“Foreigners are not responsible for the shortage in Australia. They in fact, play a really important role in increasing the supply of homes in Australia. 

“Since the introduction of punitive rates of stamp duty on foreign investors building homes in Australia, they have withdrawn from the Australian market, and we have seen the volume of apartments commencing construction falling by as much as 50 per cent in each capital city.

“One of the underlying causes of the shortage of homes in Australia are taxes on foreign investors.

“Since 2015, a range of punitive taxes have been imposed on foreign investors by State and Federal Governments. The consequence of this is that these investors have withdrawn from the Australian market, and this is a key reason why the volume of apartments commencing construction is now almost half of what it was in 2016.

“If governments tax something, there will be less of that item. 

“Today’s Daily Telegraph article reports that taxes on foreign investors have raised $2.65 billion in revenue. Without this tax, there could have been $2.65 billion more investment in housing supply in NSW easing the acute shortage of rental stock. 

“Sydney’s housing shortage would not be as severe if the NSW government stopped taxing new home building.

“Foreign investors build new homes, they don’t live in them, and cannot take them out of the country. 

“They are the key to addressing the inequity that falls hardest on Australian renters.

“One in ten Australian detached homes are built by a company with significant foreign ownership. These companies are finding it increasingly difficult to invest in Australia and build new detached homes, due to the punitive taxes government impose.

“In order to address the acute shortage of housing stock, governments need to attract more investment in home building including from overseas investors, they need to stop increasing the cost of building new homes by imposing additional regulatory imposts and they need to assist local councils to invest in infrastructure.

“Changes announced in last year’s Federal Budget will assist domestic institutional investors to build new homes in Australia, but they have not yet filled the space left vacant by the exit of foreign investors from the Australian market exacerbating the rental shortage across the economy,” concluded Mr Reardon.

Estimated taxes on foreign housing investors

Source: CoreLogic, HIA, Australian Government

For more information please contact:

Tim Reardon

HIA Chief Economist

Jocelyn Martin

Managing Director
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