This reform represents more than a tax concession. It is a recognition that foreign investor taxes can impede the delivery of new housing and that attracting additional capital is essential if Australia is to address its housing shortage.

For more than a decade, state governments have imposed increasingly punitive stamp duty and land tax surcharges on foreign investors. These taxes were introduced rapidly, escalated over time, and applied broadly, with little distinction between speculative investment and investment that directly delivers new housing supply.

The problem is that foreign investors have been prohibited from purchasing established dwellings in Australia since 1975. Foreign capital therefore participates overwhelmingly on the supply side of the market, financing, developing and constructing new housing.

Taxing foreign investment in new housing does not reduce demand for existing homes. It reduces the amount of capital available to build new homes.

The NSW Budget reform implicitly acknowledges this reality. By removing the surcharge for eligible build-to-rent and retirement living developments, the NSW Government has accepted that housing supply objectives and foreign investor tax settings can be in conflict.

This report argues that the significance of the NSW decision extends well beyond build-to-rent and retirement living.

Over recent years, governments have increasingly introduced exemptions, concessions and administrative relief measures to prevent foreign investor taxes from discouraging housing development. Queensland's reforms in 2025 streamlined and expanded relief pathways for residential development projects. NSW already operated relief mechanisms for residential development and has now extended that logic to major institutional housing investments.

Taken together, these changes raise an obvious question. If foreign investor taxes require exemptions for residential development, exemptions for build-to-rent, and exemptions for retirement living, why should they continue to apply to any investment that demonstrably increases housing supply?

The answer becomes even less convincing when the broader economic impacts are considered.

Unlike many housing policies that merely reallocate an existing pool of domestic capital, foreign investment increases the total pool of capital available to the Australian economy. Additional foreign investment means more equity, more development finance, more projects reaching financial close, more homes being built and more jobs being created.

The result is not only greater housing supply. It is also likely to be higher government revenue through increased GST, income tax, payroll tax, company tax and ordinary stamp duty collections associated with additional construction activity.

In economic terms, this is unusually close to a Pareto-improving reform. Housing supply increases, economic activity increases, government revenue increases and housing affordability improves over time, without increasing foreign competition for established homes because foreign investors remain prohibited from purchasing them.

The NSW Government's decision should therefore be viewed as the beginning of a broader reform process rather than an isolated concession.

The next logical step is for all states and territories to adopt equivalent arrangements for housing that adds to the dwelling stock. If even one additional large state were to replicate the NSW approach and extend relief to new housing supply more broadly, the resulting increase in housing construction and associated government revenue could rival, and potentially exceed, the housing supply benefits expected from many of the headline housing initiatives announced in the 2026-27 Federal Budget.

The report concludes that foreign investor taxes have become one of the most damaging own goals in Australian housing policy. The evidence increasingly suggests that governments recognise this reality. The remaining question is whether policy settings will continue to rely on exemptions and workarounds, or whether Australia will return to the simple principle that has existed since 1975: foreign capital should be prevented from competing for established homes but encouraged to help build new ones.

Download the full Unravelling of Australia's Foreign Investor Tax Regime: From workarounds to reform.

This report should be read as an addition to: Foreign Investor Taxes and Housing Supply?

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