Reserve Bank of Australia research has debunked popular fears that foreign investors are driving up prices and snatching homes from the hands of first home buyers.
RBA economists point out that Foreign Investment Review Board approvals to foreigners over the past decade have remained steady at around 5 to 10% of the value of homes bought and sold every year, with the number of transactions around half that level.
FIRB data indicates the value of approved foreign investment in residential property in Australia has increased, rising from around $6 billion annually in the 1990s to more than $17 billion in 2012-13 – driven mainly by approvals for new dwelling purchases and construction.
However, because national dwelling prices and turnover having increased significantly over the past 20 years, the value of foreign residential approvals as a share of total dwelling turnover in Australia has not actually increased over time, RBA says.
“Overall, the available data suggest that while foreign residential purchases change a bit from year to year, they have been relatively steady and fairly low as a share of turnover in the housing market in Australia and hence are unlikely to have been the main driving factor behind the recent increase in prices, notwithstanding the pick-up in approvals more recently,” the central bank economists say.
Some commentators worry over potential for foreign residential demand to push up the price of housing for first home buyers.
Fears about the impact of foreigners on the housing market have even triggered a parliamentary inquiry into whether measures should be taken to curb offshore investors.
However, RBA says as first home buyers generally purchase established dwellings that are cheaper than the national average rather than new, the degree of competition with foreign buyers is likely to be fairly small.
Data shows foreign residential investment is concentrated in higher-priced parts of the housing market, and in particular to new dwellings concentrated in New South Wales and Victoria.
In 2012-13, investment in new dwellings in these two states accounted for almost four-fifths of the total value of foreign residential investment approvals, much larger than the three-fifths share that these states have in the overall stock of housing in Australia, RBA says.
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