20 March 2014 - Don’t blame foreigners for rising house prices

The Age | by Stephen Kirchner

Shoddy tax laws, not Chinese investors, are driving up the prices of new dwellings.

Foreign investors are not to blame for rising house prices. The real culprits are the taxing and regulating activities of Australian governments that raise the supply price of new housing.

Despite this, the House of Representatives economics committee is set to inquire into the impact of foreign investment on the Australian housing market at the instigation of Treasurer Joe Hockey.

According to committee chair Kelly O’Dwyer, the inquiry will consider whether the current restrictions on foreign investment in residential real estate serve to increase supply, as is their stated intention, or raise prices.

This is rather like asking whether foreign tourists increase the production of goods and services or raise consumer prices. The answer depends on how flexibly Australian producers can accommodate changes in foreign as well as local demand through increased output.

It is pointless blaming foreigners for inflexible elements on the supply-side of the Australian economy. For that, we should blame local politicians.

Foreigners are currently restricted from buying established housing and need approval from the Foreign Investment Review Board for purchases of new dwellings. Special rules also apply to temporary residents.

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