Foreign investment ban could reduce housing supply

On 25 March 2025, the Labor government unveiled its fourth budget, which featured changes to the Help to Buy scheme, increased funding for trades training, support for new home construction, and a two-year pause on foreign investment in existing dwellings.

Treasurer Jim Chalmers said the $33 billion plan will help the country reach its National Housing Accord goal of 1.2 million homes by 2029.

“We are tackling the housing shortage from every responsible angle, making home ownership more affordable for young Australians and for young families in particular,” he said.

While peak bodies have welcomed parts of the funding, many have flagged missed opportunities and the counterproductive measure of further banning foreign investment.

“We’re easing pressure on the housing market by banning foreign investors from buying established homes, and cracking down on foreign land banking as well,” Chalmers said.

As part of its $33 billion plan to improve housing affordability, the federal government will impose a two-year ban on foreign investors purchasing established homes, starting 1 April 2025.

Chalmers announced $5.7 million for the ATO to enforce the ban and $8.9 million to combat land banking by foreign buyers, ensuring vacant land is developed within a set time frame.

Property Council CEO Mike Zorbas said the looming federal and state budget deficits show the need for increased foreign investment and a full overhaul of tax and regulatory systems.

“As Australia has grown, overseas investment has always helped grow our cities for the better,” Zorbas said.

“Now we have maxed out the national credit card, and with big state deficits, we are going to need other peoples’ money to build the best parts of our cities.”

Zorbas said the current complex foreign investment review processes and state taxes have deterred overseas investment and limited partnerships essential to developing city assets, such as industrial hubs, commercial buildings, and new housing communities.

“Our next national debate has to start with lifting the productivity handbrake on institutional investment and eventually tackle root and branch tax reform,” he said.

Housing Industry Australia chief economist Tim Reardon said foreign investors have been prohibited from buying established homes without prior written consent from the government since the Foreign Acquisitions and Takeovers Act 1975.

“Regardless, politicians continue to blame investors, foreigners and foreign investors for the shortage of housing in Australia,” Reardon said.

“These global builders are responsible for building thousands of ‘spec homes’ every year where they buy greenfields land and build a home that is then sold.

“Prohibiting them from purchasing land adds further complexity and costs to delivering a new home to market.”

Data from the Register of foreign ownership of residential land showed that in 2022–23, foreign buyers made 5,360 purchases and 1,119 residential real estate sales in Australia, with the majority occurring in Victoria, Queensland, and NSW.

In total, 66 per cent of the transactions involved new dwellings and vacant land, indicating that a significant portion of foreign investment was focused on new housing stock rather than existing properties.

Reardon said that since 2015, the government’s punitive taxes on foreign investors have driven many out of the Australian market, contributing to a nearly 50 per cent decline in apartment construction since 2016.

He said that further penalising overseas-owned companies from building dwellings in Australia would make the goal of 1.2 million homes harder, as around one in 10 detached homes were built by foreign firms, which introduced advanced building technologies and products.

“The underlying cause of the shortage of housing is too much government involvement in the market, and the solution to increasing supply is less government red tape,” Reardon said.

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

Similarly, Real Estate Institute of Queensland (REIQ) CEO Antonia Mercorella said banning overseas investors “will achieve little”.

She said foreign investment won’t ease the housing crisis as it has been a small part of the market and many deterrents and restrictions are already in place for foreign buyers.

“These include being limited to brand-new properties or land to build (within a time frame), an application fee for Foreign Investment Review Board (FIRB) review, and Additional Foreign Acquirer Duty,” Mercorella said.

“On the supply side, this ban could potentially limit the construction of new housing due to the ban, which includes foreign purchases to redevelop a property.”

The 2022–23 Register of foreign ownership of residential land data showed that in Queensland, foreign buyers only represented 0.32 per cent of the total home transactions in the state and accounted for 403 established dwellings.

Mercorella said that to tackle the housing crisis, federal, state, and local governments should work together to reduce taxes and regulatory fees and cut the administrative red tape that slows down new housing construction.

This article originally featured in Broker Daily sister brand REB.