Residential housing has been, and will always be, an issue that is at the forefront of community debate and discussion.

Owning your own home is part of the great Australian Dream. For many it represents the opportunity to build a future, it represents connection with community and security for family.

Buying into the Australian Dream doesn’t come cheap. According to a recent International Monetary Fund (IMF) report, the current ratio of housing prices in Australia to average incomes is 31.6% above the historical average.

Is it any wonder then, that many Australians now worry that home ownership may be out of reach for them, for their children, or for their grandchildren? At the same time, Australians worry about rental and interest costs, and their impacts on the cost of living.

There is no one simple explanation for the decline in housing affordability – although lack of land supply, underdevelopment, state planning laws and regulations, local council red tape, and stamp duty and tax arrangements likely all play a part.

Over the years, however, many in the community have asked the question – what role does foreign investment play in residential real estate?

It was timely then that, on 19 March 2014, the Treasurer, the Hon Joe Hockey MP commissioned the House Economics Committee to examine:

• the benefits of foreign investment in residential property;
• whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers; 
• how Australia’s foreign investment framework compares with international experience; and
• whether the administration of Australia’s foreign investment policy relating to residential property can be enhanced. 

Current Foreign Investment Framework

Under our current foreign investment framework, as it applies to residential real estate, foreign investment is channelled into new housing so that more homes, units and apartments are built – meaning more opportunity for people to purchase. It also contributes directly to economic activity – generating employment for builders and suppliers.

When it comes to existing homes, there are generally prohibitions and restrictions. Non-resident foreign investors are prohibited from purchasing an existing home, and temporary residents (on visas of more than 12 months) can purchase just one existing home to live in while they are resident in Australia, but must sell this home on their visa expiring. All purchases, whether new or existing homes, are required to be pre-screened by the Foreign Investment Review Board (FIRB), supported by the Foreign Investment and Trade Policy Division of Treasury (FITPD).

According to FIRB statistics, in the first 9 months of this financial year, FIRB approved foreign investment into residential property of around $24.8 billion, 44 per cent higher than the $17.2 billion approved during all of 2012-13. Much of this investment is concentrated in the Melbourne and Sydney markets. Most of the increase is attributable to proposed investment in new property, which at $19.3 billion for the first 9 months of 2013-14 is 79% higher than 2012-13. The total number of established property approvals for the first 9 months of 2013-14 is 5,755 compared to 5,101 for 2012-13.

The key findings

Over six public hearings, and after considering more than 92 submissions, the committee has four key findings that translate into 12 practical recommendations.