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Housing affordability: look to supply

Last fortnight I wrote on why I believe that foreign investment is not pushing domestic buyers out of the real estate market. I outline my thoughts below on why I believe foreign investment is not hampering affordability, and why I believe that we should look to an increase in housing supply in order to increase affordability.

FOREIGN INVESTORS MOSTLY OCCUPY SPECIFIC SECTORS OF THE MARKET

It’s my understanding that much foreign investment activity is concentrated in quite specific market segments. This typically includes new dwellings, off the plan developments, and properties located in the central business districts of capital cities. In this way, the properties purchased by foreign investors are more often than not sitting at the more expensive end of the market. This suggests that foreign investors may not be affecting affordability for first home buyers, as this group is more likely to purchase at the lower end of the market. It also indicates that foreign investment is actually contributing to demand for new construction, which is a very positive situation in my mind.

HOUSING SUPPLY AND PLANNING MAY HAVE GREATER EFFECT ON AFFORDABILITY

I would argue that a more effective strategy for improving affordability in the Australian housing market could be to look to the supply side of the equation. There has been much discussion regarding whether there is currently a shortage of housing supply, and I would generally agree that this may be the case. It is fairly well known that the planning and approval phase of developments can sometimes be lengthy. If this was to be reduced, however, and if new land was to be opened up for development, I believe the housing shortage could begin to be addressed. Ideally, this would go hand-in-hand with innovative and smart planning to make good use of available space, and to ensure consideration is paid to transport options and sustainability.

Owning a home is a dream for many Australians, and I believe there should be continued discussion around the affordability of Australian real estate. Naturally, foreign investment will play a part in this discussion. However, as highlighted, I do not believe that this should be the primary focus of debate.

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