Foreign investors or low housing supply: what’s driving high Sydney property prices?

In the face of soaring property prices in Sydney, the majority of Sydneysiders are blaming foreign investors - but experts say housing affordability is a much more nuanced issue than that.

A new study by University of Sydney housing researcher Dallas Rogers, found that 64% of Greater Sydney residents believed foreign investment was the main cause behind rising property prices.

28.3% of respondents said they "strongly disagree" that foreign investors should be allowed to buy properties in Sydney, while 27.6% said they "disagree" and 21.8% were on the fence. Just 4.4% "strongly agree" that foreign investors should be allowed to buy Sydney property.

"The recent federal budget saw the government come down hard on foreign investors, which demonstrates the dilemma that the government is facing as it attempts to manage foreign investment alongside a disenchanted Australian public,” said Rogers.

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However Aussies may be looking at foreign investment entirely wrong, according to the study, which showed a strong correlation between anti-multiculturalism and anti-foreign investment sentiments.

Shane Oliver, from AMP Capital said a foreign investor ban could see apartment prices fall by up to 30%, which might be good news for first home buyers, but would negatively impact those with an existing mortgage or current landowners.

Charles Pittar, Chinese international property portal Juwai chief executive, said, "foreign investment is going right where Australia wants it - into funding new housing supply. It is creating jobs, tax revenue and economic growth and - in fact - it is one of the few bright spots of the economy.”

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While this may be true, according to research from the Australian Housing and Urban Research Institute (AHURI) and the Bankwest Curtin Economics Centre (BCEC), the supply of new housing in Sydney was concentrated in mid-to-high price markets, and was not helping to alleviate housing affordability issues at all.

“We’d normally expect to see a trickle-down effect, where building higher-value homes leads to the opening up of lower-value homes for those on lower incomes. Our research indicates this isn’t the case, meaning an increase in housing supply is not leading to better housing affordability,” said Professor Rachel Ong, Deputy Director of BCEC.

She said the solution was a broader policy response, targeted government intervention and improved financial incentives for developers to build in low price markets.

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