Federal Government's Ban on Foreign Purchases of Existing Dwellings – A Step Forward, But No Solution for Victoria's Housing Crisis
/Victorian Property Settlements welcomes the announcement by the Federal Government, as outlined by the Australian Taxation Office (source), that from 1 July 2024 foreign investors will be banned from purchasing established (existing) residential properties within Australia.
This new measure, introduced under the Foreign Acquisitions and Takeovers Act 1975 (Cth) and enforced by the Australian Taxation Office (ATO), represents a significant shift in Federal Government policy, with the stated intention to ease pressure on Australia's overheated housing market.
While this policy is a positive step, particularly in limiting the speculative buying of Australian homes by offshore investors, it is important to be realistic about its likely impact — especially within Victoria.
Victorian Property Settlements believes this measure will correctly refocus foreign money into new developments rather than allowing it to continue competing directly with local buyers for established homes. From an economic standpoint, encouraging foreign capital into new housing stock rather than the existing stock will, theoretically, increase the supply of available homes and support construction industry jobs across the nation.
However, in Victoria, the policy is unlikely to materially influence house prices or affordability for local residents.
This is because it fails to address the root cause of pressure on Melbourne’s housing market: sustained and high levels of domestic and international migration, combined with restrictive land-use planning policies at the State and Local Government level.
The real levers affecting housing affordability in Victoria are:
Land release policies controlled by the Victorian Government under the Planning and Environment Act 1987 (Vic).
Council planning schemes which often restrict the speed and scope of new developments.
Migration policy, particularly Victoria's status as Australia's fastest-growing State in terms of population growth, a fact repeatedly acknowledged in reports by Infrastructure Victoria and the Productivity Commission.
Despite well-intentioned action at the Federal level, without complementary reform at the Victorian State Government level — particularly to increase land supply and streamline planning approvals — the broader affordability crisis will not be solved.
The pressure created by continued mass migration to Melbourne without a matching supply of new land releases and housing developments far outweighs the volume of property transactions involving foreign nationals.
Moreover, historical data from the Foreign Investment Review Board (FIRB) demonstrates that even at the height of foreign investment activity, foreign purchasers comprised a relatively small fraction of the total residential property market — primarily at the high end. This suggests that banning foreign purchases of existing dwellings will have a limited effect on prices at the affordable and first-home-buyer end of the market.
In Victoria, unless the State Government dramatically shifts focus from infill development policies to meaningful urban expansion, and unless councils are pressured to approve more developments in a timely fashion, the fundamental issues driving price growth and supply shortages will remain unchanged.
As such, while we at Victorian Property Settlements support the Federal Government's intention and acknowledge the political and economic symbolism of the policy, we must caution Victorians not to expect real change in housing affordability based on this legislation alone.
Real reform requires coordinated action across all levels of government.
We urge the Victorian Government to take the opportunity now, with migration forecasts remaining high, to recalibrate its land-use planning, accelerate the release of developable land, and ensure that the supply of new housing stock keeps pace with the demand created by the population boom.
If this does not occur, even the best-intentioned Federal policy will be a mere ripple in a much larger tide.