Is Australia choking off the very buyers it needs to fix the housing crisis?
Foreign buyers make up a tiny share of transactions but play an outsized role in funding new developments and as that capital retreats, a more rigid, supply-constrained housing system is emerging.
Australia’s housing debate can easily be framed as a contest played out over demand.
On one side, first home buyers trying to get a foothold. On the other, investors – local and foreign – are accused of crowding them out.
It is a politically convenient framing, and not entirely wrong. But it’s not the whole picture.
The more consequential question is not just who is buying, but who is enabling things to be built in the first place.
The latest NAB Residential Property Survey for Q4 2025 puts some numbers to this.
In new housing markets, first home buyers now account for 33.1 per cent of demand, owner occupiers 36.5 per cent, and local investors 24.6 per cent. Foreign buyers? Just 5.2 per cent – and falling.
In established housing, foreign buyers represent only 3.0 per cent of demand, down again from the previous quarter. By volume, the much-maligned foreign buyer is already a marginal participant in the market as it currently stands, accounting for 0.5 per cent of more than 540,000 transactions in 2024/2025 based on ATO data.
Yet that small share carries outsized significance when it comes to supply.
Foreign buyers in Australia are largely restricted to new dwellings – they are not, as is often portrayed, competing with first home buyers for existing stock. They are among the buyers who underwrite the construction of new ones.
Pre-sales to offshore buyers have long been a mechanism through which apartment developers satisfy lender requirements and get projects out of the ground. When that source of demand softens, feasibility margins tighten, pre-sale thresholds become harder to meet, and projects stall.
The Treasury data, reported with a significant delay shows that softening is well underway.
Approved foreign residential investment proposals totalled 6,576 worth $7.9 billion in 2022–23. By 2023–24 that had fallen to 5,581 proposals worth $6.6 billion. In just the first nine months of 2024–25, only 3,035 proposals worth $3.7 billion had been recorded.
In the March quarter of 2025 alone (the most recently available data), approvals stood at just 929, worth $1.2 billion, with China the largest source by value, followed by Taiwan and Vietnam. The pipeline is not collapsing but it is thinning persistently, at a moment when the construction sector can least afford it.
Construction conditions are already difficult. According to the NAB survey, 66 per cent of property professionals identify construction costs as the main barrier to starting new housing developments, with planning delays cited by 47 per cent.
Financing conditions remain demanding. In that environment, reducing any one source of funding increases pressure on all others.
But the foreign capital story is part of a larger pattern of rigidity settling into Australia’s housing system.
Housing equation in Australia is ‘stuck’
Data from the Centre for Population highlights a long-term decline in internal migration intensity across Australia.
Fewer Australians are moving between regions than in previous decades, and when they do, the flow is predictably toward capital cities and coastal areas. In his book Stuck, Deputy Executive Editor at The Atlantic, Yoni Appelbaum, argues that declining geographic mobility can exacerbate inequality and lock people out of opportunity.
The analogy translates. When Australians cannot easily relocate in response to employment shifts or affordability pressures, both labour and housing markets become less efficient.
Overlay this with cooling international investment flows and a picture emerges of a system becoming less fluid on multiple fronts.
If people are less able (or less willing) to move within Australia, and if foreign capital is simultaneously being discouraged, then both the demand and supply sides of the housing equation become more rigid.
The system loses its capacity to adjust, and the Federal Government’s target of building 1.2 million new homes by 2029 looks increasingly out of reach.
Global property market contrasts
The contrast with other markets is instructive.
Hong Kong abolished its key residential demand-side cooling stamp duties in early 2024, explicitly aiming to re-attract buyers and stimulate activity.
Whether that policy succeeds is still an open question, but it reflects a willingness to recalibrate settings in response to changing conditions – something Australia has been slow to do.
Policy settings here have tightened consistently over the past decade and not to mention what could possibly happen around federal taxes. Additional stamp duties, land tax surcharges and tighter eligibility rules for foreign buyers are now embedded across multiple states.
These measures are politically straightforward – limiting foreign demand is seen as easing pressure on affordability. But the economic logic is more ambiguous. If the primary effect of foreign capital is to enable new supply rather than inflate the price of existing dwellings, then suppressing it achieves the opposite of what is intended.
None of this argues for foreign investment to go unchecked. Distributional outcomes matter, and policymakers are right to consider who benefits from capital flows.
But there is a risk that current settings are too blunt, deterring precisely the type of investment that supports new supply while doing little to address the structural forces driving unaffordability.
The more important question is whether Australia’s policy framework distinguishes sufficiently between speculative demand for existing dwellings and productive investment in new housing.
If it does not, then we may be solving the wrong problem – while the pipeline quietly thins and the system becomes even more stuck.
