Blame Game: Why Foreign Buyers Aren’t Causing the Housing Crisis

Written by Adib Adely, Director of Carmel Homes

Every time the topic of Australia’s housing crisis comes up, whether it’s in a news headline, a local Facebook group, or a heated dinner table debate, someone is bound to bring up foreign buyers. It's become almost instinctive. “If we just stopped foreign investors from buying up all the homes, prices would drop.” “They’re outbidding locals with cash.” “Australia’s not for sale.”

It’s an easy story to tell. It offers a clear villain, a neat explanation, and the illusion of an equally neat solution. But it also happens to be wrong, or at the very least, deeply misleading.

Despite the endless finger-pointing, foreign buyers are not the cause of Australia's housing affordability crisis. Not even close. If anything, this narrative is a political smokescreen that distracts from the real structural issues making it harder for people, especially younger generations, to find stable, affordable housing. And if we keep buying into the blame game, we risk wasting precious time on policies that don’t work while the real crisis deepens.

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Foreign buyers: How big is their role, really?

Let’s get one thing straight. Foreign investors make up a very small part of the housing market. In 2022–23, they accounted for just over 1% of all property transactions in Australia. That’s not a typo. It’s not a third, or a quarter, it’s one in every hundred property sales.

Even in cities like Melbourne and Sydney, where foreign buyers are supposedly swarming in, the data paints a much quieter picture. Foreign ownership is largely confined to newly built properties, not the existing homes most local buyers are after. This isn’t by chance, it’s literally the law. Under current rules, foreigners can’t just swoop in and buy up established homes unless they plan to redevelop them. And even then, there are limits.

Instead, the majority of foreign investment flows into off-the-plan apartments or residential projects still under construction. In other words, they’re helping fund new housing supply, something Australia desperately needs. This includes developments led by local custom home builders, many of whom rely on a mix of local and overseas capital to get ambitious new projects off the ground.

So why does the myth persist? Partly because people remember the extreme cases, like an international buyer paying well over reserve at an auction, or an empty mansion left idle in a posh suburb, and assume that’s the norm. But anecdotes aren't evidence, and focusing on those examples hides the broader truth. Most properties, especially the ones facing sky-high competition and bidding wars, are being bought by other Australians.

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The politics of scapegoating

It’s no coincidence that whenever housing affordability hits the headlines, foreign buyers start getting dragged through the mud again. Politically, it’s a convenient move. Frustrated young renters can’t afford to buy. Mortgage holders are stretched thin. The government needs to be seen as doing something, anything, to fix the crisis. So they reach for the low-hanging fruit.

Earlier this year, the federal government announced a two-year ban on foreigners purchasing existing homes. They pitched it as a bold step to give Australians a fair go. But as many experts pointed out, it was more about optics than outcomes. The ban targets a segment of the market that already plays a minimal role. It’s like trying to fix a leaking roof by banning pigeons from flying over your house.

One Melbourne agent called it “pure political theatre,” and he’s not wrong. These policies sound good in a press release, but they ignore the heart of the problem. Housing affordability isn’t being driven by outsiders. It’s being driven by decades of underinvestment, planning gridlock, and bad policy.

The irony is that many of the same government policies now limiting investment are also blocking opportunities for much-needed housing solutions. That includes knockdown rebuilds, medium-density developments, and build-to-rent schemes that could actually help balance supply and demand.

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The real reasons housing is unaffordable

If we’re being honest, Australia’s housing market wasn’t exactly functioning well long before anyone was talking about foreign buyers. What we’re dealing with now is the result of years, even decades, of policy neglect and slow-burning crises that have finally come to a head.

1. We’re not building enough homes.

At the most basic level, this is a supply problem. Australia simply isn’t producing enough housing to keep up with population growth. And even when we do build, it’s often the wrong kind of housing in the wrong places, like luxury high-rises in inner-city areas, instead of medium-density homes near jobs, schools, and transport.

According to the Housing Industry Association, we’re on track to fall short by nearly 175,000 homes in the next few years. That’s a staggering shortfall. Meanwhile, net migration has hit record highs, with over half a million new arrivals in 2023 alone.

When there are more people looking for housing than there are homes available, prices and rents go up. It’s not rocket science. And while modern homes are in high demand, they aren’t being delivered fast enough to meet it, especially by smaller, locally run design and build firms who face delays and rising costs.

2. Planning laws and zoning are a nightmare.

Even when there’s political will to build, the red tape can be suffocating. It can take years for new developments to get approved. Local councils often face pressure from residents to block anything that might change the character of their suburb. That means less infill housing, fewer townhouses, and almost no “missing middle” density. We end up with sprawl on the fringes or skyscrapers in the CBD.

The end result is a housing system where it’s easier to blame foreign investors than to approve 30 townhouses on a block near a train station. Even projects led by reputable custom home builders, who specialise in tailored, site-responsive homes, from French Provincial homes in the suburbs to sleek, modern designs on infill lots, are often slowed by endless bureaucracy.

3. Tax policy encourages speculation.

Unlike foreign buyers, local investors enjoy all sorts of tax perks, including negative gearing and capital gains tax discounts. These incentives push people to treat housing like an asset class, not a basic need. And while they’re great for boosting investor profits, they’ve done very little to increase supply or lower costs for renters.

In fact, most of the competition first-home buyers face at auctions isn’t from overseas, it’s from other Australians with investment loans.

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When the blame game backfires

Focusing on foreign buyers doesn’t just miss the point, it can actively make things worse.

Many developers rely on early sales to foreign investors to secure loans and get projects off the ground. When we clamp down on that funding, we risk stalling new developments entirely. Less new housing means more competition for what’s already there. And prices go up.

This isn’t just a problem for big developers. Smaller design and build firms, who work on boutique townhomes, modern rebuilds, or single-family knockdown rebuild projects, also suffer when funding pipelines dry up. Without confidence in the market or support for diverse housing types, those builders struggle to scale, especially in areas where customisation and character homes like French Provincial are in demand.

It also damages our international reputation. If Australia wants to position itself as a stable and attractive place for investment, unpredictable policy swings, especially ones that feel like xenophobic pandering, don’t help.

And let’s be honest. There’s a racial undertone to a lot of this rhetoric. When we talk about “foreign buyers,” we’re not usually thinking of a British expat buying a beach house. We’re thinking of buyers from China, Hong Kong, or India. The scapegoating plays into wider fears about immigration, globalisation, and identity, and that’s a very slippery slope.

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So what should we be doing instead?

It’s not enough to say what isn’t the problem, we need to talk about what is. If we want to make housing genuinely more affordable and accessible, we need bold, long-term reforms. That means:

• Overhauling planning systems to allow more diverse housing types, especially in established suburbs

• Investing in social and affordable housing to ensure no one is left behind in a purely market-driven system

• Reforming tax settings that reward speculation over owner-occupation

• Upgrading infrastructure and transport so people can live affordably without being isolated

• Embracing build-to-rent models that offer long-term, stable tenancies at scale

  
  

These are not easy fixes. They take time, coordination, and political courage. But they work. And they’re more effective than banning someone overseas from buying a two-bedroom apartment that no local wants anyway.

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At the end of the day, blaming foreign buyers for Australia’s housing crisis is a bit like blaming the wind for knocking over a house with rotting foundations. The real problems lie deeper, and they’ve been there for a long time.

This doesn’t mean foreign investment should be completely unregulated. But it does mean we need to stop treating it as the main villain. The data doesn’t support that narrative, and the longer we focus on it, the more we delay real solutions.

Housing is one of the most basic human needs. Solving the crisis will take more than bans and blame. It will take honesty, nuance, and a willingness to challenge the systems we’ve taken for granted. It’s time to stop pointing fingers and start rebuilding, both literally and politically.