Foreign investment in Australian residential properties : house prices and growth of housing construction sector

Purpose: The purpose of this study is to examine the impact that foreign investment in existing houses and new housing development has on residential house prices and the growth of the housing construction sector. Design/methodology/approach: The analysis is based on a panel cointegration method, estimated using annual data for all Australian states and territories spanning the period of 1990-2013. Findings: The results indicate that increases in foreign investment in existing houses do not significantly lead to increases in house prices. On the other hand, a 10 per cent increase in foreign investment for housing development decreases house prices by 1.95 per cent. We also find that foreign real estate investments have a positive impact on housing construction activities in the long run. Originality/value: Existing studies used aggregate foreign real estate investment in their analyses. As foreign investment in existing houses and foreign investment for housing development have different impacts on the demand and supply sides of housing market, it is crucial that the analysis of the effects of foreign investment in residential properties on real estate market is conducted for each type differently.