Complaints about Chinese buyers inflating house prices miss the fact that foreign residential property investment encourages new housing construction.

It’s rare to see the Left and the Right reaching consensus, but it appears nothing can pull Australians together as much as the threat posed by Chinese property buyers.

Today Paul “Magic Water” Sheehan offered his take on the impact of Chinese buyers on the Sydney residential property market. He warned darkly in today’s Sydney Morning Herald:

“The growth of the Chinese middle class has been so explosive, and on such a scale, that it has the capacity to affect Australia in ways that will need to be controlled if some trends continue to accelerate. Notably home buying.”

Sheehan, it seems, is was most worried about young people:

“First-time buyers, young buyers, are now caught in a pincer movement between superannuation and Chinese investment.”

A pincer movement. Wow. But Sheehan was merely echoing Clive Hamilton, who recently wrote an article for The Guardian originally headlined “Wealthy Chinese buyers are making Sydney’s housing problem worse”. Hamilton’s piece commenced:

“Every weekend in Sydney, young Australian couples are turning up at auctions excited at the prospect of finally owning their own home, only to find that other bidders are wealthy foreign buyers with money to burn.” Thanks for signing up We look forward to seeing you bright and early with your need-to-know talking points and tidbits for the day ahead. Get Crikey FREE to your inbox every weekday morning with the Crikey Worm. Please enter your email address Sign up

“Cash pouring in from China” was responsible, Hamilton claimed — a “flood of unregulated investment”. It touched on the same themes as Sheehan’s piece later would: young people priced out of the market, official indifference, how Hong Kong doesn’t let the same thing happen.

But the headline on Hamilton’s piece was changed to “Foreign demand is making Sydney’s housing problem worse” after an outcry from readers. The Guardian offered an apologia almost as long as the article itself admitting a number of problems with Hamilton’s article, although “the author stands by his opinion”.

Hamilton and Sheehan aren’t the only ones, though. This “flood” of unregulated money from China is becoming a staple of media real estate coverage, especially in Fairfax papers, which have carried articles about the Chinese property “splurge” as real estate prices, especially in Sydney, have soared.

Well, let’s try some facts, courtesy of the Foreign Investment Review Board’s 2012-13 annual report, which has data on who is buying residential property. Total foreign investment in residential property in Australia fell in 2012-13, from $19.7 billion to $17.2 billion. That was because of a fall in “off-the-plan” purchases; purchases of existing dwelling stock increased to $5.4 billion (it had fallen in 2011-12), and purchases of vacant land had more than doubled to $1.4 billion. Victoria and New South Wales dominate as destinations for foreign investment in residential property, garnering around $5.8 billion and $5.5 billion respectively.

But importantly, foreign residential real estate investment skews toward new dwelling construction: in 2012-13, despite the fall-off in off-the-plan purchasing, $8.64 billion in foreign investment was for new dwellings, with a further $2 billion for other development, while investment in existing dwellings was $6.4 billion. The predominance of new dwelling investment in foreign residential investment is dramatically at odds with the rest of the market, where new dwelling investment is a fraction of housing finance.

Where does the investment come from? Residential property investment from China is substantial. Chinese buyers are the biggest foreign real estate investors: in 2012-13 they purchased just under $6 billion in real estate — but that includes commercial real estate, which is twice as large a target for foreign investment as residential real estate. But Canada and the United States aren’t far behind the Chinese; Canadians invested just under $5 billion in Australian real estate, and Americans $4.4 billion. Singapore was next with $2 billion, then Malaysia with $1.6 billion; in between were the British, on $1.7 billion.

So, even arbitrarily and xenophobically combining all Chinese, Singaporean, Hong Kong and Malaysian real estate investment under a “Chinese” stereotype means “China” is only just ahead of North American real estate investment (and again, remember that these figures include commercial real estate). And if you lump in the Brits and the Kiwis, investment from “white” foreigners exceeds that from “Chinese” foreigners.

Read many stories about white people driving up Sydney real estate prices? Of course not. Hard to get a good anecdote about white people showing up to an auction and bidding successfully for a property. “Chinese” buyers, even if their families have lived in Australia for a century, are easier to spot and complain about.

But let’s assume that all “Chinese” property investment — just over $10 billion of it in 2012-13 — was for residential property, which we know isn’t true. How much of an impact does that have? The total value of housing finance commitments (which isn’t all housing purchases anyway) was $264 billion in 2012-13, so our “Chinese” stereotype is investing less than 4%.

And even if you think 4% is too high and is placing too much pressure on prices, ask sellers in Sydney and Melbourne what they think of foreign residential buyers. Chances are they’re perfectly happy to be getting higher prices.

There are legitimate grounds for concern about housing affordability, but they’ve got little to do foreign property buyers, whether Chinese, Canadian or any other ethnicity. They’re related to land supply, planning laws, development approval processes, NIMBYism, the balance between local councils and developers financing the necessary infrastructure for new housing, and tax expenditures that encourage investment in existing housing stock. The best way to improve housing affordability — assuming that’s what you really want to do, given ultimately that will reduce the rise in value of the key asset of most voters — is to create incentives for investment in building new housing stock.

And oddly enough, at the moment it’s foreign investors who are doing that, not the rest of us.