Foreign investment does not price Australians out of the housing market and is key to getting new developments off the ground, a parliamentary inquiry has heard.
State and local government bureaucracy, rather than foreign investment, is driving up property prices, the Property Council of Australia says.
Restricting foreign investment would not make it easier for Australians to buy homes, as it would hold back supply, the council's executive director of international and capital markets Andrew Mihno said.
Restrictive planning laws added "extraordinary costs" to new developments, making foreign investment crucial for getting projects off the ground.
Mr Mihno said myths and untruths about foreign investment needed to be stamped out.
"Foreign investment does not push houses out of reach for Australians," he told the hearing in Melbourne on Friday.
"Foreign investment is critical for national growth ... it is helping Australia to develop more homes into the market.
"We can tell you point blank that foreign investment is 4.6 per cent of the entire residential platform.
"That's not significant enough to shift prices away from Australians."
First-home buyers were not competing with foreign investors, as market entrants typically buy established properties and foreign investors are only allowed to buy newly constructed property or off-the-plan, Mr Mihno said.
The real enemy to housing affordability was bad planning systems, restrictions on land supply, and crippling taxes and charges, he said.
"If you really want to reduce prices, reduce the taxes," Mr Mihno said.
Martin Vockler from SMATS Group, which provides Australian tax advice to foreign investors, said the government should put a 50 per cent cap on sales to foreign investors in any newly constructed buildings.
The cap was removed by the Rudd government in 2009 but should be reinstated to ensure projects were designed to appeal to local buyers, he said.
Being able to sell an entire building overseas meant new stock being built was "not conducive to the way Australians like to live".
"We don't like living in 50sqm apartments," Mr Vockler said.
While investors had no problem renting these apartments to students, they would have trouble selling them to Australians, he said.
ANZ general manager of home loans and deposits Brad Gravell said the bank imposed its own limits on the number of pre-sales to offshore investors.
"If a development was structured at levels well beyond 30 per cent to foreign investors, that might imply the style of the apartments weren't suitable to domestic purchasers," Mr Gravell said.
"We want to make sure that if that stock came back on the market, a domestic purchaser would be interested."
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