Foreign investors, not low interest rates, are the main reason for a rise in housing construction, according to ANZ.

Record low interest rates have made buying a home more affordable and given the housing sector a boost, but that’s not the whole story, ANZ senior economist David Cannington said in a new report.

“Looking at the key drivers of the housing construction boom, it appears that both foreign investment and an increased appetite for higher density housing have largely driven the strong cyclical response rather than the lower cost of borrowing,” he said.

Although the proportion of total housing investment accounted for by foreign money has remained roughly steady, the foreign share of investment in new housing had risen, Mr Cannington said.

As a result, the increase in foreign investment in new homes in the 2013/14 year almost fully accounts for that year’s eight per cent increase in housing investment, he said.

Despite the housing construction boom, sales of household items has not followed, due to a high proportion of smaller dwellings and a higher number of new homes yet to be occupied.

But Mr Cannington downplayed concerns of a looming glut of properties, especially in inner Melbourne, which could lead to a price slump.

Advertisement
Advertisement

After 10 years of inadequate levels of supply, construction in NSW, Victoria and Queensland has only recently begun to keep pace with the underlying need for new homes, he said.

AAP

Missed The Christian O'Connell Show? Catch up by clicking play below and join us from 6AM every weekday!