Heterogeneous effects of a foreign buyer tax on house prices in New South Wales

Abstract

This article combines unconditional quantile regressions with difference-in-differences to study the distributive effects of a foreign buyer tax (FBT) on home prices in New South Wales (NSW). The main results reveal that the FBT reduces house prices in NSW but only among the more expensive houses located in desirable neighborhoods of Sydney and with a relatively high share of foreign-born population. We find evidence that the FBT reduces transaction volumes in the same expensive Sydney neighborhoods and immigrant enclaves where house prices are observed to decline, in support of a direct mechanism that the FBT curbs foreign demand. Additional results suggest that more expensive homes are not substituted with less expensive housing, and that some foreign buyers respond to the FBT by divesting away from NSW locations. The main policy implication is that the FBT may help deter foreign buyers from accumulating higher-priced and luxury assets, but may fail to address broader housing affordability concerns facing the local population.