The housing market could be at risk of becoming an unintended victim of trowing trade tensions between the United States and China, according to The Urban Development Institute of Australia (UDIA).

“Trade tensions reduce consumer confidence and inhibit the global flow of capital that underpins our domestic economic growth,” UDIA National Executive Director Connie Kirk said. “China’s propensity for Western investment feeds into our prosperity, including the state of residential housing markets.”

China’s investment in real estate approvals stood at $12.7bn, almost 30% of the total share, and the largest of any individual nation. However, this was in sharp contrast to two years ago when approvals were at $31.9bn.

“Approvals from the United States stand at $5.8bn, placing the United States third, so any trade tensions between two of our top three sources of foreign direct investment into real estate will leave Australia worse off,” Kirk said.

The value of residential real estate approvals during the past year suffered a $17.5bn fall, according to The Foreign Investment Review Board. Taxes and foreign resident stamp duty increase, foreign investment application fees, and tighter restrictions on capital transfers in home countries dampened foreign demand.

Decreasing prices in Sydney and Melbourne resulted in fewer approvals to build new housings, particularly in the apartment sector which foreign buyers typically favoured.

“UDIA advocates for the re-assessment of the impacts of taxation policy currently imposed on foreign buyers. UDIA’s National Policy Priorities 2019, ‘Building a Better Australia’, outlines further recommendations for increasing housing supply and reforming taxes and charges on new housing,” Kirk said.