New research from the McCombs School of Business at the University of Texas identifies foreign investment as a distinct, measurable driver of housing unaffordability — one that operates independently of the supply-side constraints that dominate most policy debates.

The McCombs study, published 26 June 2026, finds that international capital flowing into residential real estate, combined with restrictive local zoning, pushes prices upward faster than new construction can offset. That last detail matters: the research is consistent with a 2024 paper in the Journal of Economic Geography which found that foreign investment reduces both housing affordability and the number of vacant units — without producing any measurable increase in construction activity. Capital absorption is happening without a supply response.

The mechanism is not hard to trace. When investment funds or overseas buyers treat residential property as a financial asset rather than a place to live, demand for existing stock rises without a corresponding signal to build. Vacancy rates fall. Prices follow. Local residents — particularly first-time buyers and renters in lower income brackets — find themselves priced out of markets that may have been accessible a decade earlier.

A Global Pattern, Documented Across Multiple Markets

This is not a phenomenon confined to one jurisdiction. In Portugal, Reuters reported in 2023 that since 2015, short-term rental platforms, new hotels, and foreign investment funds buying entire residential blocks had reshaped the country's housing market — with predictable effects on affordability for younger Portuguese residents deferring homeownership. Spain has seen parallel pressure: data from 2025 showed US buyers paying the highest prices of any foreign cohort for Spanish property while leading purchase volumes in several central regions.

Scholars cited in The Regulatory Review in August 2024 documented the same demand-side pressure playing out in US markets already strained for supply. The geographic spread — North America, Western Europe, Southern Europe — suggests the dynamic is structural rather than locally idiosyncratic.

Policy Responses Have Varied Sharply

Governments have tried different levers. Canada's housing minister called as early as December 2021 for a temporary ban on foreign home buyers alongside aggressive city rezoning — a dual-track approach acknowledging that restricting demand alone cannot solve a supply deficit. An MDPI-published study examined how rapidly developing economies might design strategies to capture the economic benefits of foreign direct investment in real estate while preventing residential market distortions — a framing that at least concedes a trade-off exists rather than treating inbound capital as uniformly beneficial.

In the United States, the policy picture is further complicated by a supply-side headwind with a different origin. A Buy American provision requiring that most materials used in federally funded affordable housing projects be domestically sourced has fully taken effect, and AP News reported in March 2026 that the requirement is causing construction delays. The intent — supporting domestic manufacturing — is distinct from housing affordability as a goal, and the two objectives are now visibly in tension. When a rule designed to protect one industrial constituency slows the construction of the housing type most needed by low-income residents, the downstream costs are real and specific.

What the Research Adds to the Debate

The value of the McCombs work, alongside the Journal of Economic Geography findings, is analytical precision. The housing affordability conversation has long oscillated between supply-side orthodoxy — build more, prices fall — and demand-side interventions like rent control, which most economists regard with skepticism. Foreign investment introduces a third variable: externally sourced demand that is largely insensitive to local income levels and unaffected by local construction cycles.

Worth flagging: the research does not argue that foreign investment is the dominant driver everywhere, and policymakers should resist treating it as a universal explanation. Local zoning rigidity, construction cost inflation, and the domestic financialization of housing all remain significant contributors. But the evidence that cross-border capital flows reduce affordability and vacancy without stimulating supply is now documented across multiple methodologies and geographies. That is a harder empirical position to dismiss than it was even three years ago.

The practical implication is that supply-only policy responses may be insufficient in markets with heavy foreign capital exposure. Rezoning and upzoning remain necessary — but not sufficient — if a meaningful fraction of newly available units are absorbed by investment vehicles with no occupancy intent. The more durable solutions are likely to combine supply liberalization with targeted demand-side rules on non-resident ownership, a combination Canada gestured toward in 2021 and several European cities have since adopted in varying forms.

The McCombs research arrives at a moment when that policy mix is under active debate in multiple legislatures. The timing gives the findings practical relevance beyond the academic.