If there is any life left in one of the last demand boogeymen of the housing market, The Economist this week reminded us that there is a novel way of exorcising them, namely letting them in the front door. I am, of course, speaking of foreign buyers.

It turns out that in the city of London there are a high number of foreign investors active in the market, which was revealed in the latest census data.

Population figures showed that, along with several cities and towns in the industrial north of the country, some of the city’s most affluent neighbourhoods had recorded population declines over a 10-year period.

That was attributed to foreigners buying these homes as investments and then leaving them empty. Indeed, the article quotes data from real estate agency Savills which states that in 2012, close to 40 per cent of homes in central London were bought by overseas investors.

Predictably this drew the attention of politicians, who have vowed in various degrees to remedy the situation, and restore housing affordability for everyday Britons.

However, The Economist makes an important point, namely that non-resident foreign buyers in London are principally interested in acquiring new property, not existing houses, and are a major driver of new home construction.

As a novel idea, if it was made a rule that non-resident foreigners are only allowed to buy new properties, as BNZ chief Economist Tony Alexander has suggested earlier this year, might that not do the trick?

Well, if you believe that demand is the root cause of the housing affordability crisis, the idea has some merits because it would add to the housing stock (albeit at the extreme margin). Finance Minister Bill English previously acknowledged that while Auckland needed as many as 12,000 homes to satisfy demand last year, only about a third of that was actually built.

Presumably foreigners buying new homes could replace the would-be local buyers who, according to the Registered Master Builders Association, have deserted the new home construction market as a direct result of the Reserve Bank’s loan-to-value ratios on low equity mortgages.

Additionally, these new residences would house people unable to get their first step onto the property rollercoaster because of spiralling house price inflation.

But, probably the biggest upside from this kind of policy is that it puts a pin in the xenophobia that has grasped the popular imagination and focusses us, even if just by crude elimination, on the need for supply-side remedies.

Or you could just take the easier solution and just build more houses rather than tinkering with demand-side remedies, as we have highlighted in this research report.