Trade Minister Andrew Robb claims foreign investment in Australian real estate is increasing housing stock.
Last week Treasurer Joe Hockey set up a parliamentary inquiry to examine foreign investment in residential real estate.
There are concerns foreign investors may be pushing up house prices to the detriment of first-home buyers.
Mr Robb said he had heard all the arguments against foreign investment before - pointing to concerns about Japanese investment in the 1980s and American investment before that.
"The fact of the matter is, when you get foreign investment even in domestic housing ... it does lead to a massive increase in the stock of housing," Mr Robb told Sky News.
"This year we've seen the biggest increase in the approvals for new houses in 15 years."
Meanwhile, Mr Robb is confident of inking a free trade deal with China before the end of the year.
"I see no reasons why it can't be achieved," he said.
"One of the preconditions for a successful free trade agreement is to have political will on both sides to make some difficult political decisions."
Prime Minister Tony Abbott hopes to make significant progress on those negotiations when he visits north Asia in early April.
Negotiations have stretched over several years, but during a recent address Chinese Premier Li Keqiang vowed to accelerate the deal.
Mr Robb said Chinese were looking to increase investment in Australia and gain concessions on labour mobility.
The parliamentary inquiry into foreign investment in residential real estate will report back on October 10.