I’m sure many of you have heard of Labour’s new policy to restrict foreign ownership of residential housing. The New Zealand Herald reports:
Real estate industry commentators are questioning whether Labour’s new policy to restrict foreign ownership of houses will work.
“We’re going to restrict, almost totally, foreign ownership, to buy established houses that are here.
“What we want to do is to make sure that first home buyers are Kiwis and they have the best chance.”
New Zealand was one of the few countries in the world that allowed foreign ownership of established houses, he said.
The policy mirrored Australian housing policy, Mr Shearer said.
It’s becoming increasingly apparent that housing will be one of the hot button issues at the next election. For what it’s worth, I do not think this policy will make a discernible difference to the level of house prices in this country. Much of the data cited by Mr Shearer in his policy announcement had come from the BNZ-REINZ Residential Market Survey, so let’s have a look at what it says:
What percentage of your sales are to first home buyers, investors (whatever the source), and offshore buyers?
Results to this question are basically the same as in our March survey. A gross 23% of sales for our 549 agents nationwide are to first home buyers, 19% are to investors, and 8% to people located offshore. There is no upward trend evident in the proportion of sales offshore.
And what of the offshore buyers that Labour’s policy seeks to target – those who have no intention of moving to New Zealand?
… 3.6% of dwellings sold each month go to people staying out of the country. This is the gross sales figure and were we to have the proportion of properties being sold occurring on behalf of an offshore buyer we would be able to calculate a net figure.
In Alexander’s June edition of the BNZ REINZ Survey, he examines the proportion of sales made by offshore owners:
This month we asked agents to estimate what proportion of the vendors they represent are located offshore. Our aim is to see if this is vastly different from the estimated 7.8% of sales in May which agents said were to people located offshore. The March result for this offshore sales measure was 9.2%. Our survey gave the following results by percentages which we calculated adds up to some 4.5% of vendors being located offshore.
This is interesting because taking the many sampling uncertainties into account the proportion comes close to the proportion of sales we estimate are to people offshore who do not intend shifting to New Zealand – some 3.6%. The implication? There could be close to zero net transfer of NZ home ownership occurring to offshore investors.
I tend to agree with NZIER principal economist Shamubeel Eaqub that the policy is a “solution in search of a problem”:
The bar on foreign house buyers would not have much of an impact on the market anyway. The real question was whether foreigners were really driving up house prices.
“Until you have established that, having a policy is silly, because you don’t know what problem you are solving,” he said.
“House prices for the past 15 years have trended up relative to incomes and rents for that entire period. To suggest that’s because of foreign interest in the property market seems ludicrous.”
The influence of overseas buyers was “very much at the margin”.
The policy has also been met with some skepticism within the real estate industry:
Hayden Duncan, chief executive at Harcourts, which is the country’s largest agency with 180 offices and 1895 people, doubts the proposal announced by Labour leader David Shearer would work.
The policy was lacking in detail and the real problem was housing supply, particularly in Auckland, Duncan said.
“My concern about Labour’s suggestion is that by fixing one problem we’re creating another,” he said referring to the potential for rents to rise if overseas buyers were banned.
These buyers rented out properties, providing vital accommodation and excluding them could tip the balance in the market, he said.
And Peter Thompson, of Barfoot & Thompson:
Peter Thompson, chief executive of Barfoot & Thompson which sells one in three Auckland houses, said Labour’s policy wouldn’t solve the housing affordability issue.
“The reason prices are going up is lack of supply. We need more building, to free up building processes and free up more land,” Thompson said.
I’m sure all can agree that the increasing unaffordability of housing is concerning and that we need bold new policies to address this important issue. However, I think that a policy such as this is merely a knee-jerk reaction aimed at appealing to the prejudices of a certain portion of the electorate rather than actually seeking to achieve effective policy outcomes. I’ve said it before, and I’ll say it again – it all comes back to supply and demand. Land supply needs to be increased considerably, and demand needs to be curbed by removing some of the incentives that lead to a hyperinflated property market – such as tax-free capital gains – and the promotion of new, accessible investment opportunities that are something other than property. Sky-rocketing house prices in Christchurch and Auckland aren’t being driven by offshore buyers, but rather Kiwis’ own love affair with real estate and years of government inaction (both local and central) in failing to free up land and development.
What do you think should be done about housing affordability in NZ? I’d very much like to hear your thoughts.