Tuesday, 6 March 2018

NZIER on the foreign buyer ban

Richard Harman's Politik newsletter points to NZIER's rather scathing submission on Labour's proposed ban on overseas buyers. NZIER's submission is here. There are some very good bits. 
We understand why this Bill has been introduced. We understand why Treasury has written a Regulatory Impact Statement (RIS) that contains very little evidence. We too would like it to be easier for first home buyers to get into their own home.

But none of these things detracts from the fact that, from an economic perspective, this Bill is a poorly-designed solution to a poorly-defined problem. As a result, NZIER opposes the Bill.

We recommend the Select Committee considers the scope for exemptions from the sweeping provisions of the Bill in terms of investment in certain regions or in certain types of residential development that would add to New Zealand’s housing supply and are less likely to be thought of as sensitive.

Given the lack of empirical evidence and poor data quality around overseas investment in existing houses or residential land, we recommend a timely and well-publicised monitoring and evaluation process to ensure the Bill does not have unintended consequences.


We have a great deal of sympathy for Treasury – it was effectively railroaded into delivering a RIS to implement a proposed legislative change with which it likely disagrees, and it would have been very difficult from a relationship perspective for Treasury to develop a RIS that explicitly advised against the new government’s proposal.

What’s the economic problem, exactly?

In a RIS, the problem definition should clearly identify the market or policy failure that needs to be addressed, what is causing the problem, and – ideally – how material the problem is. The problem definition is the foundation on which any RIS should be built, because it clearly explains why change is required at all.

The problem definition in Treasury’s OIA Bill RIS falls well short of best practice. In fact, it is almost non-existent. It contains almost no information or empirical content. It merely states that the new government has a stated policy commitment to “ban overseas speculators from buying existing houses” and the RIS is all about how to implement the political proposal.

This is effectively Treasury waving the white flag from a policy analysis perspective. It seems clear that Treasury were not asked to analyse whether the proposal makes any economic sense based on first principles.

An evidential void 

Obvious questions that have not been considered are:
  • What empirical evidence is there that overseas speculators are pushing up house prices in New Zealand? Which countries’ speculators are having the greatest influence?
  • In the absence of empirical evidence, recognising the limitations of existing LINZ data sets, how reliable is the anecdotal evidence on the role of overseas speculators in artificially inflating house prices?
  • How significant is this inflationary effect, compared to other potential drivers of house price inflation, such as supply-side constraints and land availability?
  • Why is home ownership ‘better’ for Kiwis than renting? (i.e. what is the welfare loss to Kiwis attributed to the current legislative framework?)
  • What does the desired ‘future state’ look like, and how likely is the proposal to contribute to this state?
Without at least initial answers to these questions, it is very difficult to judge whether the proposal will make any material difference to home affordability for Kiwis at all. 
I like NZIER's heading questions too:

  • "Will the OIO have the capacity to deal with 3,000% more screening applications?"
  • "Is this really how we want to be regarded in trade negotiations?"
  • Coming to New Zealand - we welcome skilled migrants (but only if you don't buy an existing house)

Heck, you've even got telecom providers like 2 Degrees submitting on how the Bill will screw up getting telecom infrastructure in. Why? Because three of the big ones are classed as overseas persons and their infrastructure often winds up being situated on residential land. So it'll push back timelines on getting 5G through because they'd have to jump through OIO hoops. Stupid stupid stupid legislation. And it'll screw up power infrastructure in Wellington because the Wellington lines company is foreign-owned.

The legislation is terrible. Aren't there cheaper ways for Labour to pander to xenophobic nationalists? Free flags or something?

I wonder how bad legislation would have to be for Treasury to produce a more honest and thorough RIS. 

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