Monday 23 April 2018

Banning 'foreign' buyers

The Government has hit back at International Monetary Fund claims that New Zealand's foreign buyer ban is "discriminatory", saying Kiwi homes should not be traded on the global market.

IMF officials, in New Zealand this week, called the Overseas Investment Amendment Bill "discriminatory" and hinted that banning foreign investment in housing was an over-reaction to a problem that might not even exist.

"Foreign buyers seem to have played a minor role in New Zealand's residential real estate market recently," IMF division chief for Asia and Pacific Thomas Helbling said on Tuesday. He added that there were other ways for the Government to respond if large volumes of unwanted foreign money suddenly flowed into New Zealand's property market.

Associate Finance Minister David Parker said the Government disagreed with the IMF.

"It's a matter of values," he said yesterday. "We believe New Zealand homes should not be traded on an international market."
Except his government's bill does more than that. It hits a lot of people who live in New Zealand - not just 'overseas' speculators. And it makes it hard for developers to build new housing. If the developer is considered an overseas entity because it has more than 25% foreign shareholding - which happens easily if you're publicly listed - then there's more hurdles in front of your next project. If your planned apartment tower is going to be partially financed by off-the-plans sales to foreigners who'd rent the apartment out to Kiwis, and if there aren't locals who'll pay the same price off-the-plan, then you're going to have a harder time financing that apartment building.

And there are a whole host of other problems too. Very few of the problems were caught in Treasury's Regulatory Impact Assessment, or more likely Treasury knew about it and chose not to say anything to avoid picking a fight with the Minister about the very obvious adverse consequences in the bill.

I covered some of those off in a couple of pieces at The Spinoff last week. The first one went through how we wound up with a dumb ban on foreign buyers, and the second one went through a lot of the problems with the legislation as written. And I summarized in this past week's Insights newsletter.

And it is darned depressing if Treasury pulled its punches in laying out the likely consequences of the bill in the Regulatory Impact Assessment for fear of getting offsides with the Minister.

There is very little evidence that New Zealand homes are really traded on an international market. Banning people who live here from buying houses and banning people who would help get more housing built from doing so seem very bad ways of addressing the housing shortage. The former does nothing to alleviate any shortage because people who live here still would have demand for housing - they'd just shift from owning to renting. The latter makes it harder to get new stuff built.

The only real way that foreign speculators contribute to a shortage of housing is if they buy a place and leave it empty. The housing shortage is the difference between the number of dwellings being built and the growth in demand for dwellings that accumulates over time. Empty houses can contribute to the problem. But there's no evidence that there's a growing problem in houses being held vacant, and no evidence that any vacant dwellings are disproportionately foreign-owned. And if there were a problem with vacant housing, you find a way of dealing with vacant housing rather than banning foreign buyers. Or, even better, just ease up the rules and make it easier to build so it doesn't matter if somebody keeps a house vacant for a bit.

Twitter and Facebook comments on my Spinoff pieces lead me to believe that a lot of Kiwis think they'd be banned from buying houses abroad, or would face big hurdles in doing so - and especially in places where there are housing shortages.

Let's take a spin. Please tell me if I have any of these wrong.

Here's Experts for Expats on the rules on buying property in the UK - London included. London is crazy expensive. What are the rules? You might have trouble getting a mortgage if you're based abroad, but that's about it. A Kiwi can buy a house in London. A Brit won't be able to buy a house in Dunedin.

San Francisco. That's the classic crazy one, right? Huge housing shortages. Could a Kiwi buy a house there without living there - and even maybe leave it vacant? Yes. Or I can't find any evidence there being any rules against it. Here's one real estate adviser website on it. Expect a few hassles around anti-money laundering stuff, but that's it. It'll just be proof-of-identity stuff. And that's the same for the whole rest of the US. A Kiwi can buy a house anywhere in the USA, regardless of whether there's a housing shortage in that city. An American won't be able to buy a house in Kapiti.

The only place in Canada that has any kind of restrictions thus far is a tax on foreign home buyers in Vancouver. You can go and buy a house or apartment in Montreal or Winnipeg the same way that I could - by paying the owner of it. But a Canadian wouldn't be able to buy a house in Nelson.

Heck, it will be easier for a Kiwi to go and buy a chateau in France than it would be for someone in Paris to buy a house Haast. And selling a house in Auckland could pretty easily let you afford a French chateau too.

This isn't just making things even with other places that put restrictions on Kiwis. Other places don't do that. Or at least not other reasonable places like the US, the UK and Canada. The Labour government is putting more restrictions on a foreigner buying a house in New Zealand than even Trump has put in on foreigners buying a house in America.

Labour seems to get a bit tetchy about being compared to Trump. On this one, they have out-xenophobed Trump by miles. The parts of the left that used to get mad about xenophobia have gone kinda quiet because their team's in office. If you think this bill is targeted at 'foreign speculators', you're deluded. The bill isn't written that way. It blocks people who live here from buying property. And since it does nothing to increase the number of houses available, and arguably reduces construction, it sure isn't a housing proposal. It's an anti-immigrant proposal.

And if your answer is "Why should foreigners be allowed to buy houses in the first place?", your whole morality is backwards. The presumption should be that voluntary transactions among consenting adults should be allowed, not the other way round. Banning people from doing things requires evidence of real harms to others. And nobody has provided any on the foreign buyer ban.

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