A ban on offshore-based foreigners buying New Zealand houses would actually help to reduce “societal discord, fragmentation and outright racism”, according to BNZ chief economist Tony Alexander.
Alexander recently said that he thought that curbs on offshore-based buyers purchasing houses in NZ would be in place within two to three years.
And in his latest ‘Sporadic’ newsletter Alexander gives a number of reasons why he thinks such curbs would be a good idea.
One of the reasons is that Alexander believes they would help to reduce the aforementioned problems, including racism, which occur as people “blame foreigners for affordability issues and politicians seek power by exploiting such divisive nationalistic tendencies”.
Other reasons cited by Alexander are:
- To reduce upward pressure on house and land prices and therefore reduce the decline in housing affordability in New Zealand.
- To help address the Reserve Bank’s concerns about financial sector instability potentially stemming from any big downward correction to Auckland house prices perhaps in the context of a deep economic shock.
- To reduce the incidence of lowly-occupied dwellings or neighbourhoods where people buy property as an investment but never occupy it.
- To boost the chances that development land will be developed for housing rather than land banked to await capital gain over a possibly long time period.
- To reduce Reserve Bank reliance on non-conventional tools to slow Auckland house price rises which disproportionately impact upon young buyers and now domestic investors.
Alexander said he had been asked in one email why house sellers should be denied access to all the world’s potential buyers.
“My reply included the point that we deny Kiwi employers access to the world’s potential pool of cheap migrants through migration policy. We do so because we have a vision of what we want our society to look like and that vision does not include depressing wages to the lowest level the most desperate foreigner will accept. In the interests of fostering our particular society we limit the freedom of employers to choose.
“The same argument needs to be more rigorously applied to our home sellers who in this case are not seeking someone cheap, but someone expensive – willing to pay the highest price.
“Yet just as minimal wages destroys our community so too can sky-high property prices take away a key element of what we want our society to deliver – the ability of a young person to own their own house in the city which more Kiwis want to live in than any other.”
Alexander said that another emailer had asked him why was it that many Chinese people were buying in New Zealand? He answered with the following three points:
- The number of families in China in a position to consider purchasing an asset offshore has risen strongly in recent years as a result of China’s very strong sustained economic growth since 1978. It used to be just the wealthy, but now middle class people are buying. Chinese are in fact buying property all around the world.
- Many Chinese families have purchased a home for their children to live in while studying in New Zealand. Of the 110,198 overseas students in NZ in 2014 27% were from China.
- Many of the Chinese buying will already be living in New Zealand. Given that the household savings rate in China is about 30% whereas the NZ rate is 2% it is valid to conclude that it is highly likely Chinese migrants have more funds available to invest in housing, shares etc. than typical Kiwis who spend up large then buy Lotto tickets.
Alexander reiterated again that whatever the current level of purchases by Chinese investors offshore, looking ahead there would be more buyers from China.
“China’s economy continues to grow thus more people are reaching the position of having sufficient wealth and knowledge to invest overseas. The Chinese government will eventually relax restrictions on Chinese people taking funds out of China. Worries about social, economic and financial stability in China will grow as the period of easy strong growth ends – a process currently underway – and people question the ability of their leaders to meet their rising lifestyle aspirations.”