David Hargreaves says the new Government may need to rethink its idea for a ban on offshore-based buyers of existing housing stock in New Zealand

By David Hargreaves

There is a cynical technique sometimes utilised by unscrupulous governments (though not in New Zealand, certainly not recently) that might be termed as “the achievable military objective” strategy.

In its simplest form this strategy involves picking a fight with a foreign nation and then having a ‘limited’ war that the aggressor government knows it can win and thus providing a nice boost to its popularity. Everybody loves winners.

The thinking behind this technique is simple enough and essentially just follows the principle of fighting a battle the government knows it can win.

Such thinking of course is not limited to military objectives.

‘An early win’

If one were for example a new government in New Zealand seeking to get an ‘early win’ on a key policy, then clearly achieving something symbolic on the vexed issue of housing shortages would be a good look.

I really wonder though if the new Labour-led coalition is not biting off more than it can chew by attempting in its first 100 days to progress some sort of a ban on offshore-based buying of existing New Zealand housing stock.

In theory, banning offshore-based buyers of existing houses is a good idea. I have thought so, and said so, for a while.

Unfortunately we have complicated the picture for ourselves by getting into free trade agreements that make such a policy problematic. The new Government may well not be pleased that it is ‘stuck’ with the actions of the previous government – but stuck it is.

With the best will in the world, I find it difficult to imagine a full and satisfactory solution could be found within 100 days.

Big problems

If the new Government, as was suggested by Labour prior to the election, implemented a foreign buyer ban now, but excluded from it for now countries with whom we have free trade agreements that preclude such bans, it would likely cause big problems.

Could we really with a straight face turn to China for example, and say that its people are barred from buying existing New Zealand houses (if they don’t live in the country), but Koreans can keep until such time as we renegotiate our trade deal with them?

The new Government will not appreciate me comparing them with the current US administration – but look what’s happened there with the infamous travel ban, currently now in its third iteration since being hastily implemented because Donald Trump wanted to look like a tough guy.

Credibility risk

What’s clear is that if a government chooses to implement a measure that stretches outside of its own borders there’s a risk it will get push-back from other countries, with the resultant possibility that U-turns may be needed on the policy. And that can be embarrassing and severely affect the credibility of the government.

If our Government cannot say that it can genuinely implement an offshore buying ban – that covers all countries – within its first 100 days then it should not try.

A failure of an early policy initiative could do quite a lot of harm to a Government which, goodness knows, is fragile enough given its three-party foundations.

There would be other ‘easy’ wins that the Government could achieve in its first 100 days that build its confidence and the confidence of the New Zealand people in it. Some simple straight-forward announcements on housing policy within New Zealand – IE that don’t affect other countries – could certainly be achieved. There will be a lot of goodwill toward the Government in the early stages. A honeymoon, if you will. Early announcements of planning for new housebuilding activity, for example, would be well received and supported.

There’s no need to start trying to take on other countries to prove a point.

We still need to know who is buying

The other thing to note on the whole issue of offshore buyers is that there is STILL no convincing, credible information available as to what percentage of house purchases in this country involve offshore-based buyers. We really need this information so there’s no temptation to go off the deep end again with such ill-starred brainstorms as the notorious ‘people with Chinese names are buying houses’ Labour public relations disaster.

Without credible information suggesting, right now, that offshore-based buyers are making up a significant percentage of total house purchases, any move to ban such buying now would be a symbolic rather than practical move to help the housing market. Why risk that a symbolic gesture could blow up in its face?

Look, by all means investigate a ban and just how feasible it would be. But don’t promise it.

I seriously doubt whether such a ban could be implemented within the three year term of this Government.

Stamp duties

Increasingly I think the solution might be to look at stamp duties – as apparently the previous government had decided was feasible. Okay, that might be a bit unpalatable for this Government in two ways – one, it will be a ‘tax’ and we know how Labour was run ragged by Steven Joyce and the ‘Woooo! Labour will tax you!’ National scare tactics in the election campaign, while two, there may be some philosophical doubts about stamp duties simply because National thought of it first.

However, it does seem likely that this is a policy that could be applied without international complications. Next question: Would it actually put buyers off? Well, the Government could try more of a carrot and stick approach. How about applying truly momentous amounts of stamp duty to purchases of EXISTING homes by offshore buyers, but no duty on NEW houses. This could therefore have a similar effect to a ban – without having to go through all the complications of putting a ban in place.

When all is said and done, the biggest perceived problem with offshore buyers is that they throw money into the country to bid for a limited supply of existing housing stock, thus driving up the prices of that stock and making it increasingly difficult – certainly for first home buyers – to get on the housing ‘ladder’.

‘A win-win’

If however an offshore buyer builds a new house they are increasing the housing stock available – and providing employment in this country into the bargain. That’s a win-win.

So, I hope cool heads prevail here and the Government backs down on this one. There are always more ways of achieving what you want than you think. It just needs time to work through the options sometimes.

This Government has set itself a lot to do. It doesn’t need to get bogged down so early in the piece by trying to win battles it might not be able to win without a struggle. Achievable military objectives please.