By David Hargreaves
The Government’s learning the hard way how counter-productive it can be to treat a perceived problem by refusing to publicly accept its existence.
When I began living in Auckland for the first time in several years in 2013 I was genuinely taken aback by the very dark brooding resentment, just under the surface, regarding the purchasing of Auckland houses by ‘foreign’ buyers.
New Zealanders who haven’t spent much or any time in Auckland during the past few years really won’t have a clue just how strongly this issue is being felt by Aucklanders.
The Government, of course, has known, but has chosen to publicly ignore it. Rising house prices suit a National Government fine. Rising prices also suit Aucklanders who own homes fine as well.
The problem comes when you get screaming headlines about Kiwis being ‘locked-out’ of home ownership.
Within a month of moving to Auckland in 2013, I was strongly suggesting that Australian-style controls of offshore buying were needed. The BNZ’s chief economist Tony Alexander has been very consistent in his view in the past, at least two years, that whatever the level of foreign buying at a given point, we can only expect it to increase. But what was also clear in 2013 was that better information was needed on what was driving the Auckland market.
If two years ago the Government had moved to start collecting quality information on who is buying houses, the near-hysteria of the past few days may have been headed-off. Instead, the Government handled the issue abysmally by refusing to publicly acknowledge it – until the level of public opinion meant it could no longer be ignored.
The measures announced in the recent Budget were in my view slightly bizarre, since they were targeted at a problem the Government had not acknowledged and hadn’t bothered to properly independently verify. So, in other words: “Here are our measures to tackle a problem that doesn’t exist.”
It is clear reading between the lines of the recent dump of officials’ pre-Budget advice, that these measures were put together in a hell of a hurry. That’s a Government giving a knee-jerk response to perceived public opinion, not a Government implementing carefully considered policy.
But it is worth looking at what we’ve got.
Offshore buyers will have to give IRD numbers and details of a New Zealand bank account. As well, the Government is supposedly looking at introduction of a withholding tax on sales of property by offshore people.
The right direction
These are moves in the right direction, though at risk of sounding like a scratchy YouTube recording, I will say it would still have been better to collect information first. And it is still by no means clear to me just what sort of information will be provided by these new measures. A home ownership registry that records the domicile of owners as well as the type of owner (whether owner-occupied or as an investor) would still be the way to go.
But now, of course, thanks to the Government’s previous inaction, the court of public opinion has moved on. The voice in the street now has it that this country should be banning any people who are not New Zealand citizens from owning property. That means that anybody emigrating here would have to wait five years to buy their own home, because that’s how long they would have to wait to become NZ citizens. This could put quite a lot of people off coming here. At a time when we have a net migration inflow of more than 50,000 per year (remember that’s a historic high by a long way) it possibly seems like a good idea. It might not seem quite so bright once (as night follows day) bigger numbers of New Zealanders start packing up their tents and heading offshore again. We do need some sort of domestic economy. And a falling population would not be the way to stimulate that.
A cursory glance at the property ownership policies of other countries throws up some interesting things. China doesn’t bar foreigners from owning houses, though you can only buy one, and you have got to have lived there for a year. And no, I haven’t tried to buy property in China so I would be guessing it would not be straight forward, but theoretically you can.
In searching for a place that does definitively bar foreign ownership, I then looked up Thailand – as I understood there was a bar in that country. Well, apparently as a foreigner you can’t own land (though there are ways and means of going into minority partnerships, or you can get long term leases), but you can own things like apartments (providing 51% of the apartment block is owned by Thai people).
Britain doesn’t bar even offshore based foreigners, nor does the US, nor does so far as I can see, most of Europe.
So, if we as a country went down the ‘NZ citizens-only’ route we would certainly be marking ourselves out from an international perspective.
I think we need to be a little bit careful about not over-stating our own level of importance in the global scheme of things. The most memorable description of this country that I can recall came in the 1980s from an American official, James Kelly, who described NZ as “a piss-ant little country south of nowheresville”, which by any measurable criteria is actually about right. The ‘flood’ of migrants we are seeing here is a flood only by New Zealand standards. The rising numbers of tourist visitors here are most welcome, but as a much as anything reflect the fact that well, more people travel these days.
We are not special. What is happening in New Zealand is happening all over the world. People are mobile and so is their money.
At the moment any perceived attraction for this country as a housing investment destination would stem from a perception that we are a soft touch. No stamp duties. No other taxes. No restrictions on number of properties owned.
But the world is now a village. And the reality is that unless we match the kinds of measures other countries have in place regarding the ownership of property then we will stand out as being a relatively more attractive place to invest. What are you going to do, invest in the country that taxes capital gains, or the one that doesn’t? So, our little ‘piss-ant’ of a country gets into the consciousness of some investors because it offers tax advantages, but, believe me, for probably no other reason.
So, I suspect it would not take very many measures at all to dampen offshore buyer interest here. A New Zealand citizens-only house buying policy could be seen as the nuclear option. We probably just need a few hand grenades.
I am now increasingly of a view that an Australian-style bar on offshore ownership would be too tough for us to do because of various free trade agreements we have. As I read it, our FTA with China would preclude us doing anything that disadvantages China relative to other countries.
At the moment Kiwis can buy investment properties in Australia without having to live there. If we barred offshore house buying here then presumably we would also be forced to bar offshore-based Australians buying here – otherwise Australia would be getting an advantage over China. And if we then barred Australians buying here, well, we couldn’t expect to be surprised if they then barred us. I wonder how many Kiwis would be affected by that. Based on the number of people I know who have Australian properties, I would have said it would affect many thousands.
Giving it up?
I would say that if Kiwis who have investment houses in Australia are prepared to give up that privilege than, okay, would could look at foreign ownership limits.
But otherwise, ultimately, tax is the way to go. Introduce stamp duty for non-resident buyers. Go ahead with the plans for introduction of withholding tax for offshore buyers next year.
Also, why not stipulate that any offshore-based buyer HAS to rent out the property? This would be a good counter-punch to the widespread stories of empty houses in Auckland.
These measures would help level the global playing field.
I hope the Government has learned its lesson and will in the next 12 months move in the right direction. I think it will and it will be then a case of ‘panic over’.
Just remember. What goes around comes around. There will come a time (again) when owners of New Zealand houses will be extremely grateful for the chance to sell their properties to offshore buyers.