Friday, June 15, 2018

Frank Newman: Fact based myths

Last month I wrote about the meth myth, and how a moral panic and media beat-up cost blameless tenants and landlords their homes and lots of money. 

The "How did this happen?" post-mortems are going on at present but it's pretty clear that real facts were nowhere to be seen when the decision makers were writing the rules. 

This makes one wonder what other moral "pandemics" are similarly based on fiction or fear rather than fact. How about house sales to foreign home buyers?

This of course was a hot political topic prior to the last election, and Labour's then opposition housing spokesperson and now Minister of Housing, Phil Twyford, built a media grandstand on scare mongering to the effect that foreign buyers were forcing locals out of the market. There was very little data available at the time to counter his claims that 30% of homes in New Zealand were being sold to foreigners, so the issue was given more credibility than it deserved.

Now we have some facts. Nearly 33,000 homes changed hands across New Zealand in the three months ended March 2018. Of these, 3.3% were transferred to foreigners, i.e. people who did not hold New Zealand citizenship or resident visas. That compares with 2.9% in the previous three months. During the same period 1.5% of the sellers were foreigners, so the net difference is 1.8%.

These figures are hardly dramatic and it would be hard to conclude that foreign buyers are driving up property prices or elbowing Kiwis out of home ownership.

There is a slither of plausibility to that argument when the figures are broken down by region. Queenstown-Lakes district had 9.7% foreign buyers in the three months ended March, and Auckland 7.3%. Both of these areas have unique characteristics - the Queenstown area is becoming a playground to the international rich, while Auckland's foreign buying interest is likely to be because it's central to the overseas student market.

Those two regions aside, there appears to be very little factual evidence to support banning foreigners from  owning property. Australians are exempt from the  proposed legislation anyway, so clearly it's OK for an Aussie to your next door neighbour but not other nationalities.

The ban will not apply to foreigners building a home, so it seems the intention of the law change (which is currently at the select committee stage) is to encourage foreigners to add to the housing supply, rather than consuming the existing stock. There is some policy logic to that, but again the question needs to be asked whether the problem, if there is one at all, is big enough to justify regulation. Or is this just another example of a political self-interest creating the perception of a problem with no  factual basis - like the meth' issue.

In my view, a better policy would be to allow the super rich to buy property here but charge foreign buyers a levy in the form of stamp duty. Most of these individuals are so wealthy that a levy of 5% or 10% on their purchase price would be nothing more than pocket change, but collectively it would be a major source of income for the government to spend on important things - like building new state houses! That, in my humble opinion, is a more logical way to deal with the housing crisis, but it seems logic does not win elections.

Frank Newman, an investment analyst and former councillor on the Whangarei District Council, writes a weekly article for Property Plus.


paul scott said...
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If the Chinese are using Nominee title holders to purchase in countries outside China, it is likely they are doing so here.

Bruce Somerville said...
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New Zealanders have been suckers and fools for allowing any foreign buyer to purchase any type of real estate in New Zealand. There was anecdotal evidence of foreigners comprising up to 30% to 40% of buyers at property Auctions in Auckland during the heated periods of the recent boom. Notwithstanding the numbers, it is a matter of principle. Every purchase by a foreigner deletes an opportunity for a New Zealand citizen to own his own home, industrial unit, shop or farm. The foreigners and their forefathers have contributed nothing to the quality of our infrastructure which is a major factor giving rise to the increases in property values. We would much rather the capital gain goes to our New Zealand citizen neighbours and not to foreigners off shore. Our forefathers will be rolling in their graves to see the benefits of their blood sweat and tears in building this country going into the pockets of foreigners. Any New Zealander who supports the view that foreign buyers should not be banned , is a traitor to their own kind especially to young New Zealanders trying to buy their first home, factory unit, farm or shop.
To those leftists and globalists who raised the issue of race in this matter, you are pathetic. You poor little melting snowflakes-- grow up.
It is an issue of numbers. We have a very small population in relation to say China and India for example. About 0.25% of China. The M1 index of money supply in China has grown exponentially to 3 trillion dollars as their middle class gets richer. We are very vulnerable to these countries and if we do not protect ourselves it will be much worse in the next boom period of the property market here.
Notwithstanding scarcity of supply factors, I strongly believe that the foreign buyers created a "Tipping Point" factor in contributing to price rises in the recent boom. (See the book by the same name by Malcolm Gladwell).Invariably, the foreign buyers were not subject to the same mortgaging constraints as New Zealanders , particularly first home buyers. It is axiomatic that a high percentage of home ownership is economically and socially a good thing for New Zealanders. Any political party that does not have this in its policy platform is traitorous to the interests of all New Zealanders.

It was dismaying to note that in a NZ Herald article dated 8/6/2018 on this subject, the editor chose to hi-light the statement made by the Real Estate Institute representative "-- that it's not worth going ahead with a blanket ban on foreign buyers --" rather than hi-lighting the statement by the minister "--the principle is the same: New Zealanders should not be outbid by -- people who don't live here,".
If we don't have principles and live by them, we are fools and will suffer the consequences.