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.