BNZ economist Tony Alexander joins the discussion on Auckland housing and the part played by foreign buyers:
. . . So we remain in the dark about the extent to which Auckland’s housing market is truly being driven by offshore buying. But as emphasised previously, there are three key points which I shall keep repeating regarding Auckland housing and house price pressures.
1. The fundamental cause of rising prices in Auckland is a shortage of supply and until that gets addressed prices will stay highly elevated and perhaps keep rising out to late-2017 this cycle.
No matter what tinkering is done to reduce demand by restricting foreign buyers won’t change the fact that there is a shortage of supply.
2. Whatever the true magnitude of Chinese buying has been these past few years it will get much greater. Chinese families are growing wealthier, so naturally they will seek offshore assets. Chinese people wish to get assets off the mainland and this week’s massive intervention in sharemarkets by the Beijing authorities illustrates why people have high distrust of the environment on the mainland in which they would hold assets. And Chinese authorities have yet to relax hefty restrictions on people getting their funds offshore. When they do, well then you will see something entirely new hit the world’s residential property markets.
3. We should as soon as possible adopt Australia’s rules restricting foreign buying of anything other than new housing unless resident for 12 months.
But here is the fourth point which to date I have not emphasised but now will do. Adopting Australia’s rules as they stand won’t be the panacea many are hoping for. In Australia’s case people have been able to get around the restrictions quite easily. The regime is now being enforced more rigorously, but that does not necessarily alter what is being seen as a huge problem – something which people in Hong Kong have been seeing more and more of in recent years.
Many Chinese who buy properties never, or rarely, occupy them. They sit empty. This applies even to newly built apartments sold to Chinese buyers. Chinese simply want an asset away from any control by the CCP. There was an article on this in The Australian newspaper this weekend, page 6.
What this means is the following. As Auckland very slowly goes vertical in areas like New Lynn, developers will find they can very easily get offshore financing for their projects and hefty sales off the plan to Chinese investors (we Kiwis prefer to touch and feel before buying). These investors may never occupy or even rent out their investment. Thus while on the face of it the Aussie rule that a foreigner may only buy a newly built house or apartment sounds like a grand idea, it could leave the housing supply situation unchanged from a no-rule regime.
Thus, were we to adopt the Aussie regime we would need to add in an extra clause along the lines of apartments having to be made available for rent, actually rented, or something like that.
When might we see the adoption of some form of restriction on foreign home buying in New Zealand? Maybe within two or three years. About three years ago I recommended that we adopt the Australian regime. That was/is not because I feel Chinese buying is currently the big buying force people believe it is, but because the buying will grow and the eventual popular backlash against such buying and introduction of legislation in that heated environment would risk a backlash. The Chinese leadership may feel we were targeting them and getting above our station. Trade retaliation would be likely.
That is still the position I hold and the earlier we adopt Australia’s rules with the extra twist noted above, the better for everyone, including exporters to China wanting good access for many years who may feel nothing needs to be done on foreign home buying. You are the ones most at risk should this situation turn bad in 5, 10, 15, or 20 years time.
If there needs to be restrictions on foreign non-resident buyers they must apply to all foreign non-resident buyers.
Over at Kiwiblog, David Farrar points out that Labour’s policy of treating Australians more favourably than Chinese would contravene the free trade deal which that party signed when it was last in government.
Even if it didn’t, putting higher hurdles in the way of those from one or more countries while applying less restrictive rules to others is discriminatory and could lead to tit for tat repercussions which would endanger trade.
That would impact on the whole country when the housing problem is essentially Auckland’s and the solution to it lies not in restricting demand but increasing the supply.