Foreign property buyers in NZ: how much is too much?

There are moments in any public debate where a nerve is struck, when suddenly the issue becomes the thing everyone is talking about and triggers a shift in policy.

They can be messy and ugly moments and often the worst side of the national psyche is exposed. These moments require cool heads and deliberate, evidence-based policy making to navigate through without unintended consequences and lingering bitterness.

"Refusal to collect data over the last three years of rapidly escalating house prices created a fertile breeding ground for speculation fed by 'anec-data'."
Bernard Hickey, Publisher at Hive News

New Zealand's discussion about the sources and extent of foreign buying simmered away in the bowels of talkback radio and the comments sections of websites for most of the last year. It was powered by an unhealthy dose of anecdotes about 'Chinese buyers' dominating auctions in Auckland auction rooms and of 'ghost' houses left vacant and overgrown by absentee landlords.

Click image to zoom Tap image to zoom

In Australia, that moment had happened in November last year when it was revealed Chinese billionaire Xu Jiayin, the man behind property development behemoth Evergrande, had bought the Villa del Mare mansion at Point Piper in Sydney for A$39 million.

Bought through a string of shell companies in apparently open defiance of restrictions on foreigners buying existing properties in Australia, the deal was eventually over-turned in March by Treasurer Joe Hockey.

That decision shocked Sydney's real estate industry. It eventually led to a new A$5,000 fee for foreign buyers and a toughening of the penalties for the existing rules to include jail terms. It also followed a Parliamentary inquiry and a swathe of coverage of official figures showing foreign investment into Australian homes more than tripled in 2014 to A$7.17 billion. Some estimates were that more than 20 per cent of homes in Sydney and Melbourne were bought by non-residents in 2014.

There were plenty of hairy moments in Australia's debate, including the distribution of a flyer around Sydney's Lane Cove in May that demanded Australians "Stop the Chinese invasion." That was easily dismissed as the activities of an extremist fringe, but any debate about foreign buyers can easily slip into stereotyping and did on occasion.

But at least Australia's debate was one based on some officially collected data and an official inquiry with a minimum of name-calling across the political divides.

New Zealand's Government refused repeated calls by opposition politicians and even the Reserve Bank for an official register of the residency of property owners. It argued there was insufficient evidence foreign buying was a factor driving up house prices in Auckland and there was no legal requirement given New Zealand does not restrict non-residents from buying existing properties as Australia does.

This circular non-debate burbled along until last month when it exploded across the front pages and news bulletins. Opposition Labour Housing Spokesman Phil Twyford got hold of a database of the names of buyers using Auckland's biggest real estate agency chain. He then published an analysis showing people with Chinese names bought 39.5 per cent of the almost 4,000 homes sold in Auckland by the chain from February to April. He said this was much higher than the 9 per cent of Auckland residents who were ethnically Chinese and the difference appeared to come from China-based buyers.

Backing Labour's call for an Australian-style ban on foreign buyers of existing homes, Twyford warned a wave of investment from China would further pump up Auckland house prices and lock out first home buyers.

"Property speculation is rampant, and I believe on the strength of these numbers that offshore Chinese investors are a very significant part of what's going on," Twyford said.

The release of the partial data and the analysis of Chinese surnames triggered a political firestorm. Politicians from across the spectrum slammed Labour for what they said was a racist and shoddy analysis aimed at snaring extra votes. Labour party members resigned in protest and even fellow opposition leaders criticised Twyford.

Green Co-Leader Metiria Turei said the issue of foreign buying was real and Labour's data was interesting but she described the analysis as a "pretty crude piece of racial profiling".

The centre-right National-led Government joined in the attack.

"It's pretty cheap politics from Labour to be targeting one ethnic group and blaming them. I've seen it before in politics with jobs and crime. I see that Labour is now effectively blaming Chinese for the housing problems," said Housing Minister Nick Smith.

Prime Minister John Key accused Labour of turning its back on a long history of tolerance of a multi-cultural society and openness towards foreign investment.

"New Zealanders are a fair, even minded people," he said. “They know we're a multicultural society and they know the Labour Party I've hung around for the last 13 and a half years in politics has always been the one talking about an open multicultural society."

"So they can see that what they did was either so out of character or so desperate, it's hard to believe they even believe it themselves," he said.

Labour, however, was unrepentant and pressed on with its calls for a ban on foreign buyers and a full foreign buyers' register. Within a few weeks it was clear its decision to spark a full debate had struck an electoral chord in Auckland, where annual house price inflation hit 26 per cent in June.

Opinion polls showed the combined support for the three major Opposition parties, all of whom want foreign buying of existing homes banned, edged ahead of support for National by late July.

This became clear when Key, who is even his supporters argue is keenly aware of the shifting mood of the public, floated the idea of a land tax or stamp duty on non-resident buyers instead of a foreign buyers ban.

He also reiterated moves in the May budget to force non-residents to declare their home tax details when buying properties had paved the way for the release of better information on the level of foreign buying, although he rejected Labour's claim the buying could be as high as 39.5 per cent.

Unfortunately for the Government and the debate, its refusal to collect the data over the last three years of rapidly escalating house prices created a fertile breeding ground for speculation fed by 'anec-data'.

Labour's analysis was an ugly way to kick the debate out into the open but it's there now, as Twyford reiterated in challenging the Government to do better.

"If the government thinks this is not a problem, then they've got their heads in the sand and that's why we need to have this debate," he said. “If they don't like our data, put their data on the table."

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

03 Aug 2015

Why ChAFTA is more than just another FTA

Mike Smith | Former Chief Executive Officer, ANZ

The decision by China's President Xi to travel to Australia last year to sign a Free Trade agreement, while largely symbolic, remains one of the most important economic events in Australia's recent history.

21 Jul 2015

NZ's backyard roadblock

Bernard Hickey | Publisher at Hive News

Suddenly it seems everyone in New Zealand economic and political life is an expert on Auckland town planning, blaming it for all matter of ills ranging from high interest rates to housing unaffordability to financial instability and even child poverty.