Fran O'Sullivan: Facts needed about foreign ownership

House prices on average are overvalued and the cost of servicing a mortgage soaks up too much income. Photo / Dean Purcell

Politicians and bureaucrats should be ahead of the curve with data on overseas ownership - not playing catch-up.

Why is it that New Zealand still does not have comprehensive statistics to inform governments when it comes to making critical policy decisions on foreign ownership?

Is it because politicians don't want to confront the need for a policy response to protect the interests of NZ citizens? Those who want affordable homes and farms at a time when real estate and farmland has become a global commodity marketed via the internet worldwide?

Or does it just simply indicate that government agencies like the Treasury haven't had the wit to ensure that Statistics NZ, the Overseas Investment Commission and the IRD are sufficiently abreast of the key international trends to produce relevant statistics in the first place?

These questions are important. Not simply because foreign ownership is already a crucial issue leading into the election, with just who owns residential housing and farmland in New Zealand most likely to spark vexed debate on the campaign trail. But also because politicians and bureaucrats should be ahead of the curve - not simply playing catch-up when the political heat gets too much.

Right now we don't have reliable facts on:

• The level of foreign ownership of residential homes - particularly in hothouses like Auckland and Christchurch.

• The level of foreign ownership of farmland - not just dairy farms but all the other arable areas.

• The level of foreign ownership of New Zealand businesses.

We don't know whether foreign ownership has substantially increased in the key areas of housing or farmland.

The recent OECD Outlook confirmed what we all know - NZ house prices are staggeringly over-valued.

On the long-run average of house prices to rents house prices are overvalued by 66 per cent - the most overvalued among the OECD's "rich man's club" of developed nations. They're also overvalued relative to income - by around 30 per cent.

The upshot is that not only are house prices on average ridiculously overvalued but the price of servicing a mortgage soaks up far too much of available income.

It's a classic mortgage belt squeeze - plus, plus, plus.

Add to that volatile mix the impact of well-heeled foreigners seeking to buy residential real estate in prime locations like Auckland, Christchurch and Queenstown and the pressure is obvious.

Problem is the statistics that Housing Minister Nick Smith released to dampen down concerns do nothing of the sort.

In June 2013, Treasury reported there was a lack of comprehensive data on the level of foreign home ownership.

The Overseas Investment Commission (OIO) did not carry data on the foreign purchasing of residential property.

A Treasury analysis of the data said that it had its limitations, but showed that "the level of foreign ownership of New Zealand housing remains relatively low".

Worse still the Treasury and the Reserve Bank had said the same thing in 2007 with available data suggesting the level of overseas ownership was likely to be considerably less than 5 per cent of all NZ residential property.

'Considerably less' and 'estimated'. This is 2014 - how about just getting the facts. How hard is it for a regulation to be issued requiring all buyers of residential real estate to notify to the OIO whether houses are being sold to New Zealanders residing here, New Zealanders residing overseas, or foreigners?

The June 2013 Treasury report also said the IRD held data on the number of non-resident individuals reporting rental incomes or losses on New Zealand property.

These 2011 figures from the IRD showed that out of 199,000 taxpayers who reported rental tax returns, 11 per cent were non-residents and 1 per cent were of unknown residency.

The briefing said it was important to note that the "non-resident" category included New Zealand citizens who lived overseas.

Again these are not the relevant facts: What is pertinent is not just who is buying rental properties (what Treasury disclosed doesn't say the proportion held under trust or company ownership) but also how many residential homes are being sold to foreigners.

The fundamental issue confronting central and local government, businesses and workers is whether Auckland and Christchurch are now simply too expensive for many New Zealanders.

Labour has said it would consider restricting foreign ownership of residential properties to help ease pressure on the housing market.

It is sensible to look at options. But that may not be the right policy response in a two-tier economy where Auckland and Christchurch prices are galloping well ahead of the pack. Businesses and organisations might usefully look at relocating some activities to the provinces where people can buy housing without busting their pay packets.

Foreign ownership of farmland is also relevant given the international farmland grab continues.

The importance of relevant statistics is two-fold: working out whether it is true that foreign owners are pricing New Zealanders out of the prospect of farm land ownership, and ensuring relevant facts are made public that indicate where the prime ownership thrust is coming from (and it's not China).

On that point Statistics NZ's foreign ownership statistics do not directly state the true size of mainland Chinese investment in NZ businesses because some companies route their acquisitions through Singapore or Hong Kong.

The upshot is a pitiably ill-informed public on the facts of foreign ownership - something that won't stop the politicians from exploiting it on the campaign trail but does need to be addressed.

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