Editorial: Restricting foreign buyers probably not worth effort

BNZ chief economist Tony Alexander. Photo / APN

Is it time to tackle rising house prices with a restriction on foreign ownership? BNZ economist Tony Alexander believes it is. He suggests New Zealand should adopt a similar rule to Australia, which forbids non-residents buying existing houses. If they want to invest in residential property they must build it, which makes social and economic sense.

It means they are adding to the supply of houses rather than adding to the demand for the limited stock and keeping it beyond the reach of many young residents looking to own their first home.

Australia is not alone. Late last year, Hong Kong introduced a 15 per cent tax on house sales to non-residents and in February Singapore increased its stamp duty by up to 7 per cent.

Those measures quickly increased interest in New Zealand, according to estate agents. Bayleys Real Estate director David Bayley said inquiries from Asia had risen 12.2 per cent in December and by March his firm alone had six group bookings from investors coming to look at Auckland property.

Nobody who has attended house auctions in Auckland is left in any doubt of the strength of East Asian investment in the Auckland property market.

It is also apparent in newspaper advertisements placed by agencies promoting their most successful agents. The disproportionate number of Chinese or Korean names and faces speak for themselves.

But that investment is not necessarily for non-residents. Anecdotal evidence suggests houses and apartments are often bought by a family that will have at least some of its members living in New Zealand at least some of the time. When a survey by the BNZ and the Real Estate Institute asked agents what proportion of their sales were made to overseas buyers they said on average 9 per cent.

They also said the largest proportion of the foreign domiciled investors were Australian, which, if true, would render a residential restriction even less effective. Australians would need to be exempted in the spirit of a unfettered transtasman investment.

A restriction on foreign residential investment sounds attractive until it is examined more closely. Many would like all sorts of property off limits to foreign ownership, particularly farms. If the Government were to adopt restrictions such as those Australia applies to residential investment, it would have to explain why the same rules should not apply to farms.

Farm purchases are vetted by the Overseas Investment Office, which nearly always allows them on the grounds that they offer possible economic gains. Residential property could be subject to a similar rule, meaning purchases of existing houses simply to rent out would not succeed. Purchases of land for a house, or a unit bought off a development plan, would be welcome. Auckland urgently needs more houses.

But if non-residents account for less than 10 per cent of house sales in Auckland, a restriction is not going to make much difference to the plight of first-home seekers. Immigration has been a significant contributor to the housing shortage and rising prices but New Zealand has had a net migration loss in the past year and the pressure on house prices has not relented.

It is always dangerous to blame foreigners for problems that have many causes. The Reserve Bank is considering restrictions on lending on low deposits and the Labour Party advocates capital gains tax. A restriction on foreign investment, exempting Australians, could be part of an effective set of regulations for the residential market, but on its own it is probably not worth the effort.

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