By Matthew Nolan*
Today I’m going to take a brief break from the tax articles I’ve been writing to comment on the rising complaints about foreign buyers of New Zealand homes.
Usually I’d ignore this type of bleating as typical xenophobic outrage, but with the issue increasingly being pushed into the area of economic debate I simply feel it needs to be discussed.
Economists like to discuss trade-off, and in this case there appears to be a perception that there is a trade-off between the welfare of people overseas and people here – when there is not.
In the end, the calls for policy intervention are starting to sound more like xenophobia, taking us on a slippery slope of blaming non-residents for anything we perceive to be unfair or wrong in our own lives.
Now don’t get me wrong, the vast majority of commentators saying these things in New Zealand are not intentionally xenophobic – they are generally kind hearted and intelligent people who just want to solve a perceived problem.
However, anyone pushing bans of the sale of property to non-residents just doesn’t understand what the ‘problem’ is and as a result is unintentionally following actions that go down a xenophobic path.
But I digress, you don’t read this to hear some strange looking man in a waistcoat rant about what he thinks is right and wrong – you want a simple economic run-down. I will aim to provide that here.
Thinking about trade-offs
It is impossible to make any sense of a policy without asking why we want to do it.
Saying “house prices are going up” doesn’t have much to do with anything, we need to ask what the underlying policy issue is and how a ban on house sales to non-residents would interact with that.
So what is going on that has led people to believe we need to ban the sale of houses to foreign residents?
The two clearest issues that people have about the housing market are concerns about a housing bubble and concerns about the affordability of housing given that it is a necessity.
These are both reasonable concerns – but as we will discuss below, banning sales to non-residents don’t actually deal with the situation and is likely to hurt the vast majority of people involved.
Foreign buyers, bubbles and the New Zealand housing market
The most obvious concern appears to be around a housing bubble stemming solely from people who live overseas boosting demand for New Zealand property – property they do not intend to live in.
The argument is that foreign owners coming into the market push house prices out of line with fundamentals.
We have touched on the issue previously, and come to the conclusion that this may actually have a lot of benefits for New Zealanders. As a result, banning sales in this context has similarities to cutting off your nose to spite your face!
Let me discuss this issue a little more.
To start off, let us assume the perfect situation for the people making this argument.
We will assume that somehow we can identify the investors from overseas who are going to buy houses and not live in them – so we are not just arbitrarily punishing immigrants. This is a strong assumption, which is false – in reality introducing these policies does involve arbitrarily hurting immigrants as well.
In this ideal situation we will also magically assume that there is a bubble due solely to overseas investors (again another very strong assumption). With this we are saying that people from overseas are willing to overpay for an asset relative to its fundamental value. They will give the previous New Zealand owner more capital than they previously could have sold the house for.
In this context, the “housing bubble due to foreigners” is actually “people overseas giving New Zealanders wealth” – wealth that can be used to pay for goods and services from overseas.
Now many people are concerned about bubbles because they are worried New Zealander’s will take on too much debt or that it will make the financial system fragile.
But this example involves people overseas just giving New Zealanders wealth – it is not clear that this would increase fragility and by providing liquid wealth it gives households the capital to actually pay down debt!
Furthermore, as long as banks are being pushed to hold sufficient capital a short-term bubble doesn’t matter – people currently overpaying will hurt themselves to the benefit of those who just sold.
If the bubble was to last a bit longer, this would lead to “too many” houses being built – which in turn would push down rents for people living in New Zealand. This point becomes more important if we are to think about affordability instead.
Affordability: Confusing the desire for a free lunch with reality
Unlike our assumed bubble which is due to a temporary surge in demand from overseas, an underlying affordability issue relies on what happens in the longer-term.
Housing affordability is a touch stone issue for many people – and in the current context the main affordability concerns are in Auckland. Essentially people want:
· a certain size and quality of house
· a house to always cost less than a certain amount
· an obsession with being an “owner”
However, property has become more “scarce” and so this implies that people in Auckland either have to pay a higher price for it or accept a smaller backyard and/or dwelling.
So what makes property more scarce? Well everyone talks about land use constraints which limit what can be built and where. No doubt this has an effect.
However, population growth also has an effect given these constraints, and the increasing returns from alternate uses of the land also boost prices. These are the main drivers of prices being higher.
However, we are here to only look at our foreign investor. The investor that doesn’t actually live in the house won’t boost the cost of renting (in fact, by increasing the supply it will lower the rental cost), but having open capital markets means that foreign demand will make purchasing the house more expensive.
But, it also means that the house can be sold for more in the future as well.
When we actually think about affordability, we should be thinking about the implied rental cost associated with the house.
The implied rental cost depends inherently on the supply of property – hence why we hear so many economists, such as myself, whining about issues of supply when discussing the housing market.
The real issue of concern?
Some may say that a bubble right now makes house prices expensive right now, thereby reducing affordability right now. However, why do we care if someone cannot afford to buy a house at this very second – couldn’t they just wait till the bubble is over?
However the concern here is that, New Zealanders that go out to buy a house during this bubble end up facing all the risk and expected drop in house prices associated with the bubble.
Generally these people are young New Zealanders who intend to start a family, and as a society we feel a bit rough about the fact they are in that position.
I know that when I read Bernard Hickey write for example, I get the impression that this is the underlying issue that is really concerning him.
This distribution issue does matter.
If it is something society, and individuals, care about as a matter of fairness it is relevant. But, banning foreign ownership and throwing away all the wealth gains associated with foreign residents overpaying is not a solution.
Instead, we need to be honest about the transfer that may exist between current older homeowners and the young, and think about how the tax and transfer system can be made to deal with this. Admit the perceived unfair transfer that is taking place within society and deal with it directly.
New Zealander’s accidental xenophobia
I have no doubt that many people pushing for these policies merely haven’t looked into these issues or are unwilling to stick to this description. Saying “it increases demand” and “prices go up” isn’t an analysis of the impact on peoples lives – we need to ask overseas what the higher demand from overseas means, and look through the trade-offs in terms of what a bubble and affordability are as we have briefly above.
Ultimately people are trying to find a solution for some of the genuine pain they see around them in society – this aim is noble.
Generally, many of the people arguing for sales bans are good people who believe they are pushing for things that will help everyone.
But when we come to policy, intention is a load of rubbish – the road to hell is paved with good intentions.
If we genuinely care we need to actually think about the people that are hurt as well as those who win by the policies that are put in place.
An unwillingness to critically assess bans on foreign owners of property doesn’t stop the policy, and those pushing for it, being directly xenophobic.
If as a society we want to help the poor and promote opportunity (I certainly hope we do), then let us focus on the ways the tax and transfer system works to help achieve that.
If we notice that the Auckland housing market appears to be dysfunctional, let us deal with the issues of the quantity and composition of property in the region (supply) rather than messing around the edges to prevent voluntary trade between New Zealanders and people overseas.
An unwillingness to think through policy issues and then quickly blame foreigners is not acceptable. This vein of writing that is becoming prevalent in New Zealand is something that I totally and unconditionally disagree with.
-------------------------------------------------------------------
Matt Nolan is a senior economist at Infometrics. You can contact him here »
65 Comments
Matt
The most obvious concern appears to be around a housing bubble stemming solely from people who live overseas boosting demand for New Zealand property
Who is arguing that the housing bubble is stemming SOLELY from overseas buying? I don't know if anyone is.
I would argue that it is ONE FACTOR amongst a number in the overall issue. Clearly, a range of demand and supply factors are at play.
This is why Tony Alexander was correct in recently suggesting a range of supply and demand side responses.
And why is limitting overseas ownership necessarily xenophobic?
Is limitting the volume of immigration xenophobic? Taking your argument, you could say we should have no limits on immigration because such limits are xenophobic - anything other than a totally free movement of labour and capital is 'xenophobic'. The reasons we have such limits is that there would be significant social and economic costs to having a policy of unlimited immigration.
Similarly, it would seem that uncontrolled foreign property ownership is contributing to the significant social and economic costs associated with unlimited foreign property ownership.
I support Tony Alexander's suggestion of limiting foreign property buying to new developments, as per the Aussie approach.
I agree with both of you.....
LOL.
The Q is foreigners over-paying is the foreigners problem short term, sort of, so I agree with Matt N initially.
However,
1) That cash or wealth that comes in is used I suspect as a deposit to gain a bigger house, hence its leveraged and that I think is therefore far worse.
2) Allowing foreign buyers probably encourages overbuilding, potentially a bigger downturn/bubble burst will result from over-supply. It also means we put in far more infrastructure and convert farm land to housing we dont need.
3) When foreigners exit from hiding their money here it will potentially cause a bigger downturn/bubble burst, we only have to look at the bond market for that effect.
4) MattN seems to make a straw man argument, so no its all foreigners fault, but a % yes together with other %s factros add up...
regards
I had always thought the suspended death sentence was doing the jiggery poke while dangling from a noose........I'd guess the clemecy plea cost around 365 houses and a hareem of mistresses...
Gosh they're learning the ways of Democracy fast.....soon they'll have a bent stockmarket..ha ha.
Interesting opinion.
non -residents are exasperating the affordability problem here.
Limiting there investment is a quick solution to resolve part of the problem.
It wont affect them as they don’t live here or care for that matter. It’s only those people who do.
The rule can be reviewed later
However, we are here to only look at our foreign investor. The investor that doesn’t actually live in the house won’t boost the cost of renting (in fact, by increasing the supply it will lower the rental cost)
How does it increase the supply? If the property is bought off an existing landlord, the supply of rentals is unchanged.
On a similar note, let's take it to the extreme and suppose that non-residents account for 100% of the turnover in the housing market (both sides of the transaction). In this case the wealth effects don't accrue to New Zealanders at all, so I struggle to see how this can be beneficial to NZers through purchases of overseas goods and services etc. This would be the case of foreigners buying over-priced houses from foreigners and driving up the NZ market. If a potential first homeowner came along and looked at house prices, deposits required and deemed it so unaffordable they packed up to go offshore, wouldn't this be a negative? Sure, it's an extreme example, but I don't think it's as simple as all us dumb kiwis being xenophobic...
That nonresidents be they New Zealanders or not should have controls on them regarding buying homes in New Zealand is a political decison. We live in a democracy. If the will of the people is that there should be controls , then there should be. There is really no right or wrong answer to the question you pose. There is certainly not an economc arguement that holds up that says for New Zealand to be successful we need to allow non residenst to buy our houses. It is silly to think that there is or even suggest it. Countries do not gain wealth via there housing stock. Singapore has out performed NZ economically for a great many years now and it is unlikely that anyone would suggest that it is because they allow non residenst to buy up there housing stock. In fact the restrictions on speculation in housing and property in general may be one of the reasons for their success.
The misallocation of enterprise and entreprenurial spirit into housing in NZ may be a major factor holding us back. This opportunity cost of peoples energies seldom if ever gets a mention
Matt, I know where you are coming from.
But you are simply wrong on this issue.
Many other countries have non-resident disincentives already in place.
We are one the last places it is easy for foreiners to buy in.
Should we :
a) protect the people who live in NZ from debt slavery? , or
b) protect the interests of wealthy random people around the world.
I know what I would vote for, and I think most of the population would agree.
If I am a debt slave (have a mortgage) and anyone (even a foreigner) buys my house I can pay back my mortgage. This is not slavery.
The argument is they are creating a bubble and history shows every bubble bursts - if it didn't it wouldn't be a bubble. So sell your house to them at an inflated bubble price then wait for it to crash and buy it back at a reduced price.
The only problem is if it isn't a bubble and therefore never bursts - in which case the assumptions were bollocks and don't support the argument against foreigners. In which case the market has structural problems that have nothing to do with foreigners.
An unwillingness to think through policy issues and then quickly blame foreigners is not acceptable. This vein of writing that is becoming prevalent in New Zealand is something that I totally and unconditionally disagree with.
Firstly Matt, there is no such thing as an accidental xenaphobe just correct or incorrect observations when labeling people as such...those who are will always find justification to avoid the irrational position, those who are not will respond with equal justification to their having been incorrectly grouped.
I fully agree those who take extreme advantage for poor policy should not be demonised as a collective, however as long as they remain the target of our vitriole, the distraction from continued policies that have disenfranchised coming generations of New Zealanders as we...knew ...them ,will not be it seems ,addressed or interupted.
The ministers along with the OIO are using the xenophobe card in the same blanket manner those" they" accuse single out as the target of their discontent.
Matt ,just because someone points out wealthy mainland Chinese are, and have been out bidding local property buyers does not make them racist, it's an observation base on supporting evidence.
Just because someone of Foreign extraction takes full advantage of pissweak policy designed to encourage them to invest as much as the possibly can , whether or not it creates have not's localy, doesn't make them the Demon.
yeah we get it...! watch to piety there to good man, it's a short trip to the pavement when you slip up.
Oh so correct in more ways than one.
The situation arising in Auckland has a compelling parallel to the conditions created by the Bank of England back in the 1990's which produced an opportunity that George Soros saw unfolding in front of his eyes. Nobody else saw it. But he did, and made a billion dollars out of it. Didn't they call him the "Man who broke the Bank of England"?
The same conditions are being created in new zealand by the inertia of the "lever-pullers"
Using the world-wide coverage of the internet, anyone with eyes, and capable of following the news, can see the exploitable bolt-hole new zealand is .. but it's not even the world-wide-web .. it's the grapevine .. a few phone calls
.. just because someone points out wealthy mainland Chinese are, and have been out bidding local property buyers does not make them racist ..
Of course not - but if they extrapolate this to any conclusions beyond the evidence (say; foreigners are a significant market driver and that it is creating a housing bubble) it might lead to poor policy decisions that create unintended consequences and don't address the causes of increasing real estate prices.
RE: supply solutions, whilst I agree with much of what Hugh and Philbest have to say, I think that although supply is important, demand side factors (such as the foreign property ownership approach) will always be important in NZ, more so than they can or should be in locations such as the USA and Aus with much bigger populations and scale and generally "easier" land.
NZ is too small to ever get the scale of house building to really drive construction costs down and really get massive supply response. Plus the topography in and around many of our cities also does not help.
Doesn't mean of course we can't, our shouldn't, try to get much more supply happening
The Herald poll says 78% of respondents think foreign property ownership should be restricted...so...
Do it
But be assured that it won't be done, because as we know the Nats are just full of rhetoric, and have an overly ideological approach that places too much faith in 'the market'. What's more, we all know that despite their rhetoric, they want house prices to keep rising.
78% of respondents think foreign property ownership should be restricted.....
65% of respondents think John Boy should remain P.M.
Somewhere in the percentages there is a clash of morality with business...
Unfortunately, we know which carries more weight on any given day...
He knows it...it's all about the money , money , money, it's not personal, it's just about the money, money, money,..
If your looking for empathy, you got the wrong guy, maybe dig up Norm Kirk...he was crucified for possessing the ability.
It is about house prices which *are* affected by economic policies so that has to remain the biggest part of it
There is nothing forcing *you* to sell your land, buildings and assets. Conversely maybe I would like to sell mine.
It's not about name calling, it's about separating rational argument about housing prices with an irrational fear of foreigners and the imagined threat they pose. Matt gave a rational argument but most of the response is emotional.
Blah blah (expletive deleted) blah.
That would have to be the biggest load of horse hockey I have read about foreigners buying up houses, but I guess you must have a vested interest in seeing to it that they can continue to do so.
To argue that foreigners buying houses increases the stock of rentals would be off the scale hilarious, if it wasn't so sad. If they weren't there and the net effect was lower house prices, those tenants might be able to afford to pruchase that home for themselves
Look I'll do a deal with you, we'll give xenophobia a new dictionary meaning if you like - "to put the needs of your countryfolk before non-resident foreigners in the housing market" then you can call us xenophobes to your heart's content.
It took me some time to try and understand Nolan's logic and I finally decided the reason is to find an excuse as to why we should not ban overseas investors. However he seems to be winding himself up into knots as to whys and wherefores.
It would be much easier to ask what would happen if the ban was imposed. My simplistic answer is based on there being:
1. A limited supply problem. For Auckland just ask why rents have not risen and you have an answer
2. Where are the cost implications for new building? While actual building costs may be considered high and that includes council imposts , the real escalation has been in land cost. Wherea re the land bankers?
3. If there are a lower number of players the overall prices would not be as high as at present. Yhat implies that rental cost of ownership would be lower and there would be a redistribution from higher wealth individuals to the general population be they owner occupiers or renters.
Time for Matt Nolan to revert to what he is better at?
"In this ideal situation we will also magically assume that there is a bubble due solely to overseas investors (again another very strong assumption). With this we are saying that people from overseas are willing to overpay for an asset relative to its fundamental value. They will give the previous New Zealand owner more capital than they previously could have sold the house for.
In this context, the “housing bubble due to foreigners” is actually “people overseas giving New Zealanders wealth” – wealth that can be used to pay for goods and services from overseas."
Matt ... I can just see you giving this advice to the American Indians who sold Manhatten to the Dutch for $64...... Were u the economic adviser to the American indians back then..???
Some things just require common sense.... rather than innane economic logic.
Rather than xenophobia....why not call it cultural genocide.... Owning ones own home...and raising a family in it..... is very much a "kiwi" thing....
By allowing foreign buyers.... who probably can outbid anyone..... we do deny more young New Zealanders the chance to follow this dream.
When u talk of fundamental value... beauty is in the eye of the beholder.... I suspect rich Chinese investers percieve more value in our property rights legal system..than they do in the bricks and mortar price they might pay for a property.... ie.. they are more interested in the safety of their money... ie.. they won't become sellers.
Most young NZers are probably more interested in making a place..."their own"... rather than renting and never being quite sure when they might be kicked out.
In that regard... I think that your defence of unfettered foriegn buying of our housing stock should be called ..."cultural genocide".... :)
The disappointment with the rising crescendo in these articles by the talking-heads-cogniescenti is most of them are out-of-towners from Wellington and Christchurch who display no boots-on-the-ground understanding of what is happening in Auckland. It's an academic intellectual exercise to them.
Exenophobe Card Callers: get back to me when you have spent a whole day walking around each of the following suburbs Northcote, Highbury, Avondale, Mt Roskill, Pakuranga, Beachlands, Dannemora.
Proponents of Increased Supply. Do you understand the geographical constraints of Auckland.
Is it correct that tens of thousands of Chinese have moved to Auckland in the last 12 months? Anyone able to source data on this immigration? If it is tens of thousands that would explain the dominance of Chinese in the Barfoots auction rooms every Wednesday. Matt Nolan you should head down to Shortland St tomorrow then report back on the profile of the buyers of the homes. http://www.barfoot.co.nz/Residential/Search.aspx?type=auctionListing
In the 12 months to May 2013 (the last data available) 7,817 people from China arrived in New Zealand on a permanent basis. In the same year, 2,418 Chinese people left. The net arrivals into the whole country from China was 5,399 - perhaps plus another 426 from Hong Kong.
How many settled in Auckland is unrecorded in this StatisticsNZ data. Certainly no 'tens of thousands'.
That is one number but there is a multiplier effect which is the net number of houses they bought
1. Some did not buy -older parents may have brought in funds to help the younger ones out in return for accommodation
2. The bulk possibly bought one house for each family -most in Auckland?
3. Some who had a lot of cash could have bought multiple rentals - Why?.Because their language deficit meant they did not have the ability to buy any other working asset like a business
4. Some may have bought as proxy to a cashed up associate who did not come in at all
Then there are those who arrived in 2012, 2011, 2010,........1996 some of them who then gained citizenship and flitted off the Australia but held on to the property here.
Conclusion? Numbers are irrelevant if no real knowledge has been gathered.
DC, you know well that no numbers actually mean anything whatsoever unless a full analysis of a representative large sample is completed.
Hence the need to strike at the problem at its roots and ask questions later.
That is the one approach that Key and his mates are really good at. Sky City comes to mind
Yes - young master Matt does need to get out more. It is not about being Xenophobic - its about looking after Kiwis. The rest of the world gets the society and government it deserves. With housing JKey is not disturbing the status quo as NZ economy is tied directly to China in much the same way legally or illegally Cyprus was tied to Russia. We are China's soft touch - their get out and destination of a lot of dirty money. It will be up to minority parties in a coalition to disturb this arrangement and bring in urgently needed limitations on housing. If Winston wakes up to the headwinds brewing here he will once again hold the reins.
Kiwis often make the mistake they are clever than the rest of the world and we are not. The give way rule at crossings recently rescinded is a priime example. If a lot of the world has restrictions on housing then we need to look at them as well as they will have them for a reason. The bumper stickers in Perth say it well - " F&%K Off - we're full" More houses mean more schools, roads, health - the list goes on. As a friend said "What about my hip replacement"
PS - My Asian neighbour has the oldies looking after the grand kids while he and the wife spend most of their time back in China. It is being xenophobic to ask how much tax he is paying in NZ?
Matt is right - effectively foreigners are paying us over inflated prices for a small peice of our land and a largely overpriced dwelling. Selling this dwelling forces us to build a new dwelling elsewhere, which employs people and puts tax money in the government and council coffers. All up this is a net positive for NZ - we have traded a very small bit of land for a lot of jobs and money. Unfortunately for a number of other reasons new dwellings are not being created like they should - that is the issue that needs to be fixed!
not so fast there JJ
if you read scarfie's post of this morning, the action that is being created is aucklanders are escaping up to whangarei and northland. Last month 50% of all sales in whangarei were to fully cashed up refugees escaping with their loot to the north.
Problem is, most of them will be either nearing retirement, or retired, or elderly, or senile, to whom the most pressing issue is or will be access to health and medical services and close as possible to hospitals
Who is going to meet the additional demand for that?
More hospitals. More nurses. More doctors, more specialists, surgeons.
It will happen. It's going to happen. Where will they come from?
The unintended consequence for Government is it is now confronted with the need to suddenly expand these services, and you won't find medical practitioners, specialists, oncologists, orthopaedic surgeons and all those other specialists with the wave of a hand
currently, urgent and special medical cases are transported down to auckland
So, the inbound interlopers into auckland are creating pressure points elsewhere
Who is going to pay a billion or 2 for all that? The interlopers?
Did you think of that? Do you have any answers?
I for one do not agree these 5399 people (quoted by David above and assuming they all live in Auckland), who happen to be of chinese origin (which I find to be of dubious relevance), are "interlopers" as you assert.
I welcome them here and having arrived here through legal means they belong here as much as anyone else.
If you read Matt's article carefully I think you should find he advocates digging out the root cause of price increases and addressing them in a rational manner - as opposed to blaming foreigners.
I read and rarely comment now on this site but Man,...... yet again just when I think this deluded, out of touch guy has reached an all time low in highlighting the reality of such issues, he goes and puts his foot in his mouth.......then his ankle........then his calf.....
What a an absolute load of shite quite frankly. So called "economists".......what are they actually any good for ? These are the same idiots who never saw 2008 even though it was dead obvious the disaster was coming from about 2006. Even by 2003 the path of delusion was clear.
1: This is not an issue of Xenophobia! Only a simpleton's claim would this be
It's a issue around being a born and bred NZ citizen and finding your NZDs (wages) are worth less month by month due to new foriegn money ( funny money) either buying up our homes and land OR .....it's being shovelled in and given to Australian banks to create ever more ridiculous mortgages , thus increasing the personal debts of most people living here chasing this ponzi scheme and devaluing the very real DOMESTIC buying power of our dollar/wages.
2: With EVERY SINGLE dollar brought into this country and transfered into NZDs (whether as a NZ mortgage or just bank bonds to keep the party going) that was NOT created due to ACTUAL productivity i.e. TRUE wealth from EXPORTS!( Mr senior economist of BS! ) then it has created nothing but more debt........DEBT DEBT DEBT.
3: Debt is NOT wealth of any kind. EVEN if you put that debt towards a so-called "asset" ,(house with mortgage) ANY so-called increases in wealth or capital gain are totally reliant in this Fiat Monetary System on two things:
A: Someone must go further into debt to buy that new price for that SAME house .....or
B: With every increase in bank debt the citizens living here take on, thus dilutes the NZD in value EXACTLY proportionally over the same time period. Hence, during 2003-2008 you not only saw massive house price increases but also.................massive real cost of living increases REGARDLESS of the bullshit CPI figures.
Inflation is all we are creating from housing bubbles! Masses of it , NOT WEALTH.......true wealth.....The RBNZ can manipulate the CPI and leave out the true creator of inflation if it likes........and use bogus redundent meaningless figures like GDP
It's a game of BS with winners and losers. If you are at the bottom or even in the middle of the pyramid/bubble you will be losing no matter what the asset.
Exports, making real NEEDED goods and selling OUTSIDE our borders is the ONLY THING that creates real economic wealth. The obvious example of this is................................ CHINA! Ask yourself Matt , how did China get where they are now globally? You think they got rich as a nation buying into a a stupid and catastrophic Property Ponzi scheme?
Enough is enough from this guy. Fool yourself Matt all you want, but don't take us all for mugs!
Jezz
Firstly - your point 2 is not true:
If I were to immigrate to NZ and bring my $100 dollars with me no debt has been created.
Secondly - point A is only true is the housing market is not a bubble (i.e. it never crashes back).
If your point A is true then every sentence you have with bubble in it cannot be true.
I didn't say it was a bubble, I pointed out an inconsistency in the arguments.
IF it is a bubble (as some claim) then the prices will drop again and the property could be purchased back at a lower cost with profit.
In which case the argument that locals are being priced out of the market is only true for the limited time of the bubble.
IF it is not a bubble then the argument that foreigners are creating a housing bubble is simply not true.
It is logically difficult to make both arguments simultaneously.
Ralph, what does a bank allegedly do with any money (no matter who or from where) you deposit? What are LVR's based on?
Housing bubbles are based on 'credit' bubbles Ralph. Speculation vs real worth.
Toxic assets around the globe are in what form currently?
Ralph..............?
Surprisingly introspective article by Steve Keen "The unemployed Economist" - July 8 2013
The self-cannibalisation of economics - worth the read
www.businessspectator.com.au/article/2013/economy/self-cannibalisation-economics
Please dont confuse the purveyors of partisan ideology wrapped up in an economic wrap, with real thinkers. There are some good economists, with good models, who seem to be marginalised by politics, yet their models are proving robust. If nothing else read and listen, so far their words are proving better than what the opposition is spouting, thats your advantage.
regards
Like you, Justice, I rarely comment here, but I couldn't resist. Rubbish like this is why I don't listen to economists, so thanks Matt for reminding me of that.
The way I see it is that prices are rising in Auckland and Christchurch due to undersupply. We are a small country with small housing stock, so with the huge amount of money floating around globally and looking for a home, of course New Zealand real estate looks attractive.
So why add more buyers to the mix when there is not enough housing for NZ citizens and permanent residents who are looking to buy? Of course this is going to drive up prices at the expensive of "everyday NZers". And all those idiots who instantly call it xenophobia really, really annoy me!
In terms of the economics discipline - there is the classical/neoclassical school and then there is the political economy (largely Marxian) school. Those trained economists able to provide skilled analysis in the Marxian tradition are worth listening to. Unfortunately, interest.co.nz doesn't seem to feature anyone schooled in this alternate disciplinary perspective.
Bear in mind this is a economics/finance site and most "lefties" dont seem interested in economics as such, ie dont feel the need to put any economical rigour into justifying their actions....on the right of course they make up justifications...with "voodoo" economics.
;]
regards
Some economics ppl predicted the melt down.....Steve Keen for one seems to have been pretty accurate, and continues to do so. Paul Krugman contines to be correct in his outlook, ie lackluster recovery with indications of continued dis-inflation leading to a depression and deflation.
Matt makes some points worth thinking on....for instance if (when) foreign buyers lose their shirts, is that such a biggee? of course we take that money and leverage it into a bigger house and not productive investment....like oops.
regards
But who are the people selling these houses? Oh, must be the Maori for selling the land in the first place. Yip, either them or Chinese, no-one elses fault. White elephant in the room if you ask me.
Anyway, investors have passed their social usefulness stage, ban the lot so this melting pot can live
Banning foreigners from buying will do nothing as they will get a resident to buy on their behalf. The only issue would possibly be in some years to come if they want to move to NZ that they can not show that they own property here already. Big deal if you can show that you have the money in the bank you are welcome.
A number of those properties will be rented out which will have a stabilising effect on the rental market. While house owners may like to see a certain % return on their investment in regards to rent it is as always a supply and demand situation.
The issue as I see it is growth of Auckland, a scale of growth not seen elsewhere in the country which adds to the pressure of housing, and stagnating development while we discuss the unitary plan.
But if it is purely about parking money in NZ there are other ways to do it as per above. Why don't these "foreigners" buy in the regions? The likelyhood of gain is less (non existent) at the moment.
If, for example, the govenrment would scale up efforts to move departments, and all its required support, into regional towns we would see a certain amount of emptying of the major centres with a resulting drop in housing demand in these major centres (Wellington is dead already according to some) and an increase in housing demand in the regional towns.
After all with the current communications on hand offices can be anywhere.
Then we will hear nothing but moaning about the decreasing house prices in Auckland and welcome any foreigner who wants to buy in Auckland but by then they move their money to Te Kuiti as that is where the returns are for both them and the locals.
We could also start with banning anyone from owning a dwelling they do not permanently occupy or rent out. That would supply very cheap property in Omaha and the Coromandel or these people would move there and have to sell their house in the big smoke, one way or the other it would free up a fair bit of housing. But of course it is fine for a NZer to own multiple properties while not occupying them, just not a foreigner.
Yeah well commodotising housing is another issue altogether and just as sickening as what is happening to kiwis unable to buy their own homes. The worst part of this is foreigners owning multiple non-flash houses, and renting them to NZers, you know it, tenants in our own land.
Sorry the tide of opinion is well and truly against you. Kiwis want to be able to afford to live in their own country, if that means foreigners need not apply, so be it.
If they try to get around the issue, by nefarioius means, maybe confiscation of the property if they are found out would be a bit of a disincentive
Matt, you say
The investor that doesn’t actually live in the house won’t boost the cost of renting (in fact, by increasing the supply it will lower the rental cost),
So an investor buys a house that was empty and does not live in it themselves - so that does not increase the rental supply
So an investor buys a house that was allready rented out and does not live in it themselves - so that either reduces or keeps the rental market the same.
So the invester buys a house the was occupied by the owner but does not live there themselves - so where does the seller now live?
Check out this stamp duty calculator - no wonder the Aussies are buying here no stamp duty, no CGT.
http://www.mcgrath.com.au/index.cfm?fuseaction=homeloan.stampDuty
I did notice that Matt used the word Zenophobe 4 times in the first few paragraphs. Who are these people, is it New Zealand first customers, are they the xenophobes he does not say.
In fact this is a very sketchy article indeed. An earlier commenter referred to this post as a straw man post.
I am looking for facts here, for instance what percentage of Auckland houses are sold to foreigners. Is it 15% . Should we allow non residents to buy land at all.
Does the rental market support the prices. That is, is rental profit [ not gross income ] above say 6% and if so, does Matt, and others then think this implies capital gains, as a motive
Should we have a CGT directed at non citizens
Do we in fact have to have policy at all towards house prices, and if we do is the answer the Hugh Pavletich answer, make more land available .
no meat from Matt this time
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.