By David Hargreaves
Way back in the dark ages when the referendum on MMP was held, yours truly voted for it in the hope that Government processes and particularly legislation creation would be conducted on a more case-by-case basis with Select Committees gaining greater power.
It's taken an unbelievably long time for our MPs to really concede that the First Past the Post days of crashing through legislation using a majority of Parliamentary seats are gone and that a more cross-party, conciliatory approach is essential.
Now that for the first time under MMP the country is being led by a party that didn't get the biggest individual share of the vote we should be really seeing this cross-party approach like never before. And select committees are now real important.
All of which is a slightly long-winded way of arriving at a conclusion that there's good news and bad news from what emerged this week out of the Finance and Expenditure Committee regarding the foreign buyers housing ban.
Let's start with the good news.
The committee's obviously thought deeply about the bill and has come back with a pretty considered report that covers a lot of the concerns that were expressed at the time the bill was introduced to Parliament.
I would stress again that I've long been in favour of a ban on offshore-based non-Kiwis buying existing housing stock. But I too had a few concerns about this bill, including the requirement that foreign buyers would have to sell houses they had built and also the onerous requirements that were put on those doing conveyancing.
The select committee's tried to reach a happy middle ground on those concerns.
On the question of offshore investment in new apartment complexes, I don't think we can be cavalier about turning away foreign capital if the social cost of that action is that we don't then get much needed housing stock built.
Sure, if we were confident as a nation in our ability to self-fund all such activity, then why not? Historically though we've tended to struggle to access large-scale capital. We have a reputation historically as rubbish savers (it is changing). And we've had shallow pools of available capital. Witness the increasing number of companies for example no longer bothering with the New Zealand sharemarket and going straight to the bigger funds pool available across the ditch in Australia.
Obviously not everyone will be happy with this perceived 'softening' of the bill. The flip side is that those such as the retirement village operators, who might have substantial percentages of their shares owned offshore, didn't get an exemption - which looks contradictory. 'He got one - why can't I?' But look, nobody's ever happy with change to the status quo. Then after a while everybody usually forgets what they were complaining about and gets on with the new rules in the game.
I just hope that the comprehensive changes that have been made to this bill have now got us towards a workable piece of legislation that will do a job.
Non-reversible
I say that because while National's opposing the bill right now, just you wait, there's no way they would reverse it when next they are in Government - because it wouldn't go down well with the electorate.
So, since the law is likely to be around for a while, we need it to work as intended, without any unintended consequences.
As ANZ economists noted this week, while they don't see the new rule having much impact right now, it might in future - and they can't rule out the possibility it might have had more impact if it had been put in place earlier in this housing cycle. So, I say it needs to work 'properly', without unpleasant surprises.
It needs to work because our housing market is too small to be left to the whims of the vast offshore investment pool. We could be priced out of our own country. Some might argue we already have been.
There's no doubt also that some potential overseas buyers see New Zealand as a kind of 'Armageddon Option' in very uncertain times globally, given our geographic distance from, well, everything. This is a trend/pattern that's only likely to increase.
Therefore we need this bill to be strong and to stand up to scrutiny and legal tests. A law isn't really a law until it has become part of a court case and then the real effectiveness of it is decided by how a judge interprets it.
Which comes back to the importance of getting the drafting right. It's fine for the Government to decide that 'this is a bill that bans foreign buyers' - but is that necessarily what the bill says and therefore how it will be interpreted in the courts? We shouldn't just applaud the sentiment and what's intended. We've got to make sure the law is fit for purpose - that it does what it says on the tin. I don't think this one did in its original form.
The bad news
And that leads me to the bad news part of the equation.
I do recommend that those keen on the ins and outs of this legislation have a good look at the version that's come back from select committee.
To me, it kind of looks like one of my assignments used to look at school when coming back from teacher.
Yes, just a few changes made there by the committee. The red biro has been out. I think you can almost make out the original bill underneath all the changes.
This suggests that National with all its opposition MPs and therefore strong representation on the select committee has been active in seekng change. So, that's the positive impact of MMP that certainly I'm looking for.
It's also positive that the select committee has resurrected this bill to the point where it now hopefully can go on to be a useful and workable law.
On the other hand though it seems regardless of what the opposition was saying, Labour itself has presumably also realised it over-egged things in certain areas and didn't consider all the ramifications.,
And that's bad.
It's not bad that Labour's seen it made mistakes.
Didn't think everything through
It's a definite negative, however, that Labour clearly didn't think through everything before it put this bill before Parliament - and didn't take the time to gather all the evidence and advice it needed.
The foreign buyer ban was one of Labour's first-hundred-days promises and it put this bill up in a tearing hurry.
Now, poorly drafted, ill-considered legislation - is that an unfair criticism, you might ask?
Well, surely the proof is in the number of changes that have been made by the select committee. If something's been done correctly the first time you don't then carve into and do it all again. You refine it. Like a piece of art.
If, however, it's a rip, shit and bust job then it invariably needs redoing. The dreaded scrap and rework. Ambulance at bottom of cliff. Etc, etc.
Remember, the original time for passage of this bill was pushed out when it was realised (to their credit) by the Government that more time would be needed to fix it. So, it would not be right to say, as some might, that time was somehow saved by putting up an inadequate piece of legislation first and then getting select committee to fix it. Bad legislation shouldn't be promoted and supported just because the sentiment of it is 'right'. Do your homework and get it right first.
Ill-considered legislation
So, as indicated further up in this article, I'm all in favour of select committees having a bigger role in Government and the shaping of legislation. But its risky to start putting really ill-considered, hasty, legislation in front of the committees. It's better to do something right first time than to be trying to correct something later. We want the select committees to be honing good legislation; fine tuning it. We don't want them to be patching up wrecks.
The upshot is, I'm concerned (and half suspect) we may yet find some major flaw in this legislation - even after all the fixes that have been applied. Look, I hope not.
And in the assumption/hope that all does go well, I hope that Labour might take a bit of a lesson on board here and won't repeat what it did with this bill. This Government has shown some tendency to put ideas ahead of process - witness the oil and gas exploration ban.
It's more important that we have laws that do what they are intended to do (and don't have unintended consequences) than it is to get laws passed in a tearing hurry to meet some urgent ideological deadline. Legislate in haste, repent at leisure.
44 Comments
Fair enough. You can only fix a mistake when you are prepared to admit you have made one. But so far this government’s announcements amount to not much more than stop and tax. Both of those are very bad signs for confidence and therefore growth. If growth stalls, recession will soon follow. Rock star economy? Was it? Rock bottom economy? Looking quite possible.
It was never a "rock star economy", just fake GDP growth through mass immigration and foreign buyers doing their laundry with NZ housing. I am still hopeful that this legislation will have some impact.
I own property but would rather see it lose value than have my children and their generation locked out of ownership or consigned to renting or buying leaky shoe box slum property in central Auckland. Houses are far more important to the well being of our citizens, than mere investments to make money from.
Agree with the sentiments expressed ................. Act in haste , regret at leisure .
We actually need foreign investment in the supply of housing rental stock , we cannot do this on our own.
Onshore Banks are gun-shy right now in lending to developers
Those same banks are enforcing really strict lending criteria in this over-priced market.
40 - something % of all New Zealand residents are renters , thats a mighty big number of people who need landlords .
Its going to be interesting as a spectator seeing how this all unfolds
@MrsTTP , what self interest ? Just for the record , I dont own any residential property other than my home in Auckland and a holiday home .
I dont invest in residential property , its a terrible, low yield , time consuming and hassle - fraught investment , and the capital gain has been more from good luck than good management for most
The fact is we need someone to supply rental stock to those who dont own a home ( and may never own a home ) .
Like them or not , landlords are a significant part of our housing supply dynamic , the Government simply cannot house everyone , its physically impossible.
Not even Soviet Russia was able to achieve this utopian ideal of a state-supplied home for everyone , they had ( and still have ) inter-generational families crammed into small apartments .
Whatever happens , we need landlords and investors to supply rental stock , to think that we can live without them is simply delusional
Dear Boatman
Although Landlords play a big part in our housing market it needs to be true landlords that supply a good service to their tennents and rely on a yeild that makes it economical and sustainable to do so.
For those "landlords" that rely on capital gains and are negatively geared or receiving a yeild less that what they could get in a term deposit, they just add to the speculative side of the market which has added to the crisis we are currently presented with and as a double whammy those same landlords also add to the crisis when it all comes crashing down
Exactly why NZers who were born early enough to access affordable housing should be more aware of the role of government supply-boosting initiatives in that affordability. Supply had been boosted to a far more appropriate level relative to population, and that has been abandoned since then in favour of self interest rather than keeping awareness of what is to be passed on to subsequent generations, as was received from previous generations.
How many of those renters would be home owners if house prices weren't so decoupled from wages?
Let's say hypothetically, 20% of the population is made up of people who will not buy a house (students, single parents, pensioners, people who prefer to rent) but we have 40% of people who are renting.
How many of the other 20% of renters are renting purely because speculation in housing has pushed house prices to a point where deposit requirements for first home buyers are unrealistic? Couples who have reached an age (Mid - Late 20's) where they are ready to settle down and start a family but are being held back purely due to housing affordability.
Buying a rental property on cheap credit using equity as a deposit, refusing to sell it for less than double what you paid for it and getting your tenant to pay your mortgage does not make your tenant "need you".
"Go to any auction in the past 2 years and we see buyers stumbling over each other to pay more and more and more for a house in Auckland"
Ahhh not any more! when only 30% of auctions are successful and the auction houses are close to empty, you are more likely to stumble over some tumble weed....
Building them doesn't mean they will be rented out.
A quarter of Chinese buying property overseas leave their apartments vacant and...Another 25 per cent of overseas property owners use their home on a temporary basis, suggesting about half of the overseas properties owned by mainland Chinese were not fully utilised...90,000 unoccupied dwellings across metropolitan Sydney
https://www.smh.com.au/business/companies/up-to-half-of-chinese-buyers-…
At that point you just do a Vancouver and introduce a tax on vacant property.
I'm not against the idea of lettering foreigners invest in apartments. Contributing to supply and intensification is useful, rather than simply encouraging more unproductive speculation in land.
Squatter rights legislation could solve several problems.. Not enough housing NZ houses.. just hand out B&E toolkits (a $5 chinese made pry bar) to the homeless and let them forage for a place of their own.. for free, no taxpayer money needed. And the GDP increase from replacing busted locks and windows, thats some serious economic stimuli right there!
:)
Quite right, for some time squatters in the UK have had rights and a fair few kiwis were squatting on their OE to the UK in the 90s
Given that it is difficult to remove the squatters, certainly gives a huge incentive to owners to rent the properties to someone more......... agreeable
A vacancy tax also penalises New Zealanders with holiday homes, or who are away from their own homes for work or long holidays etc. And it does absolutely nothing to make foreign owners rent the apartments out, as not occupying new homes is a cultural thing not a financial thing (they believe that the home devalues once its used as its no longer "new").
And encouraging tens of thousands of foreign buyers to soak up scarce resources (land, capital, and labour) to build affordable homes only to sit on them, removing them from use by potential homeowners or tenants, is going to exacerbate the housing shortage, not solve it. Clearly this Government has learned absolutely nothing (or has been too ignorant to even bother checking) from the Australian experience where restricting foreign owners to new builds has simply seen an oversupply of inner city apartments being built and not occupied. As well as foreign owners buying large blocks of residential land for development purposes, and then just sitting on them - again reducing the supply of new homes for New Zealanders as well as pushing up land prices.
Good article re process, DH. Select committees, apart from anything else, are a good way to get tyro pollies up to speed, up to date with current legal and business practice, and used to working with folks whose ideologies they do not share: something this very inexperienced crew sorely need.
As to unintended consequences, there's a wonderful example in Stuff re the welfare trap posed by WFF and the EITC: it's being realised in hindsight that these have contributed quite directly to holding wages down. Gasp!
...the policy also impacted wages for those who did not have families.... They had to compete with those receiving Working for Families, who would be happier to settle for a lower salary because the tax credits brought them up to the median income anyway.
"Why would I employ you if you have no children and I have to pay you more when I can employ Bill, who has children and because there is this subsidy I can get Bill for cheaper than you. So I'm going to employ Bill."
Those factors, along with the Employment Contracts Act, had created "downward pressure" on all incomes "and that is part of what has created this low-wage economy that we have going on in New Zealand"."It means wages are kept artificially low, because the wage is no longer about having adequate income to support a family, it's just allowed wages to be a market figure."
In hindsight? I've been railing against WFF since its inception - back in the days when John Key called it "communism by stealth" but then went and perpetuated it and National even campaigned on increasing it, and the equally-distorting Accommodation Supplement.
WFF is a subsidy that keeps company wage costs down, and Accommodation Supplement is a subsidy to property investors. Together, they highlight that there is precious little difference in the level of socialism that Labour and National subscribe to.
@rickstrauss ............ you dont know right you are !
The accommodation supplement is a drip -feed directly into the landlord's arteries , and if it were removed , along with introduction of ring-fencing of losses , its would see some sense come back into the market , and over-extended speculators were forced to liquidate their investments.
It would not be a massive drop , simply because the costs of new builds is over $3,000 PER m2 plus a section cost of circa $600,000 , and you can still buy a secondhand older home for two thirds that rate $ /m2
Will this Government be so bold to pull the pin on the Supplement ?
I doubt it .
If I understand it correctly the change to the proposed law allows foreigners to purchase new apartments for an indefinite period provided that they do not occupy it themselves. This is very easy to get round and is also probably just the thin edge of a wedge that will, in future, result in a change to allow full occupation. To get round the proposed rules, all that is needed is to group a bunch of foreign owned properties together with each having a nominated individual owner. You will not be permitted to occupy your own property, but will be totally free to occupy another nominated property. Easy peasy..
Further the dialogue round this whole discussion doesn't add up. On one hand we are being told that foreign property purchases are insignificant. On the other we are told that building new accommodation is not possible with out 60% foreign ownership???????? These statements seem to contradict each other. We are in the midst of a screaming housing shortage and the house prices are at ridiculous levels. If a project can't stand up in this overpriced market where buyers are so desperate that they are paying stupid prices then there is something fundamentally wrong with the project and maybe it should not proceed. We should direct our national resources into projects that satisfy the local market at prices that it can afford. The other interpretation is that this story is a line of total B.S. designed to manoeuvre a naive government into changing the proposed law (or a dishonest cynical government trying to con the naive public). I note that Judith Collins is strongly pushing the foreign ownership barrow. Where do here loyalties lie. Oravida, China ......
In this context it is very relevant to consider the very obvious resource constraints that we have in the building industry and market. It is crazy to allow our limited resources to be diverted into building properties of which 60% will be owned foreigners and may well lie empty while we have shocking under supply to our own people a significant number of whom are homeless. At the margin we will have to bring workers into the country to build these 60% owned properties. These workers will also need to be accommodated, so how much are these projects really going reduce the shortage.
I keep hearing this over quoted figure of 3% shows it's low. I see 3% as screamingly high. First, it isn't ownership. It's purchases. One in every thirty three (1 in 33). And it's only counted if you are actually overseas. Not counted if there is a concealed real ownership, either formal or informal. Not counted if you are here on a student visa, or work visa.
I think 3% is extraordinarily high. Lets see the figure for citizens only, and for actual ownership.
Also temporary work and study visa holders will be able to buy???!!! so doesn't that just drive a bus thru the whole thing - there are plenty of cases (including reported judicial decisions) of temp workers/students being the front for purchasing. That will just get worse. It's a joke.
Are u serious? If temporary visas and student visas can buy then this legislation is worthless. Also labour has assumed that China will not ask for an exemption for its citizens and our FTA with them. I was hoping for this legislation to come through but that hope is almost gone.
This is the crux of the matter. Its never been about offshore buyers buying all the housing stock - its about the selling of residency to foreigners. The parents send their kids to NZ to study some low level diploma, and the parents get to buy a house in the child's name, the child graduates and gets work rights, then applies and gets residency, at which point the parents get to also immigrate to NZ and they live in the house they bought. The child often then goes back to China to get a decent job, while the parents enjoy their nice house and free healthcare, until after 10 years they qualify for a pension (despite never having worked a day here) and their child is free to stop financially supporting them.
How is this foreign buyers "ban" going to change this?
It's a Claytons ban. The ban to have when you are not having a ban. The status quo must be maintained. Close one loop hole door but open up three more in it's place. Same thing with the proposed changes to student visa working rights. Makes you wonder who is really behind the curtain calling the shots in this country. It is the growing New Zealand precariat that pays the price for these policies.
So, we're having a housing crisis at the same time our immigration figures have blown out. This is not rocket science. Yes, I realise we have other fundamental deficiencies as a nation but surely we need to have a cuppa tea and a chat about this. If we're unable to trust our politicians to run a decent country, because they have too many vested interests, then what do we do? All I know is that democracies are bloody expensive things to run and are proving very popular with those who don't live in them, especially when we give everyone something for doing nothing on top. The answer to my question is sadly, self for filling. We will go broke. And you know, that may not be the worst thing that could happen to us. At least then, we might have a clean slate to begin again. Yeah, I know, I'm dreaming.
John, MMP is flawed. Every party that has passed the 5% threshold has been founded by ex-National or ex-Labour MPs. Look at the 2014 election - two parties would have secured more than one seat each, but they didn't get in - meanwhile Act, Maori and UF got in on basically technicalities and dirty politics.
It's a joke to call this system a democracy.
Please look to other commonwealth countries for polices outlined by this government. They seem to correlate/copy each other. The condo market is firing on all cylinders in large cities like Toronto and Vancouver fueled by foreign buyers and speculators. Foreign buyers, predominantly asian, are purchasing floors at a time and marketing these same apartments/units to overseas buyers in their country. There is nothing left for the resident buyers. It will not solve housing problems unless the deep pocket demands are filled first or more importantly governments limit the purchases. The developer benefits, the foreign buyers benefit, capital gains are made. I have seen this first hand, having been involved in condo developments for over 20 years. Effectively, in all markets, housing gains come first, foreign buyers are restricted, condo market and prices boom, housing prices fall. Good time to get in to the condo market in large cities and in targeted areas to benefit from the next wave of capital gains undeniably similar to the percentage gains in housing, caused by the same crowd and benefiting the same crowd.
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