The recent release of Statistics New Zealand figures showing the levels of foreign investment in New Zealand properties confirmed biases for many. I’m not a fan of globalisation, or investor capitalism, per se, but I do have an expectation that facts will inform policy and that liberal citizens and politicians will avoid racist dog whistles misleading attention away from real causes of inequality and injustice.
Unfortunately, the media, politicians and the public have been in collusion this week, jumping on the ‘bad foreign investors pushing up house prices’ bandwagon without evidence justifying it. In doing so, they lose their humanity, giving space for abuse of people who look different from us (racial and nationalist stereotypes to the fore), and ignore the more fundamental causes of spiralling house prices and plummeting home ownership.
Having a secure, affordable home is a basic right. Owning that home, in New Zealand, has cultural significance, and is tied up with what it means to be a Kiwi. It’s clear that residential property inflation has put home ownership out of reach of many. Property values rose by 34% over the three years prior to 2017, and home ownership is now at its lowest rate in 65 years. Only a quarter of Kiwis now own their own home, down from a half in 1991. Auckland has an estimated shortfall of about 40,000 homes.
Foreign, especially Chinese, investment in the western world has generated plenty of heat but not much light, with lots of conjecture but little empirical research into its impacts on domestic housing markets. Internationally, Chinese foreign investment rose 60% from $600m in 2009 to $4.4 billion in 2014. But to what degree is the bogeyman of Chinese and other foreign investment, impacting on housing affordability? And therefore how well targeted is the Government’s proposed ban on foreign investor property ownership, compared with other potential remedies to unaffordable housing?
Across the country in this year’s first quarter, 3% of house sales were to overseas investors, though the incidence of overseas investment was lumpy. Statistics show a coincidence between the highest levels of foreign investment and housing unaffordability. In Auckland 7.3% and Queenstown 9.7% of homes were sold to foreign interests. Wellington, also suffering from housing pressure, had foreign investment rates of just 1.6%. Across Auckland, foreign ownership was also uneven. In central Auckland’s Waitemata Ward, 18.7% or 225 properties were sold to foreign investors. In Franklin, only 1.5% of sales were to overseas interests. Perhaps reflecting ethnic and cultural clustering, foreign investment was higher in already ethnically diverse suburbs of North Harbour and North Shore, and Howick, ranging from 8% to 14.3%. A further 10% of properties across the country, were sold to corporates or companies of unknown origin.
Of the 33,000 houses sold in New Zealand in the 2018 first quarter, 22,000 were sold to NZ residents, 543 were sold to Chinese investors and a further 480 were sold to Australians. The Government’s proposed OIA amendment exempts Australians under the Closer Economic Relations trade agreement, though it seems that we have more problem with Asian / Chinese investors, rather than those that look like white, middle class Kiwis anyway.
The release of the Statistics NZ figures clarifies the scale of overseas investment (not huge), even while providing little evidence about its effects. Auckland Council Planning Committee chair, Chris Darby, introduced the data on his Facebook page with a provocative post asking how ‘Aucklanders feel about a ‘whopping’ 19% of city-centre and city-fringe homes being ‘snapped up’ by non-resident or non-NZ buyers…”, he said “No longer are the numbers rough estimates, real estate industry biased or political rhetoric lacking evidence, these statistics demand urgent interrogation by government”.
The NZ Herald’s reporting inflated the figures at every link. 18.7% foreign investment in the city centre became ‘almost 20%’, which became one in five for Associate Finance Minister David Parker, ‘vindicating’ Labour’s concerns about people with Chinese sounding names buying properties in Auckland, and the Government’s subsequent fast tracked Overseas Investment Amendment Bill seeking to ban foreign ownership of existing houses.
Minister Parker said ‘the housing market should be a New Zealand market, which shouldn’t be influenced by overseas buyers’. He doesn’t feel the same way about the labour market, or the commodity markets all which leave New Zealand businesses and other interests to sink or swim against the lesser regulated impacts of competition from overseas. For me, housing unaffordability and the privatisation of South Island high country is the problem, not so much the nationality of who’s doing it. The Minister says, additional foreign investment demand leads to a price rise but “how significant an effect in areas at 18%, no-one really knows, but it must be a significant effect”, without any evidence to back up his claim, just conjecture.
The public of New Zealand don’t need encouragement to confirm their views that it’s ‘foreigners’ pricing us out of home ownership. European New Zealander bias is already confirmed by the sight of Asian bidders at auctions, (no matter whether these are resident and/or multi-generational or not), with the perceived impacts driven by hearsay and prejudice. People reacted to Councillor Darby’s Facebook post with comments like ‘Labour better ban these bastards from buying our country’, and ‘foreign ownership is bad, not because it drives prices up, but because it creates social disharmony’.
We should put aside the leap from facts to effects. There’s no evidence of a linear and causal link between a given foreign investment rate and a disproportionate impact. In the scheme of things, 18.7% overseas residential investment in the heart of the country’s biggest city, doesn’t seem too profound. After all, 81.3% was domestic investment. People claim that foreign investment contributes nothing to New Zealand. Carrie Law, the CEO of Chinese investment firm JuWai of course says Chinese investment stimulates the provision of new housing development for Kiwis to buy. But evidence from here and overseas shows that most foreign investors buy properties in a completely different segment of the market to most ordinary buyers, seeking high end properties and new builds, meaning the impact on the wider real estate market is negligible.
Economist Shamubeel Eaqub says overseas investment is essential for housing development of scale, and the Overseas Investment Amendment Bill will ‘make it impossible to build enough rental properties to meet the country’s housing needs’. He says the Bill’s flawed premise that overseas investment is bad because ‘it takes homes away from New Zealanders and drives up prices’ is ‘simplistic’. “No-one knows if “’bad’ foreign investment’ is even a factor in New Zealand’s housing crisis’. He notes that there’s little empirical evidence either way, but that impacts are trivial, with development costs a more important determinant. ‘The housing market is a complex ecosystem impacted by a variety of domestic and global factors, with labour, financial and housing markets linked’.
Research from other economists found that people not leaving New Zealand, internal Kiwi migration, natural population increase, strong domestic economic growth and domestic speculation, have bigger impacts than foreign ownership. Income growth is clearly insufficient to keep up with house price increases. Other factors driving housing unaffordability include development costs, supply constraints, the absence of a capital gains tax, and negative gearing incentivising speculation and disproportionate investment in housing relative to other more productive sectors of the economy.
Speculation, ghost houses, the concentration of home ownership in the hands of the few, are concerns for aspiring home owners, and the economy, no matter who owns the housing stock. Locking up South Island lakesides as high country is privatised, is a national shame whoever ultimately owns it. Focusing on the origin or physical characteristics of some of those investors incites nationalism. It does us a disservice and avoids dealing with capital tax exemptions and low wages, more tangible sources of house price inflation and unaffordability.