A few weeks ago, in the make-up room above the pub for Back Benches, I asked each of the three MPs there for the show – Louise Upston (Nat), Jacinda Ardern (Lab) and Holly Walker (Green) – what they thought of restricting the sale of residential property to foreign investors.
I’m not claiming any kind of credit – it’s hardly an original idea, and it’s already Green policy – but the point is that it’s an idea I’ve been kicking around for a month or so, trying to find the upside, the downside, and most importantly, whether it would have any impact on the ever-escalating Auckland property prices.
I’m part of the problem. Having bought a fairly modest house four years ago, which is now worth probably $200,000 more than we paid for it, there’s equity to spare. We’d been offered the option to purchase an investment property from relatives cashing out for retirement and we’d taken the opportunity to look at what else was out there for the same sort of money.
A pre-approval from the bank had given us access to the QV site; a supposedly reliable tool based on recent sales data from the surrounding neighbourhood, factoring in house size, land size, sales history and so forth. It gives an expected sales price, and a lower and upper range. It's very different from the CV price, which we all know in Auckland is well removed from reality.
We looked at three places. A brick and tile unit in Onehunga and a couple of small 3-bedroom places in New Lynn, both on half sites with some degree of cross-lease. They all returned approximately $400 in rent, the expected sales figure was around $380,000, the upper limit around $420,000. Each went in excess of $460,000… one didn’t reach reserve at $470,000 and was re-listed for $499,000. The owner had bought it a year earlier for $330,000.
Were the new purchasers from overseas? In one case, no, another – hard to say. Because as a number of commentators have pointed out already, in a city where just under a third of residents are ‘Asian’, it’s very easy to get the impression that foreign ownership is a bigger issue than it actually is. No-one seems to have any accurate data on just how many houses are sold to, or owned by, overseas interests. Which you think might be a useful piece of information for a Government to know.
Notable exception to Labour’s new announcement - the biggest overseas group buying our houses, the Aussies. Can’t stop them doing it because it’s reciprocal, apparently. Which doesn’t seem to matter on issues like getting the benefit and other social services, where it’s not.
Bill English’s reaction this morning was to say it wasn’t much of a problem, it’s a range of issues, building new houses was much more important, and yes, that might be so. But of course Labour has also announced a plan to build new houses (10,000 each year for 10 years, as David Parker repeatedly pointed out on the Nation), and has made the move on Capital Gains Tax – a move which one Government Minister told me made absolute sense, but was ‘political suicide’. So restricting foreign sales (or adding a stamp duty) is just another tool in the toolbox, along with LVR requirements, easing land restrictions and the like.
I must note Don Brash also on The Nation, clinging to the Productivity Commission’s recommendation on land restrictions. It’s a good one for the former Act leader – blame arbitrary council red tape for the problem, people should be able to build where they want, and Howard Roark should design whatever he wants. And yes, land inside the Auckland boundaries costs a great deal more than land immediately outside. But the answer – or at least the sole answer – to Auckland’s low-cost housing issues is not a series of disconnected ghettos out at the extremities.
I can’t see any downside to this announcement from Labour. We are not gaining anything from having overseas investors buying up existing housing stock and keeping out first home buyers. I realise the hypocrisy, coming from someone looking for a rental investment, and I’d happily look at other options if the returns were even in the same ballpark, and if I could leverage off my existing equity to do so – even commercial property is difficult to finance like that.
Also, I’m borrowing at the same rates, in the same market, as the other resident buyers – as compared with some foreign residents able to borrow at lower rates (I’m told this is the case in China, I’ve been unable to find any decent links to this, happy to be corrected or backed up). What doesn’t make any sense as a rental property at 5%+ is far more manageable below that.
Is it xenophobic? Only in the same sense that all our border controls, immigration policy are xenophobic. Being a New Zealand resident or citizen gives you benefits in New Zealand over people who aren’t. That’s pretty much standard practice in every country in the world. And until we have a completely borderless world society, I’m okay with that. Which is not to say there won't be some out there who respond to this announcement positively, for the wrong reasons. As we've seen just today thanks to that taxi footage, there are Dickheads Amongst Us.
Happy to have the downsides explained, and my latent xenophobia unpacked… I for one hope that National comes around on this issue, sees the sense in it, not as a silver bullet, but as another tool in the box, and we can at least start to take some of the ridiculous heat out of the Auckland market without so much as lifting a hammer.