Bill wants to ban foreigners buying existing houses

A bid to ban foreign buyers from purchasing existing houses has reached Parliament, but some commentators say that restricting foreign buyers to new builds doesn’t make sense.

Labour Party housing spokesperson Phil Twyford’s Overseas Investment (Protection of New Zealand Homebuyers) Amendment Bill was recently drawn from the members’ Bill ballot.

If successful, the Bill would mean non-New Zealand residents could not buy a house – unless they were planning to move to New Zealand or were building a new house.

This would include people staying in New Zealand for less than a year, while people with visas for over 12 months would have to sell their house if they left New Zealand.

Twyford said opinion polls show that New Zealanders overwhelmingly want non-resident investors stopped from buying homes here.

“Inviting overseas speculators to trade in Kiwi homes for capital gain is entirely non-productive. It produces no jobs or exports, and pushes up house prices beyond the reach of first home buyers.

“My Bill will result in foreign investors channelling their capital into the building of new houses in New Zealand.”

The National government doesn’t agree with the policy and has accused Labour of racism.

However, it is not just the Labour Party’s political opposition that is sceptical of the proposal.

The New Zealand Initiative head of research Eric Crampton said the proposal aims to increase the construction of new housing.

“Yet the main constraint against new building is on the supply side: regulations preventing new construction.”

The policy would not impact on the number of people seeking to live in houses, he said.

“A policy forcing foreigners to build rather than buy only affects the number of new houses if foreign demand is very large. Otherwise, we just displace domestic construction by foreign construction.

“So it would be more likely to simply lead to a change in the nationality of the people who finance new construction rather than a change in the quantity of new construction.”

In Crampton’s view, it is hard to make the case that this would affect house prices.

“Potentially, it could depress the rate of return on new builds and flip over the demand for existing houses.”

However, if foreign buyers were buying New Zealand houses for money laundering purposes, rather than for investment, the policy might have some impact, he said.

“Forcing that money to go into new construction can yield more houses being built than would be justified by the fundamentals, with the minor losses falling on foreigners happy to take the cut in order to have a clean asset.”

He added that the Government’s new tax rules for foreign buyers should curb that type of activity anyway.

Prominent Auckland property investor and developer David Whitburn agreed that banning foreign buyers is unnecessary.

It sends a bad message to our number one trading partner, which is politically naïve, he said.

“But banning foreign buyers from existing properties could impact on Auckland houses prices as it could temper the demand for older houses.”

International examples show that restricting foreign buyers to new builds doesn’t always have the desired impact.

For example, Australia has a policy which restricts foreign buyers to new builds.

However, both Sydney and Melbourne’s property markets have still experienced spectacular house price growth in recent years.

In Sydney, there are supply and affordability issues – just as there are in Auckland.

In Melbourne, many property stalwarts say there is now an oversupply issue in the inner city apartment market.