Kiwis are better off by being able to sell their houses to foreign-based buyers, according to ACT Party leader Jamie Whyte.
Whyte said there was "no need" to look at banning offshore-based buyers as Labour and NZ First were advocating and such a policy simply "makes New Zealanders worse off as a group".
To illustrate his point, Whyte developed an elaborate example involving 'Kiwi John' buying a house from 'Kiwi Jane' for $500,000.
"John must value the house more than the $500,000 he paid for it, otherwise he would have been unwilling to swap this amount for the house. Suppose the maximum he would have paid is $510,000. Then he benefits $10,000 from the purchase, this being the difference between the $500,000 he lost and the value (to him) of the house he gained.
"Similarly, Jane must have valued her house at less than $500,000, otherwise she would not have been willing to swap it for this amount. Suppose she would have sold it for no less than $490,000. Then she benefits $10,000 from the sale, this being the difference between the $500,000 she gained and the value (to her) of the house she sold."
Whyte said therefore that the benefit of the transaction to Kiwis was $20,000, split evenly between the buyer and the seller.
But if instead "a Foreigner Fred" had out-bid Kiwi John "he must have paid at least $510,001 since, by hypothesis, John was willing to spend up to $510,000".
In this example John would be where he started, still with his $500,000 and no house. He gets 0 benefit from the sale of Jane’s house to Fred. But Jane’s benefit has risen from $10,000 to $20,001.
"In other words, the total benefit to New Zealanders has increased by at least $1. (In reality, the net gain will usually be in the thousands.)
"Some will be tempted to say that when Foreigner Fred buys the house Kiwi John is $10,000 worse off because he has lost the $10,000 benefit he would have got if Fred had not bid. Fine. But then you must say that, in the initial case, where Fred does not bid, Jane is $10,001 worse off because she has lost the extra $10,001 she would have got if Fred had bid. So the net result ends up the same, with New Zealanders being better off when Fred bids.
"And let’s not forget the benefit to Fred, who must have valued the house at something more than $510,001 to have paid this for it. Fred is not a New Zealander, of course, but he is still a human being and his welfare should still be a matter of concern to civilised people.
"As this example should make clear, [Winston] Peters’ policy simply creates a transfer of wealth from Kiwi house sellers and foreigners to Kiwi house buyers, and one that makes New Zealanders worse off as a group. The cost of this transfer is not worth incurring, if only because, over the long run, house sellers and house buyers are the same people.
"Indeed, the policy is so economically ludicrous that I suspect its real motivations lie elsewhere. To mangle Samuel Johnson’s famous saying, xenophobia is the last refuge of the political scoundrel," Whyte said.
54 Comments
What a stupid arguement - sell it to the highest bidder no matter which country they are from. Now John has to borrow MORE money (if he still wants to buy a house) to outbid Fred (or Fred's fellow country person) - and he will pay interest on that for a very long time making only fat cat ACTers more wealthy. He will also need to continue to pay more rent to his land lord until he can buy a house. Bollocks.
Make the people NOT from NZ only buy new builds - that way we get more houses and competition for existing houses get reduced.
Maybe he could. But obviously he didn't want to build a new house. He doesn't want to deal with resource consents, building in a new, unestablished, area (or on someone's back section) - or wait months before he can move into his new, as yet characterless, home.
Besides, would he really be able to build a new, similar, home for the same money?
I am starting to believe that the RBNZ (and other banks?) don't actually care about the economy and the well being of New Zealand people and businesses. Just their own pockets. First they say we need growth and then when we do get growth they confiscate our extra earnings with higher interest rates.
OK, I'm intellectually deficient. Please explain further, both the policy you describe and its relevance to the question of who would benefit, and who would not, from a policy of banning sales of houses to foreigners.
What exactly do local manufacturers get a transaction tax and a tax credit for - selling into domestic markets, or selling into export markets?
In any case, imposing a transaction tax and then providing a tax credit on it is a completely different policy approach to banning sales to a certain class of buyer, so the analogy and relevance is quite unclear.
ZZ - wouldn't it be better to level the playing field in regards to the taxation system.
If people want to invest in assets in another country then they pay all appropriate taxes that they earned income from those assets in that country. If foreigners want to buy a house here then maybe they should have to indicate the reason why they want to invest in NZ housing e.g. rental property. If they do not intend renting the house out then perhaps they are only investing for the capital gain as part of their business model.
It would assist in keeping Governments competitive as well. Efficient economies would stand out as better places to invest in.
Your transaction tax could have the same effects as a subsidy.
This is not an analogous senario
If a manufacture sells a teapot to a Foreign Fred, and Kiwi John still wants one, the manufacturer can make another teapot. The sale to a foreigner was full and total gain to new zealand as a whole.
When Kiwi Janes sells her house in Epsom to Foreign Fred, and Kiwi John still wants one, well Kiwi John is just stuffed, we can't magic up another house in Epsom for him. He's been priced out and have to settle for a home a little further out in nextdoor Penrose.
In the example given by Whyte. If Act can find a foreign buyer to pay $1 more than a kiwi would have bought it for ,then they are guaranteed to sell it for a $1. And of the buyer is from China his investment is no more risky than if he had left it invested in one of their Ponzi high rise apartment schemes. Ok it is more risky but if they get NZ residency it was probably worth the dollar, and the generational humiliation of what they had bought.
I'm a bit more cynical than most
My biggest concern is not non-residents using off-shore finance to purchase local real-estate, it is more directed at un-taxed foreign money flooding into the new zealand economy
If I had the power, this is what I would do
In order to purchase real property (real-estate) you would have to provide a copy of your passport and supply your NZ IRD number.
If you are a minor then produce a certified copy of your birth certificate
New arrivals or the so called high-skilled migrant influx will get jobs supposedly, obtain an IRD number, and pay tax, and contribute to society
Many transactions are executed using off-shore money that is not verified as to its source.
How many new-arrivals arrive with a huge stash, purchase property, never get a job, never get an IRD number, never pay tax, while enjoying all the infrastructure and welfare benefits supplied by others
The solution is to make providing an IRD number a part of the process, and you have to have been a tax-payer for 5 years and have paid at least $100,000 in tax in that time
Dispensation for young FHBs with a new zealand birth certificate plus a new zealand passport
So we should be concerned about the welfare of human being "Fred" who swaggers in with his 100% mortgage at 2% interest, or perhaps even stacks of cash collated from overseas criminal activity? And let's not forget about the fact John has to borrow more to compete with Fred's hot/cheap money, probably at higher rates of interest due to an overheated property market.
The Act Party claiming to care about the welfare of anybody outside of Epsom is ridiculous. What hypocritical, patronising BS.
The inter-generational lens does not collapse the argument, it adds a further refinement to it.
A policy of banning house sales to foreigners would, as Whyte says, benefit one group - Kiwi house buyers - at the expense of another group - Kiwi house owners.
Yes, the first group is mainly younger, the second group is mainly older. It's not immediately obvious that that makes it OK to enrich one set of Kiwis at the expense of another set of Kiwis.
This is the most entertaining thing from ACT since last month's ACT Kiwifruit export thing
http://www.stuff.co.nz/business/farming/agribusiness/9854649/Kiwifruit-…
Quote: "He received only an automated reply from Joyce's office, which was "disappointing"."
And you call yourself "Factboy"?
Yes, some other countries have a different approach to foreign ownership of houses. Some other countries have different approaches to other policy areas as well, eg gun ownership, capital punishment, environmental protection. Do other countries always do everything right, such that the mere fact that other countries do something means that it must be right for NZ to do the same? Are these other countries notably better off than NZ as a result of this policy? Would you stick your hand into a fire because you saw me doing so?
"The vast majority of Kiwis suffer terribly". Really? Those that own homes don't suffer terribly from being able to sell their homes for good prices, are they in a tiny minority?
"We will be serfs in our own country" - How does the fact that a foreigner owns land make you a serf? Do you think a Kiwi who works for a foreigner in NZ has fewer employment rights than one who works for another Kiwi? Do you actually know what a serf is?
"The money is invariably printed out of thin air" - even if that is true, for which I'd love to see your evidence, the Kiwi who sells their house for it will still be able to buy goods and services with it. "And too often illegally gotten". One single fact to substantiate that, please.
If a foreigner pays an inflated prices for a house in New Zealand, the more fool he. Why is that a problem for anybody else? The New Zealander who sold them the house has their money, so he's better off; the New Zealander who wanted to buy the house at a lower price still has the money, so he's no worse off. He can use the same money to build a new house, so he is still in the position he wanted to be - he has a house which is worth what he was prepared to pay for it.
Do you intensely dislike and fear foreigners who pay a high price for New Zealand-made wine, or yachts?
I don't mind foreigners buying our exports at all.
"The New Zealander who wanted to buy the house at a lower price still has the money" and _is_ now worse off: he needs more money to buy the same house. That "lower price" was the New Zealand price until that foreigner came along and inflated that price.
Look, giving someone an unpleasant label doesn't change their perception of what's happening. "Irrational" maybe. But until Key and English decide to collect some real data we don't really know what the situation is - once we have the data we can deal with it in a rational way.
His argument fails economically when taken to any extra degree of depth. You get the feeling he went to Economics 101, but stopped there.
There is ability to pay, and value which are different things. Functionally John may have the best use for the house, but be unable to pay what Fred can pay. John will have to make do in housing that is of less functional or economic value to him.
Jane may well be keen to use the money to buy another house, so relative prices are important. If the whole market has been bid up by foreigners, then she is not better off with the extra 10k, than if the market had not been bid up in the first place. Even if this is her last house, she may have an interest in her children being able to afford a house in the market. If foreigners have taken say 10% of the houses out of the market, then her children’s chances have to be lower, (as the prices will be higher) unless there is an unlimited supply of houses, which we all know there is not. Suppose Jane has died, she may wish to bequeath a house worth of value to her descendants; the actual price only matters in terms of its relativity to other similar assets.
At an NZ Inc level, we are clearly worse off with less assets to share around, especially assets with natural limits, such as land based assets. To follow the logic, we should be willing to sell every farm, business and infrastructure in the land, and own nothing, (other than for a short period lots of digits on a computer in a bank, until the rent on the assets wipes out even those) with the only condition being that there be willing foreigners with enough of their currencies that they’ve printed to buy us out. Oh wait, that’s exactly what National is doing. That explains it. They’ve got this guy as economic adviser.
By the by, I live in Epsom, but most certainly didn’t vote for Banksie last time. However I suspect my fellow electorate residents will vote for his successor. I have no idea why.
Just to add a little more there are extra dangers
1. When the overseas owner who has no allegiance to NZ decides there is no further benefit, the property will get sold whatever the price.
2. A rush of selling will not only decrease prices but the dollar will drop suddenly as this flash cash departs.
3. The interest bill on our remaining borrowings will cost more in local dollars
So where do we go from there?
So the (apparently uniformly financially incompetent) foreigners are all going to sell up at a loss - ie, leave their money here, in the hands of the New Zealanders who sold them the houses in the first place - and some New Zealand buyers will be able to buy cheap houses as a result. Sounds like a resounding win for New Zealanders.
Foreigners "have no allegiance to New Zealand" - while New Zealanders will make any personal economic sacrifice for the good of the country, will they. Have you any idea how many New Zealanders educated at the taxpayer's expense, whose skills and experience could make a real difference to the economy, don't live here?
Well,you may see it your own way but moneyed Asian investors are notorius for selling at any price if they want out.
They will not leave their money here so the dollar would drop just as at present the opposite mania to invest here has contributed to lifting the Kiwi.
A lot more Kiwis than you imagine would love to return given better job prospects.
But foreigners can't "bid up the whole market" if the market is able to respond by providing more houses.
As I said elsewhere, John can use the money he couldn't spend on buying Jane's house, to build a new house. Now John has a house, Foreign Fred has a house (which is still here) and Jane has the money she got from Fred. New Zealand as a whole has more assets, not less.
There are though limits to convenient land- especially in our planning system, rightly or wrongly. Prices would not have risen as far and fast as they have if there were no limits. Pricing in an umlimited land supply system would roughly have constant land prices plus the cost of building a replacement house. The underlying land prices have been bid up hugely, showing the land scarcity, and unfortunatly showing that prices have certainly been bid up by someone. The popularly held view is that that someone is foreign, and for a while John Key didn't seem to want us to know.
Even if there were unlmited land in the outskirts to build new, there are additional costs to society versus buying an existing home. We need a bit more road, a bit more sewerage and water piping. A bit more storwater catchment and holding to protect oru waterways. More people will need to drive from the outskirts intead of walk, cycle, or bus from in town to their work so well need a bit more motorways through the Isthmus.
There are some thoughts that the increased value of residential land is created by the community, by their collective decision to coglomerate together. It seems unfair if this value is driven up excessively, thus preventing the communities children and grandchildren from joining that community. To prevent this excessive build up of prices a reasonable amount of new supply should be available to expand into (up and out) and new demand (from outsiders) should be moderated when prices are unaffordable.
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