The IMF doesn't think the Government’s policy to ban foreigners from buying Kiwi homes will have much of an impact on house prices; but officials do think DTIs should be added to the RBNZ’s toolkit

The Government’s ban on foreigners buying New Zealand houses is “unlikely” to have a significant impact on housing affordability, IMF officials say.

They have also revealed any further restrictions on loan-to-value ratios (LVRs) “would not be helpful under the baseline outlook,” but debt-to-income (DTI) restrictions should be added to the Reserve Bank’s macroprudential toolkit.

A group of IMF economists has completed their annual assessment of New Zealand’s economy and addressed media on Tuesday.

They gave the economy solid marks for growth and say they are “comfortable” with the country’s fiscal position.

Finance Minister Grant Robertson has welcomed the IMF’s assessment of New Zealand’s economy.  

But IMF Asia and Pacific Division Chief Thomas Helbling was not as sold with the Government’s policy to ban foreign buyers of Kiwi homes.

The policy was one of the first to be introduced by the Government.

"A ban of residential real estate purchases by nonresidents is unlikely to have a significant impact on housing affordability," Helbling says.

He says the ban is a capital flow management measure under the IMF’s Institutional View on capital flows

"The measure is unlikely to be temporary or targeted, and foreign buyers seem to have played a minor role in New Zealand’s residential real estate markets recently," he says.

He adds the Government's broader housing policy, Kiwibuild and the focus on lowering tax distortions, if fully implemented, "would address most of the potential problems associated with foreign buyers on a less discriminatory basis."

He says if bans, such as the Government’s policy on foreigners buying New Zealand homes, are enacted – “you might want to worry about the signal [it’s sending].”

Although it’s difficult to fully assess the impact the signal the ban is sending to foreign investors, he says it “would be one thing for the Government to worry about.”

There has been a recent stabilisation in the housing market, he says, adding that vulnerabilities will continue to decrease.    

“But despite the decreases household debt remains relatively high, even under the baseline outlook, and we are concerned it could amplify the risk of large downside shocks.”

LVRs and DTIs

When asked about adding DTI limits into the Reserve Bank’s macroprudential toolkit, Helbling suggests it’s better to have them and not need them, than to need them and not have them.

“We continue to think that it is useful to have this instrument in the toolkit for the Reserve Bank. But for the moment, there would be no need to use that instrument.”

He says the housing market has cooled and because of this, there is also no need for further LVR restrictions at the moment.

But at a time when the market is cooling is the best time to add DTIs into the Reserve Bank’s toolkit, Helbling says.

“If you only have one instrument that is suitable for that purpose, LVRs, you can use the instrument in excess which may have unintended consequences.”

He says the Reserve Bank has not used LVR’s to excess, but the tool has been used “to the max.”

“If the housing boom were to rekindle or for other reasons household debt were to increase again, it would probably be useful to have another instrument to use, rather than only relying on LVRs.”

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31 Comments

Of course banning foreigners wont solve the problem on its own .

The next step in the process of making land ( and by extension houses ) affordable is getting Auckland Council to stop using land development as a major revenue source .

Then we need incentives to land holders to actually release land for development with carrot and Stick .

Then we need to break the back of the building supply-chain cartel

Then we need to allow youngsters to have first home -buyer tax free savings accounts while they save the deposit for the first home

Then we need to slow the rate of inward migration

Cool. Get on with it then.

You're joking right ............ getting this Government and its partners to agree to all of the above measures will be more difficult than herding cats into a small cage .

Unrelated and immature but I couldn't help thinking this guy looks like a middle aged dutch muggle harry potter.

With this epic wizardry look, he may have a powerful magical wand.

It's not the power in it, it is in the way you use it. I think that's how the expression goes.

Bryan Cranston’s (Walter White) lead role in the new Harry Potter movie.

Anyone please tell me that the current government has the power of lowering
1. cost of land
2. cost of building a house
3. cost of servicing debts
and the competency of increase household's real income

Mostly by removing regulation and legal barriers.

By putting on an asset test to target land bankers

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14

"The measure is unlikely to be temporary or targeted, and foreign buyers seem to have played a minor role in New Zealand’s residential real estate markets recently,"

clearly these jerks have no clue what they are using in their models.. did they not realise that the National government left out two major groups capturing overseas buyers...

Wait N Watch.

Let the ban be implimented, first.

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11

The people spreading these propaganda are NOT fools; they definitely have vested interest.
Hope the govt ignores these messages and go ahead with the ban, which majority of the people in this country wanted.

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15

How could anyone ignore interviewer 1, who asks the most salient and relevant questions. I transcribed the interview...

Interviewer_1. -> On the ban on residential realestate purchases by by non-residents, I suppose it would be surprising if the IMF welcomed anything that smacked of a capital control. But, the way you put it is interesting, you say "Foreign buyers seem to have played a minor role in the markets recently". I think "seem" is right, the data on this is not good. and the tense is absolutely right. But the concern behind the policy is partly about what happens if China were to liberalise it's view of.. um it's policy on capital outflows and a tsunami of money came towards a market that's years away from being in any sort of equilibrium. So what would you say to that concern? How real do you think it is? Does that make a difference towards the appropriateness of this ban?

Helbling -> So, (pause...) you found (pause...) there's a reference to the institutional views on capital flows of the IMF, and I think the institutional view, arr is, (pause...) is on liberalising and managing capital flows, just to give you some context.. (continues...)

Very attentive and relevant FP.

Look at the headlines, the ban is doing its trick. Wake Up IMF

Next step is to tax empty properties.

You say it like there is already a ban which there certainly is not. The heat has gone from the market because China has stopped the outflow of money.

If this ban goes ahead it wont be until later this year. I also wonder how they'll navigate around the TPP clauses that could make this ban difficult to implement.

Going by National's stance, foreign-buyer ban should not adversely impact house prices as it was touted as a negligible 3%. Unless,of course,numbers were fudged creatively. Let's see how the housing market unfolds and we can judge the integrity of the people concerned.

Well said

But then they will come up with some other lies

Did you ever have a look at the LINZ questionnaire - surprising they even got 3% positive responses

The first 2 or 3 questions were tortuous, with nested if-then-else options any foreign buyer could honestly say no - after 6 months LINZ stated they would simplify the questionnaire - but I don't think they ever did

The problem is the horse has already bolted. The money is here, the land is sold. The only way to roll it back is to force non resident property owners to sell.
The Capital outflows from China have dried up, but we have sold our souls in pursuit of short term riches. It would be very interesting to see how much of this country we have sold off as a percentage of total land area. Personally I think it would scare the shit out of the average kiwi.

Agree, would like to know the cumulative effect of the foreign buyer. I know the wine industry is largely foreign owned.

You do realise that the Real Estate Agents have known all along the numbers and chose to remain mute under the protection of the umbrella of the National Government blanket denials

More likely an umbrella of self interest

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13

I cant understand why anyone would allow foreign ownership in a domestic housing market in the 1st place, that was never going to end well.

Ironically the foreign buyer ban will not change much when it gets implemented as the foreign buyers are already conspicuous by their absence in the market at the moment anyway compared to the last 5 years, and a lot of that can by attributed to China's restriction of cash flowing out of China. But implementing the ban will stop the craziness happening in future.

They can still build new properties . So it's not a complete ban

He first says "foreign buyers seem to have played a minor role in New Zealand’s residential real estate markets recently."
Then goes on to say:
"...would address most of the potential problems associated with foreign buyers on a less discriminatory basis."

Did someone ask what he thinks these potential problems are? If he thinks they play only a minor role in housing affordability (or SEEM to), then what are the potential problems?

emphasis on "recently"

It is all about the Smokes and Signals....
The Signal from National was 'It is free for all'
The Signal from Labour is 'It is not Free and not For all'...
The ground reality will keep changing and the government will keep reacting.
The impact is coming from the ground up (pun intended)...

Clearly a foundation problem. Cash leaking china was one foundations. National lying about the scale of the issue the other.

Who cares whether it affects prices or not? We don't need foreigners owning our housing and renting it back to us or leaving it empty.