By Bernard Hickey
There's a saying in physics that nature abhors a vacuum.
That saying is even more true at the point where economics meets politics.
Without hard data to fall back on, a debate about policy can slide off into dangerous places that lead to bad decisions.
We're at that point with a debate that could easily dominate the election campaign: foreign ownership of homes in Auckland.
The Labour, Green and New Zealand First parties will all campaign on the need to restrict or block non-resident purchases of homes and land, arguing it is inflating prices beyond the reach of young New Zealanders and forcing everyone else to pay higher interest rates and cope with a high New Zealand dollar.
The Government's response is there's not much evidence to say there is a problem to solve and the Opposition are basing their complaints on anecdote and prejudice.
It points to the only survey that goes anywhere near to the topic as 'proof' there is no problem. The BNZ-REINZ survey of real estate agents in March found agents thought about 6.4% of homes were purchased by non-residents and about 25% of the non-resident purchasers were from China.
Hence, the implication is that 'just' 1.6% of buyers are from China. But this is hardly hard data.
It is simply a survey of what agents think is happening. It is not a measure of mortgage or ownership records that looks at who owns what and where they normally reside.
Even the BNZ-REINZ survey acknowledges that the non-resident purchase percentage is well over 10% in Auckland and higher than 1.6% from China, although it's not a statistically significant enough number to be reliable.
So we're back to the vacuum.
This is not a situation that other developed economies and democracies accept. Australia records the residency of home buyers and also records whether mortgage borrowers are first home buyers or rental property investors.
Australia limits non-residents from buying existing homes, forcing them to buy new, unoccupied homes and apartments off the plan. But it still records the numbers and they are huge and growing.
Non-resident investors from China bought 18% of all new homes and apartments in Sydney last year and invested A$24 billion in housing over the last seven years.
Credit Suisse estimated these investors would pump a further A$44 billion into the demand for Australian housing over the next seven years.
It is a phenomenon sweeping property markets in the developed world. Data collectors in Britain, Canada, Hong Kong and America all report massive increases in demand for property in their most popular cities from investors from China. The Hurun Report published in January found 64% of millionaires in China had either already obtained residency in another country or planned to migrate.
Boston Consulting Group has estimated that investors from China had pumped US$450 billion into property markets outside of China, including in cities like Vancouver, Sydney and Auckland.
Something is going on in Auckland, but no one really knows how much is being invested, where, or by whom.
Any government wanting to understand what is actually happening would start collecting and analysing the data. New Zealand First want to create a register of ownership, but the Government has only said it is watching the situation and has no concrete plans for more concrete analysis.
This vacuum is dangerous and needs to be filled with carefully collected data analysed by officials.
An election debate based on gossip from auction rooms or the musings of estate agents is no substitute for proper policy analysis.
The Reserve Bank should also be involved in any analysis. It has recently started to deepen its understanding of mortgage borrowing as it rolled out its high LVR speed limit.
It is expected to release data later this year on how many mortgages are for first home buyers and rental property investors. That would replicate figures collected and published in Australia.
But more is needed to understand exactly what demand factors are driving Auckland house prices higher, especially as the rest of the country's interest rates and access to high LVR mortgages are determined by those factors.
The early success of the speed limit shows limiting demand can help tame house price inflation.
It may be too late, but a well documented study of the demand stimulus from non-resident investors would avoid a vacuum that creates an ugly debate before September 20.
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