By David Hargreaves
John Key has had a simply fantastic election year so far.
From the way he caught Labour completely off-guard with his education initiative in January, to hob-nobbing prestigiously with his new BFFs in China, the Prime Minister has shown the brilliantly sure-footed touch that previously enabled him to tiptoe through the minefield of foreign exchange dealing and make himself a fortune.
But I've always suspected that housing is a bit of an Achilles heel for Key and this Government. While Key has danced eloquently through every other issue this year so far like Fred Astaire in his pomp, suddenly yesterday he had two left feet.
Through his most emphatic yet ruling out of any curbs on overseas-based buyers of NZ houses, Key has drawn a clear line in the sand. And it is a line that Labour, the Greens and a possibly needed coalition partner in NZ First are on the other side of.
I take Key's remarks yesterday in either of two ways: Either he was responding instinctively and true to his background of 'don't mess with the investor' or National has extensively polled the issue of foreign house buyers and decided it is not an electoral problem.
If the first of those two options is true then Key has just taken a monumental personal risk that could blow up in his face.
If it's the second then it's a more calculating measure; a realisation that this issue is potentially problematic but the best way to face it is by toughing it out and sticking to a consistent line. But it is still risky.
There is a legitimate management technique whereby managers handle a problem by refusing to publicly countenance the very existence of that problem. Ignore it. Don't give it any oxygen. It will go away.
So, in this instance the anecdotal 'problem' of loads of foreign based people buying New Zealand houses and stopping Kiwis from getting into their own homes becomes not a problem because, that's right, it doesn't exist. And who really knows whether it does or not?
As I have argued previously, at least twice, and Bernard Hickey has argued, there is a dearth of quality information both on who exactly is buying houses and why. Therefore there can be limited understanding of exactly why house prices shot up in Auckland last year.
So, we have a Government policy on housing that is based on a set of assumptions.
While Key appeared oblivious to it, there was huge irony in him remarking that he saw little evidence that non-resident buying of houses was a problem, whilst then categorically stating that the main problem in Auckland's housing market was supply.
"It's a supply side issue. If we continue to build houses, I think we'll cover it."
And the evidence supporting this viewpoint is...? Come on...
The Government points to the fact that Auckland has built very few houses in recent years. So, the assumption is that there is a shortage. It's probably not an unreasonable assumption in many respects, but it's an assumption. It is an assumption in the same way that growing numbers of people - with disconcertingly xenophobic overtones - are making the assumption that Auckland is being taken over by overseas based house buyers and that's what has caused prices to rise.
How can the Government decide that its assumption is correct?
What Key is really saying therefore is that the Government won't sanction collecting information on what makes the New Zealand housing market tick and prices go up, it will simply rely on its own assumptions. Well, that's dangerous.
What if we actually, due to the Government cranking up housing supply, end up with a surplus of housing in Auckland, leading to a resultant withdrawal from the market of investors, and a serious popping of the housing bubble? We know that this country has on a world scale highly priced houses relative to income. Any sudden downward re-adjustment - something the Reserve Bank's worried about - would have severe ramifications for existing homeowners and investors.
Whether Key is basing his responses on gut instinct or on results of National's internal polling, it seems to me that public opinion is being misread. Badly.
There is simmering discontent, barely below the surface, among Aucklanders regarding the housing market. Without hard information as to what is driving that market, many people are jumping to their own conclusions in a rather "let's round up a posse" western vigilante kind of way. Yes, I'm afraid xenophobia is to the fore.
I had long since awarded victory to National in this election.
But I would have to say after reading Key's comments, I now see his party as vulnerable to any focused opposition attack that concentrates on people's insecurities and brooding resentment about the Auckland housing market.
Yes, houses just might provide the main battleground for this election and it could be a campaign decided on which parties sell their assumptions better. Because it won't be about facts, that's for sure.
41 Comments
Foreign buyers may well not be a problem. But there is a strong perception that they are a problem. If Key want's to prove the real-estate agents wrong on this issue, then they need to collect the data. Sure the data won't be perfect, but it will be much better than nothing. GDP is a very imperfect measure, but the government is happy to rely on it.
Key's approach all along has been to protect the property market. He knows that the dominant baby boomer generation is heavily dependant on maintaining the property values of their McMansions and rentals. It is the younger generation that is hurting & shut out of the property market. Key knows that the baby boomers are bolshy & big voters; whereas the young are unorganised and poor voters.
Spot on Philly. This particular issue continues to go in circles as neither Political party offers any concrete solutions to housing affordability. You sum up the young well, although I would suggest they are not necessarily unorganised just indifferent to the policies made to contribute to the wealth of the baby boomers and those fortunate enough to purchase property pre 2004.
I have stated numerous times and I believe it was David H that wrote an article some 18 months ago regarding the number of MP's with property portfolios.
There are PI's on this forum that know the Prime Minister is protecting their interests by ignoring the issue and you can't blame them for supporting his every move. That is their livelihood and for anyone planning on selling up from apartments to mcmansions to pristine NZ coastline they won't give a monkeys to where the purchaser is from...as long as they pay top dollar.
Contrary to David's article, I don't believe much will happen in response to the PM's uninformed comments on TVNZ.
Simply you are with him in his views or not in a position to fight back. A perfect scenario for our PM and his government.
I laugh whenever I see this ban foreign buyers stuff.
Let me tell the truth that imposing controls on foreign capital inflow is the only way to stop foreigners from buying.
Now, ask yourself under which government, dare he/she to control foreign capital inflow to NZ.
Why laugh?
It's easy to ban foreign buyers:
1. Require any registered owner on a title to be a NZ Citizen.
2. Ban any companies with foreign shareholders or directors from owning property. Any exceptions would require OIO approval.
3. Ban foreign companies or individuals from holding mortgages or caveats or any type of lien registered against a title with the exception of approved banks and companies with no associations with the property owner.
4. Acting as a trustee or intermediary to a foreign buyer would be made illegal.
On that basis it would be very hard for a foreign buyer to attempt any subterfuge in order to act as an intermediary, ie a total ban on foreign buyers - easy!
No impact on anything else.
So this may bar a NZ resident from owning property.
That could include one of our friends aged 65 resident here from UK since 1953! (Still travels on a UK passport)
However all is not lost. Maybe allow them to buy and hold one property for own occupation only, subject to becoming a citizen within 3 years. At least that would be a commitment to NZ.
Wow fact boy, what zoltuger said is all true. I suggest you take a visit to macrobusiness.co.au. Unfortunately the foreign restrictions in Aussie do not work simply because they are not enforced. The property bubble over there is seriously affected by foreign investors.
Zoltuger is correct , they severely restrict foreign ownership of property in the Philippines too ...
... so we put all our farmlets and beach resorts in the name of the mother-in-law and one of the sister-in-laws ....
Easy peasy to get around that one ... ... so long as the wife doesn't boot me out ....
... should getcha facts right boy , or apologise to Mr Zoltuger for the personal attack !
Well written David. Yes I also got the impression Key is either complacent or would rather not have any data as that may well reveal some nasty realities. The credible indication of foreign influence of recent price rises is the lack of uniformity in those increases. Outside of Auckland, with the unique exception of Christchurch, house values haven't even kept up with inflation since the '07 peak. Lackluster credit growth since then helps to confirm this.Our FTA with China probably has something to do with Key's reluctance to confront the issue.
I think I want exactly the same things as you. Which is affordable rents, affordable housing, stable prices instead of ballooning year-on-year increases. I want my kids to be able to afford houses, my grandkids to be able to afford houses, and not be priced out of the market.
I am not a labour voter, or a national voter, or have any loyalty to any party. All parties have policy that reflects the desires of the majority of NZers. The majority of NZers have houses, and the majority wants prices to keep going up, up, UP.
Change will only happen when the majority of the country is getting shafted. Now only the minority is getting shafted (mostly the young) and they are too busy having fun or studying to realise they have no chance of getting into a house.
DH - I think National are looking at the affordability issue. A little bit of door knocking was held over the weekend with one city MP ensuring everyone had received the form that had been sent out. Very active in encouraging people to fill in their preferences. Good questions and options available too.
I think JonKey is desperate to defuse the housing issue. I am sure he called the election early to minimise the harm done pre election by rising interest rates.
David some of us supply siders are not advocating that there is an actual shortage of housing. That implies supply is less than demand, which is not true. What we are saying is that due to various well documented problems with local government and transport infrastructure that supply is inelastic or steeper than it needs to be.
Re: foreigners buying housing, it obviously adds to demand, especially given there access to QE money.
Foreigners with cheap money + inelastic housing supply = price rises.
JonKey has done little to change this equation. Many voters and their families or friends are suffering because of this. They should use their vote wisely.
Let me say it again.
Foreign buying has to contribute to the price of property rising. Just as this is so , if they abandon the market, there will be a downward swing too.
Again I add that a major way in which those investors with inadequate English language skills can get income is to invest in property. They can do it for themselves or act as agent (dummy) for an overseas partner.
Locals who fancy their investment skills in property have been ably assisted by the banks and the tax system.
How to cure these on behalf of ordinary locals wanting their own house must use the weight of law and taxation. Price to income ratio must be reduced and as income rises are limited , it has to be by curtailing rises and even reduced value.
Ban foreign buyers is only part.
Seizure of property illegally bypassing any law that flouts the ban is one way and even the threat would stop it overnight.
Change the taxation system to bring investors and owner occupiers on to an equal footing. That may include allowing a limited relief on interest for owner occupiers while reducing the amount of tax deductible interest for investors.
Nothing is impossible. Only political will is soft or weak. Remember Key is as soft as butter on anything that may work against his pragmatic urge to retain power.
... so does the Gummster ... Mrs Gummy made me hoover the whole frigging house today ...
I told her , " that's insanity , everyone knows it's bad luck to vacuum on a day which doesn't have the letter " Z " in it ...
... she said , " it's Toozday ... get hoovering , sucker !!! "
100% agree with this analysis. I voted National last time but am strongly reconsidering it this time. John Key looked completely out of touch with this speech and an out-of-touch prime minister is a dangerous prime minister. Even if they don't want to ban foreign buyers, why won't they collect the data?!? Other countries do. Suppose that NZ becomes the "hot" place to speculate on housing (assuming it's not already) - how would we know until it's way too late? The world is a very big place - it wouldn't take much for foreign speculation to completely dominate our local market. By the way, I own a home in Auckland and would be very happy for house prices to decrease. First, I plan to buy a place at least as nice when and if I do move. Second, I'd rather like my kids to be able buy when they are ready. I strongly doubt I am alone in this.
Totally agree with your comments. I am also a property owner in Central Auckland where prices have almost doubled in last 5 years and gone up 20% plus in the last 18 months. While my home is worth lot more now I am worried about my children never being able to afford a house especially bidding against the Chinese money (they pay interest under 3%). I know of several houses in our area bought at auction by Chinese who dont live or intend to live in NZ. These are put back on the rent market within days of being sold at auction. Its shocking that the govt keeps saying there is no conclusive data. Why didnt they do this instead of a meaningless referendum on sale of SOEs. I am a National voter but seriously thinking of switching. the only issue is the Labour muppets cant get their act together and have not been decisive enough on banning foreign buyers.
As for the folks who have made comments on Aussie policy not working, do any of them own houses there ? I own a house in Aust (bought last year) as investment property under the NZ Citizen exemptions we are given to own residential property there. Filling out the forms and dealing with lawyers, their land transfer system, it seemed impossible for non-residents to by-pass the system. You will always get thugs and people who are willing to do illegal things but that will be a minority and does not mean the law is not working. Get real and stop those stupid hear-say comments about Aussie rules not working. Also any policy on banning foreign ownership that comes in needs to give Aussies the same rights that we get there i.e. being able to own residential property.
At what stage do all the other parties set out their stall on this issue? If National are doing the Sgt Schultz "I see nuthing" act what are the positions on all the others, especially the minor ones who could hold the keys to the palace? They all seem to be sitting on the fence.
At the end of the day is it possibly all too late. They are coming is so thick and fast and then bringing in their old folk that they will hold a signifiacant voting bloc in AKL.. Put this up against the general apathy that Kiwis in general have to voting, especillay the young, and we are all screwed. This might be the last election we can bring change. The next election will surely have a party called something like the Southern Chinese Democratic Party representing most of the North Shore, Howick etc.
Must be how the Maoris felt back in the day.
Kiwis so dumb lah!
KEY IS A JUDAS SELLING PRECIOUS NZ LAND FOR 30 PIECES OF SILVER
As WInston said on Q+A "NZ should have the same rules as China - they can only lease land for 70 years" thats fair.
Its economic war for the Chinese take over NZ by buying up the land.
Key probably has no close family who fought in the war to keep NZ for Kiwis.
We don't need their money they need our food.
NZ is open for business........it's the Councils who have closed the doors on housing.
People can dance as much as they like around the housing issue...but unless the REAL problem is addressed then you're changing nothing.
The housing issue is a system problem in Planning.......and few people actually want to address that issue, instead they are taking their frustrations out on people with different Nationalities. Lets leave the Planners and NIMBIES alone and attack immigrants.....WHY?
If the REAL issues are not dealt with the problem remains but you will have caused a whole new bundle of problems of which the consequences will have far reaching effects making the housing affordability issue look small by comparison.
As noted further up, housing supply is inelastic and not keeping up with demand. This is the cause of price rises. Foreign buyers do increase demand but if for every house bought, another was built then the price would remain static.
However, even in this situation, foreign buyers would still represent a problem if they focus on particular suburbs and crowd out the others. E.g. if all foreign buying was in the central city, all the productive workers who wanted to buy would be forced further out. See London for proof of this.
hey wait a minute. Don't praise Labour. They are the twits who were in charge when the massive price increase occurred from 2002 - 2007.
Helen Clark was driving the country from 1999 - 2008. What exactly did she do to stop the massive price rises? Absolutely nothing at all. She didn't even acknowledge there was a single problem with the doubling of prices.
If I am rightly understanding you - Why do you think compulsory KiwiSaver would be in the interests of New Zealanders?
- It might, in the long run, serve the interests of New Zealanders who could easily afford to save for their retirement, but are not doing so through absent-mindedness. (How many of such people doyou personally know?)
- It will actively harm the immediate interests of New Zealanders who are not saving because they cannot presently afford to, or who wish to prepare for their retirement in different ways. They may or may not eventually come to feel that benefits enjoyed later in life justify the earlier hardship.
- At best it will make no difference to the interests of New Zealanders who are already saving for their retirement, and it may actually make it worse for them if it creates constraints around how they may save and who they may save with.
This is a perception issue. Even if solid data shows otherwise, ordinary Kiwis won't believe it. They will claim it is doctored. The problem is more and more ordinary Kiwis find themsleves unable to buy their own houses. The basic instinc (abbetted by willy council politicians) is to blame foreigners. This is the easy way to vent their anger....they cannot blame their parents and rich friends can they ??
I still believe the party that can show the most GENEROUS and REALSTIC solution to the housing bubble will win the election.
Labour's 100000 houses in 10 years at $300,000 is a little unbelievable but if they can manage their propaganda better it might just work for them.
National's "let the market work while we cut the red tape" is too complicated and unbelievable. It takes a lot of imagination and trust on the part of the electrorate for it to work. Electoral trust is usually monimal or lacking in most cases. They will have to come up with something more concrete.....
I think Labour and the Greens should focus there Kiwi Build policy on where land is the cheapest, which currently is rural zoned land at rural prices. then they could easily achieve there goal of building a family home for $300K. They should make satellite towns on compulsory purchased land that have fast public and private transport links.
Note the Kiwi Build proposals do not cover the whole housing market as the following figures indicate, "these proposals amount to something like 1,000 houses a month depending on how large the Green party's scheme is, while the current local government dominated market place provided 1,658 dwellings last November on an increasing trend.
To be effective the Labour and the Greens need to outline what reforms they will do with local government, so the whole housing market can become affordable. I think the obvious way forward is to increase transport funding, maybe by allowing regional or unitary authorities to tax locally for infrastructure funding. That is what they want. In exchange local government to target housing affordability and mobility as outlined by Alain Bertaud (forword here). This will allow a balance of public and private sector agents to correct the housing market.
Regional Councils like Ecan would go from focusing on taking publicly owned water resources for the benefit of a rich minority to making new public resources -transport infrastructure and new urban areas for the benefit of the majority. This is how democracy should work. Ultimately this problem is about fairness and freedom.
Christchurch could easily allow bike centric and eco-villages on affordable farm and lifestyle block land if zoning was eased, at easily commutable distances, especially if Ecan put in park and ride fast public transport schemes and an extensive bike lane system. I think the Lincoln Tai Tapu region would be perfect for this, there already a bike trail going on the old rail line. You have polycentric nodes like Lincoln university, Hornby industrial zone, Rolleston, Prebbleton, Tai Tapu, Halswell residential and school zones.
The areas around the kiwi build nodes could also be fertile ground for affordable 'right to build' developments.
In Auckland a bigger transport and satellite town scheme would be needed -probably south west of Auckland. Chris Harris discusses here how state transport and housing developments can work.
The left need to refocus there urban politics from density for density sake to affordability. Once it does this it will be able to follow through with a pragmatic series of reforms that would transform our cities for the better.
Housing and transport are real problems for the average kiwi. These proposals are pragmatic solutions that have either worked in our past or work well overseas. The only thing stopping them from happening is political will.
This is a huge opportunity for the left.
Well Billy, I can tell you that my sister in Law just spent 18 months being outbid at auctions by Chinese bidders in Auckland and two weeks ago the house I rent was sold. Onsite auction, 110 people there 80-90 people were Chinese and the only bidders after $750000 were Chinese and the house went for $987000. That's what I've seen. I had two Kiwis vist the house for open homes, all the rest were Chinese. BTW My sister in law has voted National all here life but after her experience is never voting for them again. Likewise, I voted National too. Never again after John Keys statements.
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