The NZ Initiative's Khyaati Acharya says Labour's 'circus act' will only add unsubstantiated fuel to the fire of those vehemently opposed towards all and any foreign ownership

The NZ Initiative's Khyaati Acharya says Labour's 'circus act' will only add unsubstantiated fuel to the fire of those vehemently opposed towards all and any foreign ownership

By Khyaati Acharya*

Late last week, Labour Party Trade spokesman David Parker claimed that overseas speculation on residential properties in Auckland were a lost opportunity for provincial regions like Timaru.

Parker asserted that unproductive investment in the housing market came at a cost of missed productive investment opportunities for regions that need it most.

Housing may be one of the few things that foreigners can invest in without having to foxtrot through New Zealand’s overly onerous investment regime. But it is highly unlikely that foreign investors are making a trade-off between purchasing Auckland housing stock over investing in multi-million dollar productive assets in rural New Zealand.

Foreign property ownership is an easy target for those lamenting the Auckland housing market, or the sale of another dairy farm to overseas interests. But it reveals an alarming reluctance to deal with the underlying problems. Rather than encouraging productive inwards direct investment by alleviating onerous investment regulations or increasing much needed land supply for more housing, the latest furore has become little more than a game of pin-the-tail-on-the-Chinese-investor.

Despite this, Labour is fiercely defending its decision to release figures that show that around 40% of residential properties sold in Auckland between February and April this year were sold to people with Chinese sounding surnames.

Of course, as Phil Twyford concedes, “surnames don’t tell us anything about citizenship or residency”.

Nor do they illuminate a great deal about the extent of foreign ownership in New Zealand, or get any closer to actually fixing housing affordability problems.

Of more concern is that such comments by Labour, as well as similar statements issued (unsurprisingly) by NZ First, highlight a major misconception that foreign purchases of residential housing is equivalent to foreign direct investment.

Foreign Direct Investment (FDI), by definition, reflects the objective by an entity resident in one economy of obtaining a lasting interest in an enterprise resident in another economy. It implies the existence of a long-term relationship between the two parties and the ability to exercise a significant degree of control by the investor on the management of the enterprise.

FDI reflects an influx of foreign capital upon which New Zealand has thrived. It can save a struggling company or industry, improve productivity, boost firm productivity, create jobs and become a major instrument of economic growth. Furthermore, there is much evidence showing that the multinational organisations that engage in inwards investment often pays higher wages when compared to domestic firms.

The reignited animosity towards foreign ownership is particularly jarring given how highly New Zealand was rated in the latest Milken Institute’s Global Opportunity Index.

The annual Global Opportunity Index assesses 136 countries across 6 continents on a total 61 different variables. These variables are compiled into 4 broad categories: economic fundamentals, doing business, quality of regulations, and rule of law. The index is designed to assist companies and countries investigating investment opportunities.

Despite slipping to 4th place in the latest index, having maintained 3rd position from 2009-2014. New Zealand ranked first in the world for rule of law. This emphasises the high quality of New Zealand’s legal infrastructure; good judicial independence, efficient legal frameworks for settling disputes and challenging regulations and law and order systems.

But if the Global Opportunity Index is an outsider’s perception of New Zealand’s openness towards foreign direct investment opportunities, the contrast between perception and reality couldn’t be more striking.

While New Zealand ranks highly across a number of key economic fundamentals, the index fails to emphasise just how restrictive our regulatory barriers are towards incoming direct investment.

New Zealand has consistently ranked very poorly on the OECD’s Regulatory Restrictiveness Index, which measures the extent to which a country’s regulations discriminate against FDI investments compared to local investments. The 2014 index ranks New Zealand as the 7th most restrictive economy out of a total 58 countries. Our national inwards investment regime is considerably more restrictive than the non-OECD average, more closely resembling closed economies like China and Jordan rather than the UK and Canada, which have much more permissive regimes.

But neither does the Milken Institute Index acknowledge that New Zealand is deemed a less attractive business opportunity based on the lack of sizeable investment opportunities as noted by AMP Capital Chief Investment Officer, Sean Heneghan.

If New Zealand is to compete for lucrative investment opportunities and economy-boosting incoming capital, Mr Heneghan suggests starting with upgrading the regulatory environment.

The Overseas Investment Act (OIA) is insufficient for purpose as it stands, and it warrants either being majorly amended and improved or dismantled altogether.

The Productivity Commission, in their latest report Using Land for Housing, argue that there exists no “good reason for screening foreign investment when land is being sought for purchase with the express purpose of being developed into housing and resold in a reasonable time period”. They recommend Treasury exempt such purchases from OIA screening. Such a move would not only improve the supply of residential housing stock, but could also provide a channel for productive investment in the rural regions as Parker desires.

Blaming foreign speculation in housing stock is simply a red herring for the underlying problem that is our inwards investment regime and land supply constraints. Removing substantial barriers to provide a more attractive investment climate and better recognising the private property rights of vendors would be one step in the right direction. Recognising and offering solutions to land supply and zoning issues are exacerbating the housing crisis far more than Chinese buyers is essential. Encouraging inwards investment in land for housing development kills two birds with one stone.

Meanwhile, in cheerier foreign investment news, Japanese company Sumitomo Corporation has just announced it will be pumping an additional NZ$1.5 million into its Timaru juice factory to expand its product range. Investment in new machinery will allow the company to produce vegetable purees as well as ship finished products most cost-effectively at room temperature.

Labour’s circus act is at best, a costly and pointless exercise which will be complex to carry out with any determined stab at accuracy. At worst, it will only add unsubstantiated fuel to the fire of those vehemently opposed towards all and any foreign ownership of any size, shape or form.

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*Khyaati Acharya is a research assistant at the New Zealand Initiative, which provides a weekly column for interest.co.nz.

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The simple fact is we have let too many people into NZ in the last three years with most residing in Auckland and that in combination with Kiwis no longer moving to Australia is putting massive pressure on Auckland house prices, infrastructure, transport, schools etc. Supply of new homes too slow coming on stream - Nick Smith is in cloud cuckoo land. Fiddling with LVR's, having to give IRD & bank #'s will make no difference to house price escalation. Change the rules overnight and make Res 5 & Res 6a zones 250m2 minimum lot size & thousands of sections could be created within months.

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"Blaming foreign speculation in housing stock is simply a red herring for the underlying problem that is our inwards investment regime and land supply constraints"

Ah no. The red herring is waffle like this that does not confront the fact we are ill equipped to cope with the flood of immigrants.... and we need to slow down.

14
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So you're suggesting we don't know the difference between FDI and speculation in our tax haven of housing market? I'd say that's insulting our intelligence.

Labour is standing up for young families who have been priced out of buying their own home due to the international, unregulated, tax-free nature of our property market. Long story short - capitalism is failing young Auckland families with regards to housing. The media has stood by and watched and Labour got in, addressed the issue and got people talking. And I respect them for it.

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I Agree with the comments above, this article is a tangent from the real issue and attempt to whinge about something very different. Productive Investment is welcome regardless of source, rotten money dumped here and parked in residential real estate as a land bank to avoid scrutiny in China is causing us grief. Failing to collect the information is not grounds to deny the truth for "lack of evidence". Put simply, you cannot piss in our gumboot and tell us it is raining.

A red herring is a figurative expression referring to a logical fallacy in which a piece of information is misleading, or is intended to mislead

Fact
Andrew Little released information that "simply stated" that over a 3 month period 40% of Auckland property purchases, made through one single Real Estate Agency had Chinese names, which was disprortionate to the distribution of chinese names in the Auckland electoral roll

Peter Thompson the Managing Director of Barfoot and Thompson has never refuted those figures

Today in the NZHerald Peter Thompson now concedes the need for a Foreign Buyers Register
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1148...

What is the red-herring? What is the Logical Fallacy?

FHBs may be an easy target, but it doesn't mean they are not a valid one. Housing is not a productive investment unless you are looking to make a quick and easy buck by selling on to another sucker, er I mean investor. Plus You imply that if our investment regime were more accomodating these investors may put their money into other types of investment. REally? Rubbish! If they had a geneuine business plan to create real business that makes real products, for real money, to make a real profit, don't you think they'd be already doing that, where ever they can get in? No this is a rort by FHBs through our Government to rip the country off, essentially creating a river of money leaving the country at the expense of every Kiwi! Dress it up in all the nice pretty rationale you like, but the bottom line remains the same.

Did anyone see the TVNZ Sunday piece titled "SOLD" about the impacts in Australia of the $3 trillion dollar Chinese investment intentions in securing food and farmland overseas?

http://tvnz.co.nz/sunday-news/july-26-6360378

Hopefully TVNZ will put the video up on their site in future. What stood out for me was the near absolute symmetry/sameness of the AUS and NZ regulatory actions(s)/inaction(s) .. as well as the smoke screens and arguments of each respective government. I could only think that we two cousins each side of the Tasman are already de facto governed by Beijing - as the 'four pillars' in AUS (and here) are beholden to them.

Yes it was shocking, and the short term views held by those who stood to benefit from a sale. It was hard to see any benefit to us, when all jobs and suppliers would be Chinese.

Get ready for some of that $3 trillion dollars coming our way. I'm predicting that the banks won't be so accommodating to the debt load which currently encumbers dairy farmers. Farmers better be prepared for them to devalue their properties and maybe even foreclose on their loans if the milk solid prices continues on its current track.

Talking residential housing markets - interesting re-cap on the US situation in the aftermath of the GFC;

http://www.zerohedge.com/news/2015-07-26/these-13-us-cities-rents-are-sk...

"Blaming foreign speculation in housing stock is simply a red herring for the underlying problem that is our inwards investment regime and land supply constraints"
No it is not a red herring. Allowing nonresidents to buy NZ houses is not an "investment" - it is counterproductive to the NZ economy.

I was thinking that only player in New Zealand who has the power to regulate the housing market without breaching the provisions of the Chinese FTA and the TPPA would be the Reserve Bank, because of its independence from political process, but then I discovered this.

"Considering the employment and economic impact of currency manipulation on the United States and given that the United States is negotiating a free trade agreement, the Trans-Pacific Partnership (TPP), to avoid further harm and ensure the agreement’s benefits aren’t undermined by countries that have a history of manipulating their currencies, it is vital that the TPP include defined monetary policy standards and a means to identify currency manipulators and enforce violations."
http://www.laffercenter.com/wp-content/uploads/2014/12/Laffer-Center-Tem...

So much for that idea.

Typical ideologically-driven piffle from this outfit. The scary part is that it finds a ready ear with the present government.

Or is it a mouthpiece for the Govt?

The outfit should in particular acknowledge that New Guangzhou is formally still a democracy. Meaning that what a majority of people want should (!) be put in place by government, no matter whether so-called economists like it or not. And definitely no matter whether foreigners like it or not.

New Zealand is not yet part of China and bound by instructions of the Communist Party central committee or the central committee of think tanks with their ever same boring "do as daddy told you" mantra.

Ask the people of Kaipara, Christchurch, and Canterbury if we still live in a democracy Peterpen. I thk the Party Cadres in the National Government are taking cues from their counterparts in Beijing

Show me the red herring. Can't. Ain't there.

For a good laugh go and read the NZ Initiative website "about us". Where they explain they are not conspiring against the public. Why then do they fell the need to mention it.

Comedy Gold KH

Well what I have seen is that the NZ Govt. wants the money else how can it survive. Exports down, milk prices down ??? Every one is turning a blind eye. NZ is being used to launder dirty money. All the ill gotten money, the so called black money is channeled to NZ for laundering. We have seen the cases in casino how the launder it. Now all the unaccounted money from Asia get to NZ. A person will buy 3 or 4 or 6 properties in NZ to park that money. Later at any point they can sell the house and can take the proceeds back 1) in form of fictitous export earnings or as a gift from the relative and paying little or no tax in their country. Buyers register and having IRD no. is a welcome step. But more to be done after that. Once a person buys the property IRD should ask them to show how the money was earned or received. and if they cannot explain the proceeds then tax it 50% plus penalty. This is because I am amazed to see a person working in a takeaway shop earning $10 an hour buys property in cash ? How , where do they get the money from? . This is because the relatives from overseas send the money and a person buys the property here. Easy........ . A lot can be done but need the will to do...... just not pussy footing....