TOP's Geoff Simmons dismisses Labour’s ban on foreign buyers as ‘window-dressing for the masses’

TOP's Geoff Simmons dismisses Labour’s ban on foreign buyers as ‘window-dressing for the masses’

The Opportunities Party is back at it. Here is a blog post by its co-deputy leader, Geoff Simmons:

Does anyone seriously think that Labour’s first loud policy initiative is anything but window-dressing for the masses, a solution chasing a problem that hasn’t even been evidenced? Sure, Phil Twyford doesn’t like Chinese-sounding names, but that is hardly evidence.

Where is the evidence that foreign absentee owners are the fundamental driver of the soaring house value to income ratio in New Zealand? It makes for a great conspiracy and maybe for a politician seeking accolades for slaying the dragon, but otherwise Labour’s witchhunt is little more than populist candy. And the government’s foreign buyer register will hardly be difficult to circumvent. Are we heading back to a world of reactionary, populist politics that seek to blame anyone but ourselves for our dilemma?

Bans and taxes on foreign buyers have been tried and failed overseas where there is much better evidence that foreign buyers are a problem. Vancouver’s much vaunted foreign buyer levy did little more than stall the market for a while, much like our own Loan to Value Ratios did. Now prices are on the rise again, and that measure is now under review. Meanwhile Australia has done exactly what the Labour-led Government is doing and house prices have continued to rise.

Why? Maybe foreign buyers aren’t the real problem, or maybe they can find a way around the regulations. The rational response for a businessperson is obvious. Entrepreneurs out there will create businesses that set up legal NZ entities to purchase residential housing, one entity per dwelling with each one funded by raising debt finance from a foreigner. This should nicely circumvent the intent of Labour’s attempt to remove foreigners from the residential property market and business as usual will be restored.

Regardless, banning foreign buyers doesn’t deal with the real issue. The last two Tax Working Groups identified the fundamental issue with housing, and TOP promoted their advice as our flagship policy. There is a hole in the income tax regime that makes it rational for us all to invest as much as we can into owner occupied housing. Investors, foreign or domestic, know this and throw all their money into housing too knowing you and I will keep buying houses.

Why should the annual benefit from owning a bank deposit or a business be taxed, while the annual benefit from owning & occupying a house is not? Fix the income tax loophole and see – a rise in productivity, more employment and higher wages; and a reduction in inequality. Not to mention the realignment of house prices with the demand for accommodation as opposed to being driven by the tax-free investment return.

Neither National nor Labour are prepared to follow evidence-based policy and instead they opt to either do nothing or chase shadows. This beginning from Labour in the economic policy arena is inauspicious to be kind.

House prices may stall for a while, but it won't be because of this change. The market was inflated under National, and will now be very wary of a shaky international economy and a new Government that will restrict immigration and review the tax settings around property speculation. But unless the Government has a second term and finds the will to implement tax reform with some real teeth the long term pattern of unaffordable housing should continue.  

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Well the foreign tax implemented in Toronto sure worked. Houses have crashed in price almost 400k since April when this policy came in.

Thank you for pointing out what is glaringly obvious .

The chattering classes have convinced themselves that the hordes from Asia have landed their COMAC C919 Trojan Horses at Auckland airport and have bought up all our houses .

There is little evidence that this is the only , or major cause of our woes .

The truth is that we have created this crisis for ourselves , cheap money , rampant migration , restrictive land development laws , and a Council that charges like a bull to create a single subdivision , to list just five elements .

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"There is little evidence that this is the only , or major cause of our woes "

It doesn't have to be the only or even the major cause in order to be a problem that needs to be rectified.

I like Geoff Simmons and lot of what he's said in his TOP capacity, but given that the ruling coalition has been around for all of about two weeks, the criticism seems grossly overblown and premature. Reshaping how residential property is treated in NZ might take just a bit more time.

> It doesn't have to be the only or even the major cause in order to be a problem that needs to be rectified.

Quite right. Suppose that house prices in Auckland would only be 2% lower today if we had banned non-resident buyers from day one. It would still have been worthwhile to do it: $20,000 is half the annual income of the median kiwi household.

Thats right it can be one tool in the tool kit, along with LVRs etc

Now add cap gains tax, reduce immigration, DTIs, increase in interest rates etc then things will start looking a lot better.

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Its not absentee owners that are the problem, its the ones we let into the country. At least the ban will stop people from getting off the plane and buying houses (at least for the first 2 years of their being in the country, after which they can get a Residency visa), especially students buying houses paid for by their parents.
Australia still allows temporary residents to buy existing houses, so they are not banned. Get off the plane, go buy a house. They are supposed to sell them when they leave, but no one ever checks. Additionally, foreign offshore buyers are also allowed to buy existing houses if for the purpose of "redevelopment". This has led to entire streets in Melbourne's Eastern suburbs being full of empty houses awaiting to be bulldozed. Of course, much of this "redevelopment" never takes places, its just house/land banking. These exceptions are why the ban that is not a ban hasnt worked in Australia.

We sold our house in Auckland last year to a 25 year old Chinese guy. The price was over a million. He told us he was buying it for his parents when they arrived.
The neighbours have since told us the house was in fact bought on behalf of an off shore Chinese investor and the house is now rented.
The Chinese investor does not have to have a tax number or a bank account when the house is bought by a Chinese agent living here.

The new regulations stopping foreign buyers will not stop the likes of what happened to our previous house !!!!

Yes.
That's why we need a stonking capital gains tax to deter this sort of nonsense.
Extending the bright line test to 5 years will help

However, there now will be sanctions - so you can dob these people in to the OIA and the house can be confiscated and forcibly sold. How many offshore buyers want to run the risk of losing all their money?
Secondly, assuming that the original purchaser simply onsold the house to his overseas contact, or purchased it on behalf as "agent or nominee" for the intended owner, these practices will be ruled out as title to the house will not be able to pass to a non-resident owner on settlement.

I never saw that coming - Back in 2010 I reported here on interest.co.nz multiple instances of high-value purchases of $2 million plus in Melbourne's very affluent eastern-suburbs then being left vacant - groups of expensive houses being left vacant didn't make sense at the time
Sure as heck makes sense now 7 years later
https://www.interest.co.nz/news/50941/90-seconds-9-am-bnz-fed-eyes-nomin...

Of course its the foreign buyers, buying up all those Auckland properties and leaving them vacant. The last census proved that beyond doubt, there were at least 29 or was it 30 more vacant properties, than the previous census held six years prior.. As for immigrants,surely they are most likely to be among the masses of possible FHB , yet the numbers of FHB have capitulated. Even as 'investors'disappear, with the tighter LVRs in place the increasing numbers of that species ,the FHB are sighted even less often .

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> Where is the evidence that foreign absentee owners are the fundamental driver of the soaring house value to income ratio in New Zealand?

This is not the relevant question. Because there is zero benefit to the NZ economy in having overseas buyers in our residential market, the relevant question is: Where is the evidence that foreign investors ARE NOT the driver behind soaring house prices?

If you can show us that they are not, then I would be inclined to agree with you. But the data are are rubbish. So if we do not know, then our default position should be to ban non-resident ownership.

Tax reform would also be great, Geoff. But we are rearranging deck chairs on the Titanic here. Every little bit helps.

Not zero benefit to the NZ economy. If a foreign buyer pays a New Zealand seller a million dollars for a house in NZ, there is now a million dollars more in the NZ economy than there would have been if the house had been sold to another NZ'er. And the individual seller is better off than he would have been if he'd sold the house at a lower price.

More likely the million dollars gets paid to the Australian bank who has the mortgage on it. If the property is subsequently rented, then tens of thousands of dollars a year gets sent offshore to foreign owners, and is not spent in the local economy. And for every extra dollar spent by consumers on ever increasing housing, mortgage and rent costs, is a dollar not spent on other things. So foreign ownership is just siphoning money out of our economy and sending it overseas to prop up other country's economies. Not to mention when the foreign owner later sells the house for $1.5 million, that's $1.5 million dollars being sent overseas - explain again how that makes Kiwi's better off?

And where would that money have gone? Probably into NZ housing. Zero benefit NIL NIL NIL. Future prospects recession or depression!

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The proof that foreign buyers did, in fact, have a nasty effect on the property market is now glaringly obvious, by their recent absence, and it is no coincidence that their absence and the stalling of the market can be tracked just about to the day, to when the Chinese govt put the skids under capital flight.

"If interest rates increase by 2 percentage points, mortgage payments on a new home will be less affordable than at any time in living memory, apart from a brief period around 1989 -- an experience that scarred a generation of home-owners." (AFR)
Foreign buyers are only 3% of the market ( sarc/off). The more pressing problem might be about to hit?

Confirms my suspicions about TOP. Neoliberals with a twist. Funny his opinions weren't voiced before the election.

Do foreigners have an impact? Obviously they’re the dominant buying cohort otherwise the marked wouldn’t have flash crashed in Oct15 with the new IRD rules or mid last year with a change in CCP policy. It’s really not worth wasting your breath debating with someone who is willfully ignorant, and has the benefit of suppressed evidence.

Having attended about 30 or so auctions over the last 4 years some things really stick out in my mind. Almost all of the auctions that I attended were also attended by a an ethnic mix perhaps half European, but almost all were won by the phone bidder or some Chinese person or group in the room. Not a xenophobic statement – just an observation folks! On one occasion at Barfoots in Symonds st I watched a young European woman at the front of the room win an auction for a house over 2 million dollars. She just kept sitting there like part of the woodwork with her phone to her ear as the next auction proceeded placing bids on that one too. The auctioneer referred to her on a first name basis – That sticks out in my mind. how could she without emotion win a 2M+ house and just keep going? Who was she buying houses for, how many had she purchased if the auctioneer knew her by name?

My favorite though was an auction for a 2 bedroom unit in St Heliers. As is so often the case the phone bidder lets the other bidders in the room find their setpoint before swooping in at the end to win the auction. ON this occasion the young couple at the back had fought hard, perhaps they’d got a building report, and were leading the bidding at 750K from memory, no more bids, wait new phone bidder - going, going, gone. Classic! The girl started crying at the back of the room. Just sticks out in my mind.

House prices have stalled simply because the market reacts like sheep.
The regulations and foreign buyers may have some effect but by far and away the herd mentality common with booms and busts is the main driver.
The time has come for the boom to ease off and go in reverse.
All booms end in this manner and the slightest touch of negative news can start a run and an over reaction.
We are on the edge of the cliff with housing so no body should move so much as a finger.

I have been so disgusted by the property spruikers herein that a part of me wishes the market would crash.

At least they concede there is a problem. My concern is that it was a timid approach to a perceived problem. An announcement that all land not owned by verified natural NZ citizens would revert to the Crown in 6 months might have shown the true size of the problem - and rectified it. I don't see how foreigners owning land in NZ benefits anyone here apart from those selling land to people with more money than New Zealanders.
I hope the Government becomes more decisive soon.

"I don't see how foreigners owning land in NZ benefits anyone here apart from those selling land to people with more money than New Zealanders."

This bit, just like John Key did.

Here is a farm in New Zealand, owned by Grant, a Kiwi.

Here is another farm in New Zealand, owned by Hank, an American.

What exactly is the benefit that "anyone here", apart from Grant himself, derives from Grant's ownership of the first farm - that they don't also derive from Hank's ownership of the second farm?

The first thing that springs to mind is that income generated by the farm that Hank owns more likely to be sent offshore to America while income generated by Grant is a lot more likely to be spent locally.

Selling farmland to overseas buyers is creating a market that locals cannot buy into. How can that possible be good for our younger farmers? It is patently STUPID.

Well, that's another good reason really isn't it.

When they sell the farm, presumably for a large profit, Grant's money stays in New Zealand. Hank's money goes back to the USA.

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Beautiful we will.never know how big a problem it was as National managed to stall that investigation for 9 years

Any additional demand is a problem in an enviroment with such low supply.

Well done labour tackling the issues that matter. Taking action unlike National with their " nothing to see her attitude"

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Not surprising that you didn't get voted in Geoff, you're just as blind as National.

So lets breakdown you're lack of logic here: To quote you: "Bans and taxes on foreign buyers have been tried and failed overseas". Errrr WRONG!!!

Most of the Foreign Buyers Taxes have only recently been introduced and have had a dramatic effect on their property markets AND China! See you missed that bit. Though I'll give you a bonus point for recognizing Vancouver as a hot sport for Chinese property investors.
It was shortly after the Vancouver tax (Mid 2016) that China realized what was happening with their investment money since most of it was being laundered in to foreign property. So China seriously clamped down in January 2017 on 'Capital flight' have you heard of that term Geoff? Also know as capital out flows.

This is what has caused the Auckland market to stagnate since early this year and will more than likely lead to a sever price correction in late 2018 once people realize that there's no more overseas investors.

So in short Labour have got the right policies but then they actually give a toss about kiwi citizens and residents.

Simmons has come out with several very debateable things in the last 6 months.
Like most economists, I just don't rate him.

How can you right an informed article on the subject of "Foreign" Buyers without

a) A definition of what constitutes a "Foreign" Buyer.
b) Evidence of how many "Foreign" buyers there are.

Although I do note some interesting technicalities in the wording.

The heading states "TOP's Geoff Simmons dismisses Labour’s ban on foreign buyers as ‘window-dressing for the masses’" yet the main argument made seems to revolve around Where is the evidence that foreign absentee owners are the fundamental driver of the soaring house value to income ratio in New Zealand?

To me a "Foreign" buyer is anyone who is not a NZ Citizen.
A foreign absentee owner is but one portion of "Foreign" buyers in the NZ Market.

Are Labour appealing to the masses? I doubt it, the masses (of NZ Citizens) define foreigner the same as me. The masses still want more done.

maybe its window dressing people need to see.

I wanted Winston to go with National but I am impressed with Labour so far.
National refused to capture the information as to how much housing was being purchased by foreigners.
If their guess of 3% was correct it was still 3% too many. It still meant a local missed out.
The real problem of high immigration is yet to be sorted.
The deficit of infrastructure created by allowing so many immigrants into NZ is yet to be paid for. NZ'ers take their infrastructure for granted and gave it away without a second thought.

And if Winnie had gone with them, it would have been business as usual

Well if there is no evidence a foreign buyer ban will work, there is even less evidence a CGT will work. NZ houses are both desirable and scarce, which makes them an excellent choice as an investment.

Property, like any market, is more about perception than reality.
As long as there is no cgt, both foreign and local speculators will perceive an investment advantage.
Once there is one, sentiment could change massively, especially among foreign buyers

Desirable?

I wouldn't put dog in some of them.

"NZ houses are both desirable and scarce, which makes them an excellent choice as an investment." A somewhat leaky argument, pun intended.

Everyone who lives in NZ wants a house in NZ, monkey brains are too stupid to understand this though, which is why they dream of house prices crashing so they can . . . . . . . . . get a house in NZ.

"Everyone who lives in NZ wants a house in NZ"

Great, let's prioritize them.