Labour's new policy of stopping non-residents from buying existing New Zealand houses is unnecessary and would be easy to get around, says Olly Newland.
Newland, a property investor, authorised financial adviser and author, told interest.co.nz in a Double Shot interview he thought it was "very sad" that things had come to this.
Over the weekend Labour Leader David Shearer said a Labour-led government would crack down on non-residents buying existing homes as part of a package designed to make housing more affordable for New Zealanders. Non-residents, apart from Australians, would only be allowed to buy houses off the plan or sections that a house was going to be built on, Shearer said.
"There's no need for this because the number of foreign investors who bought houses in New Zealand and don't live here is miniscule," Newland said. "It's absolutely tiny and I just don't think it (the policy) is necessary at all."
Shearer said Inland Revenue Department records show more than 11,000 overseas investors own properties they don't live in, and an estimated 2,600 homes were bought last year by non-residents.
How to get around Labour's policy
Newland said he didn't believe non-residents buying New Zealand houses had driven up prices.
"And just because some countries have these sorts of policies doesn't mean that we should adopt it. I just think it's a waste of time. It'll affect so few people it doesn't matter and there are so many ways around it it doesn't matter," said Newland.
The obvious way around the policy was for an overseas resident to have a New Zealand resident within the country act on their behalf, he suggested.
"Hold the property in trust for them, if that's what they want to do, and come to a private arrangement. It's very simple to get around."
Concern among politicians over the Auckland housing market has mounted in recent months as prices have continued rising. The Real Estate Institute of New Zealand Stratified Housing Price Index, which adjusts for some of the variations in the mix that can impact on the median price, shows Auckland house prices were up 19.8% in June compared with a year earlier. And the Financial Markets Authority has warned of an Auckland residential property bubble.
'Let the major (pricing) readjustment run its course'
However, Newland says the property market doesn't need regulating.
"It's self regulating. In 18 months, perhaps two years from now, the market will steady and go quiet. That's all the sort of regulation we need. If you start interfering you have unintended consequences down the line," said Newland.
"There's a limit to how much prices can go up. We're having a major readjustment that should be allowed to run its course, and then it'll level out and become a normal market where they'll be gentle rises of one or two percent per annum or something like that. But that's a year or two or three down the line yet."
"If you start pushing in one area, you'll get something going wrong in another area," Newland added. "Leave the market alone, it'll rise and then level out by itself."
Buying a home 'a basic instinct'
The Reserve Bank has said it's "seriously considering" using macro-prudential tools to help moderate house price inflation pressures, with restrictions on banks' high loan-to-value ratio (LVR) loans the tool with the best scope to dampen the current strong demand for housing, as well as reduce risk to bank balance sheets.
Newland recently wrote about 10 ways to avoid such restrictions, saying there was nothing new about them, given loan restrictions existed in some shape or form during the 1960s, 1970s and 1980s. Lots of "creative ideas" where cooked up to get around them then and would be again.
"If people want to buy a home for themselves it's a very basic instinct. They find ways around it (restrictions). And what happened in previous times when there were loan restrictions (was) people would go to second tier lenders, second mortgages, third mortgages, fourth mortgages. They would go to their parents, they would go to get a second mortgage back from the vendor," Newland said.
"There's also low deposit dealers, all sorts of things were done because of loan restrictions and this will come back for sure if these sort of restrictions get too tough."
'Let the banks decide how much they lend'
It would be better to just leave the banks to decide how much they lend to their customers, he suggested.
"The banks are the ones who have the customers in front of them and know whether people can afford the 95% loan or not. It's the banks who are going to carry the can if things go wrong," said Newland.
Asked whether perhaps some borrowers needed protecting from themselves, Newland said you could say that but on the other hand you'd be depriving them of a home and "that's an emotional thing."
"The only way around the whole thing would be to allow people to rent long-term. Overseas you can rent a house for 99 or 100 years, in that case the lease you take back is valuable," Newland said.
"If we had that system here instead of the macabre dance of death that landlords and tenants have at the moment then we'd have a different scene altogether."
'Rents to double'
If LVR limits on bank loans are introduced, immigration keeps increasing and the number of people leaving New Zealand continues falling, against the backdrop of not enough affordable houses being built, then rents will rise, Newland added.
New Zealand had its biggest net monthly gain of migrants in four years in June.
"You've got all these pressures on the market and the obvious answer to me, subject to nothing nasty happening, is that rents will steadily rise and they should actually theoretically be double what they are now, but whether we get there's another matter," he said.
Asked over what time period he thought rents might double Newland said: "It's hard to give a time, but over the next five years they should double."