Kiwis are better off by being able to sell their houses to foreign-based buyers, according to ACT Party leader Jamie Whyte.
Whyte said there was "no need" to look at banning offshore-based buyers as Labour and NZ First were advocating and such a policy simply "makes New Zealanders worse off as a group".
To illustrate his point, Whyte developed an elaborate example involving 'Kiwi John' buying a house from 'Kiwi Jane' for $500,000.
"John must value the house more than the $500,000 he paid for it, otherwise he would have been unwilling to swap this amount for the house. Suppose the maximum he would have paid is $510,000. Then he benefits $10,000 from the purchase, this being the difference between the $500,000 he lost and the value (to him) of the house he gained.
"Similarly, Jane must have valued her house at less than $500,000, otherwise she would not have been willing to swap it for this amount. Suppose she would have sold it for no less than $490,000. Then she benefits $10,000 from the sale, this being the difference between the $500,000 she gained and the value (to her) of the house she sold."
Whyte said therefore that the benefit of the transaction to Kiwis was $20,000, split evenly between the buyer and the seller.
But if instead "a Foreigner Fred" had out-bid Kiwi John "he must have paid at least $510,001 since, by hypothesis, John was willing to spend up to $510,000".
In this example John would be where he started, still with his $500,000 and no house. He gets 0 benefit from the sale of Jane’s house to Fred. But Jane’s benefit has risen from $10,000 to $20,001.
"In other words, the total benefit to New Zealanders has increased by at least $1. (In reality, the net gain will usually be in the thousands.)
"Some will be tempted to say that when Foreigner Fred buys the house Kiwi John is $10,000 worse off because he has lost the $10,000 benefit he would have got if Fred had not bid. Fine. But then you must say that, in the initial case, where Fred does not bid, Jane is $10,001 worse off because she has lost the extra $10,001 she would have got if Fred had bid. So the net result ends up the same, with New Zealanders being better off when Fred bids.
"And let’s not forget the benefit to Fred, who must have valued the house at something more than $510,001 to have paid this for it. Fred is not a New Zealander, of course, but he is still a human being and his welfare should still be a matter of concern to civilised people.
"As this example should make clear, [Winston] Peters’ policy simply creates a transfer of wealth from Kiwi house sellers and foreigners to Kiwi house buyers, and one that makes New Zealanders worse off as a group. The cost of this transfer is not worth incurring, if only because, over the long run, house sellers and house buyers are the same people.
"Indeed, the policy is so economically ludicrous that I suspect its real motivations lie elsewhere. To mangle Samuel Johnson’s famous saying, xenophobia is the last refuge of the political scoundrel," Whyte said.