Treasury papers show Treasury looked at restrictions and taxes on foreign buyers, but detail not disclosed; Treasury found a foreign buyers register wouldn't cost much, but queried whether it was needed

Treasury papers show Treasury looked at restrictions and taxes on foreign buyers, but detail not disclosed; Treasury found a foreign buyers register wouldn't cost much, but queried whether it was needed

By Bernard Hickey

Treasury has released papers under the Official Information Act showing it had prepared internal advice on possible restrictions or taxes on foreign buying of homes earlier this year, but the detail was not disclosed.

The papers also showed it looked at the logistics of creating a foreign buyer's register and found the costs were manageable, but it questioned whether there was a problem that needed solving or what the point would be without restrictions.

Treasury released these documents on Tuesday showing it had prepared internal advice for the Finance and Expenditure Select Committee (FEC) on the issue of whether foreign buyers were responsible for a surge in house price inflation and whether restrictions would make a difference.

Much of the detail was withheld, as were sections of Budget papers prepared in April and May on "Housing Options."

A briefing for the FEC on February 11 asked whether foreigners were causing house price inflation and whether the Government should collect more data.

"The evidence we have is limited, but does not suggest a problem with foreign ownership of housing (our best estimate is that around 3% of housing stock is under foreign ownership)," a Treasury official said in the briefing.

"The cost of collecting more information is large and would involve some kind of residency screening of all land transfers. The benefits of collecting the information are likely to be small in relation to the compliance and administration costs of collecting it. So our view is no, it’s not important to collect the data," the official said.

A later paper written in March on foreign ownership of residential property was more detailed and included information from Land and Information New Zealand (LINZ) on how the data could be collected, including that the costs were manageable and that it was technically feasible.

"An important question is: what would the Government do with the information if it were to collect it," the official wrote.

"Other countries have restrictions/stamp duties because they were in place before they negotiated their FTAs (e.g. Australia). So if restricting/taxing foreign investment in residential property is difficult/not feasible, what is the benefit of collecting the data – and does that outweigh the cost?," the official wrote.

"Should we be thinking about the broader question about the role of investors (both domestic and foreign) in the housing market? If we think there are undesirable effects on the market from that investment are there levers that could be applied universally that could address those effects?"

This presaged the Government's decision in Budget 2015 to impose a two year 'bright line' test for capital gains on investment properties that applies to both domestic and foreign investors, along with moves to force non-residents to provide their passport details and home IRD numbers when registering for a New Zealand IRD number and bank account.

Costs of citizenship register 'low'

Treasury wrote in the March paper that the costs of modifying the LINZ system to record citizenship/immigration status were likely to be low.

"The compliance costs are likely to be higher, but are unlikely to be insurmountable given the other identification that would normally be needed to be produced for such a transaction," it wrote.

"However, there are risks that the information will not be complete/accurate and will encourage ways of masking the nationality of the ultimate purchaser either through the use of companies/trusts or associated persons."

'Looking at restrictions'

Treasury again asked whether it was worth collecting the data without a firm view of any possible restrictions.

"If it is being collected as part of the process for deciding whether to impose a restriction or disincentive to foreign investment in residential housing, then the judgment about whether to collect it or not, should consider the feasible or likelihood of that decision being taken," it wrote.

"The following section discusses the feasibility of such a restriction. There are a number of theoretical options for restricting or disincentivising foreign ownership of residential property, but most involve significant tradeoffs," it said.

This section was redacted from the document.

'Problems with FTAs? No'

Treasury also released a May 5 briefing note to Finance Minister Bill English on Australia's announcements on foreign buyers, which may have included the tightening of Federal rules for non-buyers and Victoria's stamp duty on foreign buyers, although it is not clear because much of the document was redacted.

The only point published was that New Zealand's free trade agreements generally contained exemptions for direct taxation policy measures.

An early Treasury briefing had noted that other countries' restrictions and stamp duties were in place before the signing of Free Trade Agreements.

Prime Minister John Key has pointed to clauses in New Zealand's Free Trade Agreements with Mexico, Japan and Australia as reasons why foreign buyer restrictions could not be imposed.

A final document released as a briefing for the FEC in June was also heavily redacted and repeated that evidence before Treasury was limited but "does not suggest a particular problem with foreign ownership of housing."

However, it also noted: "The changes announced at Budget 2015 to collect IRD numbers and foreign tax numbers for property transactions will help build a better evidence base."

An IRD briefing paper prepared in April ahead of the Budget on its Property Compliance Programme was released last week. It noted: "Offshore investment is significant and often masked."

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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Government has had 7 years and they are still getting tripped up on the best way to fire the start gun.

Fascinating watching this Government getting itself so worked up over things like process (on whether or not to simply collect data) or on consultation protocols in the other OIA papers and requiring proof beyond all doubt around investor LVRs. But no where in the papers are warnings about the socioeconomic consequences from the Auckland housing market or indeed any tangible steps on what to do about them.

By the way - Treasury's answer as to the impact of foreign buyer impact on the local market was fairly incompetent. The absolute number of houses held (3%) isn't a particularly valuable indicator (afterall, as we have no basis for how quickly it has accumulated to that point). In New Zealand house sales have increased 80,000 house sales a year - the majority in Auckland and way above long term averages. If it turned out that foreign buyers were in fact buying 10,000 houses pa, up from 1000k a few years ago, then no wonder sales (demand) are up, pushing up prices. Furthermore, trying to put foreign buyers into a classical supply and demand framework on par with domestic buyers doesn't work, as foreign buyers typically set the floor and their investment decisions are detached from local fundamentals.

The comment in the article - best estimate is around 3% of the "national" housing stock is under foreign ownership Is vague and ambiguous - capable of interpretation - leaves a large hole in the equation

Especially since it's not a matter of the total housing stock that determines prices, but the financial means available to competing buyers and the number of houses available for sale on the market.

Orthodox economic models, which deal in policies which affect groups of people with different incomes, fail to take into account differences in financial means and economists sidestep the issue by inventing what they call "representative agents" who are conveniently considered to be similar enough that those difference can be ignored.

"Because individual demand curves are based on income, they cannot easily be aggregated, as there is a distribution of individual demand curves for each income level. One way to overcome these aggregation issues is to assume that people are similar enough that they can be grouped under a ``representative'' agent, or multiple representative agents. This similarity requires specifying a social welfare function for the representative agent, which can be controversial. Additionally, it is also unclear exactly what utility is or is not."


Also, it's not a national housing stock problem - it's an Auckland specific one, and I think the percentage of foreign ownership exceeds 10% there. And those 10% or so of offshore purchases are the prices that are setting the market price for all purchases.

Bang on

Well Treasury is lying to us all then!! There website States the following.

Welcome to the New Zealand Treasury

The Treasury is New Zealand's lead advisor to the Government on economic, financial and regulatory policy. We are committed to helping achieve higher living standards for New Zealanders by providing expert advice and sound management of the financial affairs of the Crown.

Their behaviour is reprehensible........their complete lack of skill and judgement on what is an economic and financial issue should be reason for immediate dismissal!!!

FFS how do they think they can improve living standards for NZers when they don't even know what the asset base is, and what earnings that asset base is capable of achieving for New Zealand??

I want all Treasury staff sacked this is neglect of duty!

The systems and processes are already in place.

Two years ago my partner and I bought a block of land greater than 5 ha
We had to produce certified copies of our passports to the realtor as part of the purchase
Wasn't hard. Didn't hurt a bit.

I bought greater then 5ha with only a drivers licence as ID, but I bought it through a company.

[ silly rant deleted. Ed ]


Every other developed pacific rim country has identified the problem and put legislation in place to protect their citizens. But not New Zealand. Too naive. Too stupid.


Not naive. Not stupid. Corrupt.

When will we realise that we are just another tiny island floating in the pacific and that unless we have controls on land ownership, the the profits generated from it will be forever lost to foreign interests wherever they may be from!

If I wanted to buy property in China, could I?

Nope, there is NO freehold land ownership in China, at all

It's hardly fair then is it that Chinese can but up property here yet we can't do the same.
Not that I'd want to.
we're getting taken for a ride


The socioeconomic consequences of the National governments inaction.

I'm a gen-x. Most of my friends went to Uni and have a PhD. Because that degree takes 7 years and is usually followed by a postdoc, it means you're only really in a position to buy a house in your early to mid 30's.

The sad thing is that most of my friends who're in their mid 30s don't own any real estate at all. One couple I'm good friends with have just had children - they don't own a house. I'd guess that once you reach your 40's if you don't have a house, and you also have no equity then you're screwed! because you reach a point where the bank won't give you a long term loan.

I visited a JP in St Heliers a year ago. He was living in what I'd guess was a 2 million dollar house. Although retired now, he mentioned that he'd been a fire fighter. He was a very nice man indeed however I just mention that to show the intergenerational inequity. I am almost certain that my friends will never acquire similar levels of real wealth by the time they retire.

So where has that wealth gone? The wealth I mean that my friends would have had if they'd been born 10 years earlier. It's been transferred through the acquiescence of the National party. Transferred to the baby boomers and foreign investors who have become the rentier class, aided by the Cantillon effect. I know the foreigners have low interest rates because my partner is in Germany and she can access a mortgage at 1.5% for 10 years (only with collateral in Germany) My friends, if they stay in Auckland, will have to rent forever. That's a wealth transfer plain and simple.

Pretty much every other country in the OECD has done something to protect their citizens from foreign capital but not the National party. That's why I don't like the National party. They've destroyed the lives of a generation of New Zealanders. Their policies don't even make sense. Selling productive assets and running a surplus at a time when the world is awash with zero interest rates. Stupid. Stupid selfish National party.

Thats where the wealth has been created, assets. The biggest and best game in town. All those already in the game can leverage against their assets and keep the young out of the market. However things can change, Japan is losing 270,000 people a year, what's that going to do to their housing market?
I have seen crunches in asset values and it hurt like hell, many of my friends spent years working for 'the bank', and many of my farming friends are back doing it again.
The economy has become very distorted around non productive assets, there has been a lot of misallocation of investment. Asset price have risen to fast, I believe the economy doesn't have the production to support present asset prices.
University degrees are not a license to print money, you still have to take risks, if you work for a large company then you are just another cog. I took risks when I was young, risks I would never take now. There is no, 'sure thing', I believe we are in the mist of a massive asset bubble right across our economy.
The biggest export market China has is the EU, and that's not looking so hot at present.
Speculation has paid handsomely, but it's created imbalances in our economy and these will be corrected one way or the other. There will come a time when innovation and creativity will pay again, owning houses will be a dead horse, people will get back to producing again. I believe that won't happen with our distorted cost structure. Correcting that will tip a lot of people with degrees into the street.
I have a super smart friend in the Netherlands, an aeronautical engineer. Went into the UK airforce, stayed 15 years got knocked around in the Mideast, had his share of frustration, but he keeps working for corporates. At present he tells me he works for a big corporation that wants to sack half it's engineers,( has thousands of them) he said engineers are finding the market saturated, worried about his job security. He still has a mortgage, still leaves for work at 7.30am, takes his holidays when everyone else does. Lost a bundle on his house, houses in the Netherlands have collapsed.

Again, not stupid, corrupt.

There is still hope that the global money printing will eventually burst and prices in AKL reconnect with reality.

Short of that you should try - I know it is hard to overcome lethargy - to e.g. organize demonstrations against the rip-off or do whatever else you feel could make a difference. I am afraid noboby else is going to do it for you.

Btw, as a co-gen-Xer with family in Germany: Germany has a completely open real estate market. Meaning e.g rich Greeks (of all people) are buying up flats in Berlin like there is no tomorrow and Russian and Chinese are snapping up prime properties along the Alps. Not funny for the locals either. The German government could not care less about its own, even less so than NZ. And ask your partner in Germany how much of her/his salary is taken by tax and compulsory social security contributions. Lucky if you keep half of what you earn.

I bought a house in Auck in the mid 90's. Standalone weatherboard house in Mt eden for 270k. Thought that was a bit expensive at the time. Average salaries back then around 40k perhaps.

Average salaries today are around 50-60k maybe. Same house (if i had not sold) would be worth 1 million plus now.

Back when I bought my house was towards the end of the days of the wage earner. Chinese immigration was just beginning (students first).

Today is the day of capital. Wage earners are taxed big time. Capital is not.

Chinese have the capital. You are being pushed out of the property market by people not even living here.

Well put, except I would put the blame equally on Labour

The question that needs asked is not only who the owner is, but who paid for the house.

If we have NZ residents buying on behalf of others (in mainland China etc) with money that has been provided to them, we need a record of this.

Canada and Australia have both recognised there is a serious problem.

My concern is that when you look at the percentage of Asian agents in Auckland, that the numbers of homes PAID FOR by foreigners is perhaps 25% of all current sales.

It is those sort of figures that are so distorting the market.

Sydney, Melbourne, Vancouver and Toronto are all suffering from the same problem.

Chris_J - agree. I'm more concerned with offshore property ownership than immigration.
What lies behind the reticence to address the problem, do you think?
Is it ideology?

Follow the money.

You need to take a cold hard clinical look and re-consider that view.

Consider the social ramifications. Not so visible. Very real dead cost to the whole of society

Imports and migrants and foreign investors are competing with locals buying property at ever inflating prices which in turn displace the poorest locals in our town. Displacement is a good term. It displaces them in their residences, owned or rented, their jobs, puts pressure on welfare services, and increases the welfare and health queues

its will only get worse, more people than ever are starting to live in cars and caravans. 10 years at this rate and god forbid we may see a slum pop up on somewhere on the outskirts of Auckland

I know plenty of Kiwis from my time doing seasonal work in the Tasman region and Blenheim who live in hostels and campsites during the summer and then get kicked out to make way for the backpackers come harvest season. Many employers told me they have a policy of employing foreigners in preference to locals unless they are in need to someone with specific skills in a permanent position, but then obviously it excludes the young and unskilled. In the United States and Europe the mid tier jobs have been hollowed out, in New Zealand even entry level positions are beyond the reach of locals.

Probably spot on, Bender

Easy read about housing in the UK, productivity and their bubble bursting in maybe 2025 unless they do something now.

it is very simple. Live, work and pay taxes in NZ - then you can buy a property in NZ. Period.
Investors should pay higher taxes from rentals and higher rates. Only PRIMARY RESIDENCE (family home) should be treated differently because it is a home - not business.
All speculators, investors should be banned from buying. It is unbelievable that NZ government does NOTHING to protect and support NZ Citizens and Residents!!!

Tthey are trying to hide NZ from the truth that our economy isn't doing well buy letting in foreign money to increase aggregate demand. If you sell part of your business to buy a new car, it may look like you are rich and doing well. This government will be known as the asset sales government.

NZ will always be open up for bid from the world because its resource/population ratio is too bloody high , and needs to converge to a normal level.

Assuming that many new residents have a tax holiday of at least four years from income received from overseas it could be advantageous to prevent new residents from buying any property unless they are prepared to give up the above entitlement immediately.
That move would bring a few rorts to heel