Cracker: Johnny Foreigner & the Auckland Property Market
108 Responses
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Imagine you're right about China - lending market is a bit of an unregulated free-for-all, with cronyism more important than returns so if you are in the 'in-crowd' cheap money wouldn't be difficult.
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Capital Gains Tax – a move which one Government Minister told me made absolute sense, but was ‘political suicide’.
It's always quite popular with the public whenever the CGT policy gets polled - but MPs, their senior staff and senior political journalists all tend to have most of their wealth in investment properties, so the idea of taxing that wealth is dismissed as 'political suicide'.
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What I can't tell from the policy reportage is whether this applies to Kiwi non-residents, because I know plenty of long term ex-pats with rental properties here. Don't know if there are any policy problems associated with this other than the fact tenants have to deal with some local representative or other for maintenance issues.
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Damian Christie, in reply to
What I can’t tell from the policy reportage is whether this applies to Kiwi non-residents
I think you'd still be a citizen though, right? And if you already own the home, I don't think you are forced to sell it...
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Were the new purchasers from overseas? In one case, no, another – hard to say. Because as a number of commentators have pointed out already, in a city where just under a third of residents are ‘Asian’, it’s very easy to get the impression that foreign ownership is a bigger issue than it actually is.
The 'looks like us' blindness of Pakeha journalists and editors in stories on this topic is a worry. Seems the UK is a prime source of foreign residential 'investors' as well as Australia. Not that most NZers have been told that.
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Deborah, in reply to
If we follow the Australian model, then the right to purchase property goes with citizenship, not residence.
The restrictions in Australia apply to established houses. Non-citizens can still buy new houses. The policy rationale is:
that foreign investment in Residential Real Estate should increase Australia's housing stock. That is, the policy seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing (such as new developments of house and land, home units and townhouses) and brings benefits to the local building industry and its suppliers. (Source)
There are some exemptions from the rules, for people ordinarily resident in Australia, and spouses of Australian citizens buying properties under a joint tenancy, and for New Zealanders. (Source)
None of that looks too outrageous to me.
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I'd be interested to know what the 3 MP's responses were a few weeks ago? In particular Ardern and Upston.
My take is that "cheap" money readily available is the driver on prices, turn the tap off or increase the interest rates and the market will change.
Unfortunately the low interest rates are a double edge sword for first home buyers because they're also available to folk with existing equity who are better positioned to leverage it.
Not sure what the answer is but I don't think this policy is it, might be a few votes in it though.
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Damian Christie, in reply to
My take is that “cheap” money readily available is the driver on prices, turn the tap off or increase the interest rates and the market will change.
I think over-leveraged investors as well as first home buyers suffer from increased interest rates, but only one loses their (actual) home. Likewise though, what makes sense as a home purchase mightn't make sense as a rental investment, especially if we can stem the massive inflation - or create a disincentive that only applies to the latter, such as targeted CGT.
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Being a New Zealand resident or citizen gives you benefits in New Zealand over people who aren’t.
Yup. And New Zealanders pay for those benefits in taxes etc. It isn't as though we are preventing foreign investment in NZ (as other countries do) and I can't see any reason for panic over this. It isn't xenophobic and it also has the upside that it would defuse one of the stupid rascist memes.
Will it work to reduce house prices? I don't know and as far as I can tell nobody knows for sure. It probably won't do any harm. So it makes sense to try it and see what happens. If it works even a little bit then great.
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"or create a disincentive that only applies to the latter, such as targeted CGT."
Which of course we already have but don't enforce very often....
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If you could borrow NZ dollars at much less than the prevailing mortgage rate, you could just put the money on term deposit and pocket the profits, without bothering with an actual building (arbitrage, in other words). It's possible that people are borrowing in foreign currency to purchase in NZ, which of course exposes them to currency risks.
Anyway, I think there's a simple, non-racist, solution here, a wealth tax on any NZ tax resident with assets over a million. Anyone owning property here is deemed an NZ resident for tax purposes, with the property being forfeit for non-payment or non-cooperation.
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Louise, in reply to
From the Herald article about the taxi driver abuse: 'The company had about 12 cabs and around 50 per cent of its drivers were of ethnic origin. They came from a variety of backgrounds including Pakistani, Indian, Fijian and Maori.' So does someone only have an ethnicity now if they're not white?
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I know from experience buying existing homes in Victoria AU, Stamp Duty is payable, which acts as a bit of brake to waving too much money around at an auction. If you re going to spend $500K for example it adds another $ 22K to the bill along with auction fees etc etc. First home buyers now get an exemption (since 2011). You can calculate you own and compare with other states here, http://stampduty.calculatorsaustralia.com.au/
It got me thinking that instead of an exclusion policy as announced, that maybe an escalating Duty might be a another option for non resident purchasers, say 15% on 1st property rising to 35% for each of the 3rd and all successive purchases. Could have both the desired price cooling effect and provide some more Govt income. -
I don't think anyone really knows for sure what drives property prices. It's likely to be a lot of things, one of which is very unpredictable - sentiment.
I've thought for a long time that the biggest overall factor is very low interest rates. But that doesn't explain why Auckland is running away from the rest of the country.
Residential property is the single biggest chunk of capital in this country, by more than head and shoulders. The price of it is thus an entire economy problem. Slight changes in interest rates magnify into big changes in the basic cost of life. Slight rises in property value translate into tens of thousands of dollars into the pockets of people who might even have below average incomes. Money like that becoming available washes into the rest of the economy, and when it disappears, the economy stalls. It really can react that fast to very minor changes. We can drive an economic recovery very easily, so long as we are prepared to accept a recession afterward, or have no concerns about the massively inflationary effect.
Foreign investment could be a highly significant driver. We just don't know for sure. Even if most buyers are locals, that doesn't really matter - so long as there are some people around driving the cost up, that affects everyone. It only takes one person bidding against you in an auction on something you really want for it to go right up to their limit.
I don't personally think it's very significant, though. Investor greed is every bit as much true here as anywhere else. Local investors with the money to buy want to make profits just the same as foreign ones.
But we could try it to find out.
We certainly would not be doing anything exceptional by insisting on residential ownership of property. Quite the opposite, that seems to be the norm everywhere in the world. Is it racist? No. It's nationalist, which is not exactly the same thing. Since white people are the biggest foreign buyers of our property, it's actually more likely to be inverse racist, if anything.
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Damian Christie, in reply to
Local investors with the money to buy want to make profits just the same as foreign ones.
Yeah, but assuming even a little bit of the problem is supply/demand – and we’re constantly told we don’t have the amount of housing stock we need, reducing demand, even by a few percent, is going to have some impact. And as I said, its not a magic bullet, just one in a number of tools that can be brought in, tried out, without collapsing the entire house of cards.
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Damian Christie, in reply to
Anyway, I think there’s a simple, non-racist, solution here, a wealth tax on any NZ tax resident with assets over a million.
Which, if the asset is a rental property, is a form of Capital Gains Tax. And you'd want to exempt the family home, or see plenty of Aucklanders, young and old alike, who live in fairly unremarkable homes now worth a million bucks, being forced to forfeit them, because they're still on the same unremarkable income that saw them scraping to buy the house for $200k not so many years ago.
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andin, in reply to
same unremarkable income that saw them scraping to buy the house for $200k not so many years ago.
Now there's a problem right there.
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MoR,
The issue in Auckland is not foreigners buying up stock. It is people like you (and I) who are (almost) middle aged and are looking to buy a 'nice little renter'.
What about increasing the mortgage deposit percentage requirements for second properties (ie not the family home) to 40%? It would certainly make it harder and riskier for speculators without really effecting anyone in for the long term.
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Tim Michie, in reply to
To the Herald at least.
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I've read elsewhere that the policy would not be consistent with our existing FTA with China. Is anyone able to confirm or refute this?
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Damian Christie, in reply to
I’ve read elsewhere that the policy would not be consistent with our existing FTA with China. Is anyone able to confirm or refute this?
If that's the case then it would be a non-reciprocated requirement (this may be common in FTAs, I don't know). Hadn't heard about it elsewhere, you'd *think* someone in Labour would've looked that up first...
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I think it started here.....
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My preferred form of this policy would be a non-resident stamp duty, which would be waived once Permanent Residency or Citizenship is obtained.
And as for those levelling accusations of racism, glass houses and stones come to mind. Or is it only racism if fat wallets happen to be involved?
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BenWilson, in reply to
eah, but assuming even a little bit of the problem is supply/demand – and we’re constantly told we don’t have the amount of housing stock we need, reducing demand, even by a few percent, is going to have some impact.
The question is whether restricting foreign ownership does actually reduce demand. Demand's ultimate source is "people who want to live in property". Restricting who can own them doesn't really much change who wants to live in them.
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My understanding was that, since around 2009 there had been a divergence between the value of New Zealand housing stock and New Zealand housing debt (which is to say the increase in the price of housing cannot be explained by New Zealand residents borrowing, so money appears to be entering the system from somewhere else). This divergence seems to be on the increase recently (suggesting even more money entering the housing system from elsewhere).
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