Foreign advice on foreign buyers

Dr Eric Crampton
Insights Newsletter
20 April, 2018

The International Monetary Fund has concluded its 2018 visit to New Zealand, checking with a broad range of stakeholders on how things are going here. Executive Director Oliver Hartwich and I were happy to share our views with them last week.

We argued that the most pressing issue facing New Zealand is housing. In addition to the obvious problems caused by housing shortages, they also fuel xenophobia. Policy elsewhere is largely decent by international standards – though we are always looking for ways to make it even better. But housing markets remain a mess and restrictions on foreign investment do not help.

The two problems mesh horribly when we look at the government’s proposed ban on foreign home buyers. The IMF could not see the policy as doing anything to improve housing affordability – and neither can we.

New Zealand generally eschews terrible policy. The proposed foreign buyer ban crosses that line.

The legislation classifies all residential land as sensitive. Restrictions will apply not only to ‘foreign speculators’, but also to foreign investors who help fund residential development. Infrastructure companies from electricity distribution networks to telecommunication providers to land developers will face additional hurdles in trying to put up critical infrastructure. All of those together will make it harder, not easier, to get more housing built.

And it will also affect people living in New Zealand, from those here on work visas to permanent residents. If you have lived here for two decades as a permanent resident, then have to spend half a year back with your elderly parents abroad, you will be banned from the housing market for the next year.

It is unjust. It will make it harder to get more houses built. And it will not make housing more affordable for native-born Kiwis.  

But it is sadly in keeping with New Zealand’s general take on foreign investment – the seventh most restrictive in the OECD’s league tables. And it is sadly in keeping with the tone of the last election.

The IMF’s initial statement on its visit applauded the government’s intention to address the regulatory, planning, and infrastructure problems that have prevented new housing construction. We do too. We look forward to the IMF’s final report.

And we question whether the election mandate to address perceived foreign housing speculation can possibly justify what the government is proposing to do under the foreign buyer ban. 

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