Does anyone seriously think that Labour’s first loud policy initiative is anything but window-dressing for the masses, a solution chasing a problem that hasn’t even been evidenced? Sure, Phil Twyford doesn’t like Chinese-sounding names, but that is hardly evidence.
Where is the evidence that foreign absentee owners are the fundamental driver of the soaring house value to income ratio in New Zealand? It makes for a great conspiracy and maybe for a politician seeking accolades for slaying the dragon, but otherwise Labour’s witchhunt is little more than populist candy. And the government’s foreign buyer register will hardly be difficult to circumvent. Are we heading back to a world of reactionary, populist politics that seek to blame anyone but ourselves for our dilemma?
Bans and taxes on foreign buyers have been tried and failed overseas where there is much better evidence that foreign buyers are a problem. Vancouver’s much vaunted foreign buyer levy did little more than stall the market for a while, much like our own Loan to Value Ratios did. Now prices are on the rise again, and that measure is now under review. Meanwhile Australia has done exactly what the Labour-led Government is doing and house prices have continued to rise.
Why? Maybe foreign buyers aren’t the real problem, or maybe they can find a way around the regulations. The rational response for a businessperson is obvious. Entrepreneurs out there will create businesses that set up legal NZ entities to purchase residential housing, one entity per dwelling with each one funded by raising debt finance from a foreigner. This should nicely circumvent the intent of Labour’s attempt to remove foreigners from the residential property market and business as usual will be restored.
Regardless, banning foreign buyers doesn’t deal with the real issue. The last two Tax Working Groups identified the fundamental issue with housing, and TOP promoted their advice as our flagship policy. There is a hole in the income tax regime that makes it rational for us all to invest as much as we can into owner occupied housing. Investors, foreign or domestic, know this and throw all their money into housing too knowing you and I will keep buying houses.
Why should the annual benefit from owning a bank deposit or a business be taxed, while the annual benefit from owning & occupying a house is not? Fix the income tax loophole and see – a rise in productivity, more employment and higher wages; and a reduction in inequality. Not to mention the realignment of house prices with the demand for accommodation as opposed to being driven by the tax-free investment return.
Neither National nor Labour are prepared to follow evidence-based policy and instead they opt to either do nothing or chase shadows. This beginning from Labour in the economic policy arena is inauspicious to be kind.
House prices may stall for a while, but it won't be because of this change. The market was inflated under National, and will now be very wary of a shaky international economy and a new Government that will restrict immigration and review the tax settings around property speculation. But unless the Government has a second term and finds the will to implement tax reform with some real teeth the long term pattern of unaffordable housing should continue.