Phil Goff – 
Debate over foreign ownership of New Zealand residential properties heated up last week.
Figures from Barfoot and Thompson showing a high level of house purchases by Chinese buyers led Labour to suggest that a significant proportion of this property investment could be coming from investors not resident in New Zealand.
The issue is not whether the purchasers are Chinese.
All New Zealanders of whatever ethnicity have equal rights whether their families have lived here for two years or two generations.
The issue is whether foreign investors from any country (outside our Closer Economic Relations or CER partnership with Australia) should be able freely to invest in existing residential property or farmland.
Rampant Inflation
What brings this issue into focus at the moment is the rampant inflation in Auckland property prices. In the year to June 2015, the average price of residential dwellings in the city increased on average by 25% or $116,000.
The first homebuyer or the new migrant finds this level of price inflation is pushing home ownership beyond their grasp. Home ownership has fallen to a 64 year low.
Even in two-income households, couples cannot save fast enough to buy a home, especially when rents too are rising several times faster than overall inflation.
Investor criteria
Generally I welcome foreign investment. It can help develop our economy and bring growth, especially when our own savings rates are insufficient. However when it comes to houses and farmland, investment doesn’t add to New Zealand’s welfare. Generally it just makes property more expensive.
That is why in Chinese cities like Shanghai and Beijing, non-residents are not allowed to buy property. In Hong Kong and Singapore, a special stamp duty of 15% is imposed to discourage foreign investment in residential housing.
Across the Tasman Australia bans investment in existing homes.
It does allow it where new home construction is adding to the housing stock, which is sensible.
The Impact
What impact is foreign investment having on our housing market? The problem is we do not know what level of investment is coming from overseas.
Despite constant calls for Government to collect this information, it has until now refused to do so. Finally, it has agreed to collect information from October but would not say whether the detail of this will be released publicly.
The Reserve Bank of New Zealand has estimated that overseas investors account for about 10% of home purchases. That level would have an impact on prices. Overseas investors, with access to capital at cheaper interest rates than New Zealand’s, can easily outbid local people at auctions and push up prices.
Investment flow
With changes in China to rules governing investment overseas capital flowing into New Zealand could rise rapidly with huge implications for our property market.
Beijing-based financial adviser, Rodney Jones, estimates that financial assets in China exceed $60 trillion. In the last year, net capital outflow from China reached $650 billion.
As China opens up, this figure could rise rapidly.
New Zealand is a stable investment destination with no Capital Gains Tax or Stamp Duty.
We are an attractive market for property investors.
Expressing concerns about the potential impact of a big increase in capital inflows is not racist, according to Rodney Jones, but sensible economic management.
The allegations
In recklessly throwing around accusations of racism National is not contributing to a sensible discussion of the issues nor to the goal of curbing property price inflation.
New Zealand Governments have an obligation to treat their own residents equally but should also put the interests of New Zealand residents ahead of foreign speculators in the property market.
National has not done this nor has it intervened effectively to increase the supply of houses which would have the most impact in curbing rampant inflation in house prices.
Phil Goff is former Foreign Affairs, Trade and Justice Minister and has been Member of Parliament for almost 35 years. Elected from Mt Roskill, he is today Labour Party’s Spokesperson for Ethnic Affairs and Auckland Issues.
