Homed’s new series, Who owns the houses, will look at who is buying New Zealand’s houses, who already owns them and who really benefits from this trillion-dollar asset.
In August 2018, Parliament introduced a ban on foreign buyers purchasing existing homes in New Zealand. The Coalition Government hailed the ban as a way to take some of the heat out of the property market and keep speculators away from Aotearoa’s shores.
Overseas buyers, notably cash-rich buyers from Asia, were blamed for inflating New Zealand house prices and exacerbating the lack of supply in our major cities. The ban, which came into effect in October 2018, immediately curtailed investments from non-NZ residents in most of our housing stock.
Just over a year later, economists question whether the ban has made a difference to New Zealand’s housing problems. To critics, the ban was little more than a political ploy that has had a marginal impact on the wider market. Supporters say it was one of many measures needed to improve housing affordability.
In recent years, there have been plenty of examples of rich foreign tycoons snapping up New Zealand properties.
Peter Thiel’s controversial purchase of New Zealand citizenship and a ranch in Wanaka — said to be a bolthole for an apocalypse — drew even more attention to the trend.
The stories might indicate foreign buyers had a stranglehold on New Zealand property, but statistics paint a different picture.
Overseas buyers accounted for just 2.9 per cent of home buyers in the three months to December 2017, just before the ban was introduced to Parliament, according to Stats NZ.
Foreign nationals also represented about 1.3 per cent of sellers in that quarter.
Some economists say our overseas buyer data isn’t broad enough. ASB economists contest that the figures do not include foreign corporate entities, with corporates taking a historical 10 per cent slice of home sales. They also point to the foreign citizens with resident visas taking an 8 per cent share of the market.
The total number of overseas-owned properties in New Zealand is difficult to gauge as Stats NZ does not collect data on the volume of homes owned by non-residents. The statistics agency says it is currently working on a “comprehensive register of foreign-owned land and housing”.
How has foreign buyer activity changed since the ban?
In the three months to December, sales to non-NZ citizens or residents fell to 0.4 per cent. Overseas buyers aren’t out of the market completely. Australians and Singaporeans can still buy homes due to our free trade deal with the countries, while non-New Zealand residents can still buy new apartments in large developments off-plan. Corporates still make up 10 per cent of buyers, but those with 25 per cent foreign-ownership are treated as overseas buyers.
After poring over the numbers from before and after the ban, economists doubt whether overseas buyers had a material influence on the housing market. They say the ban has reduced a marginal part of the demand but has done little to solve the fundamental undersupply that has driven up prices.
“At 3 per cent, foreign buyers were never a major issue on our radar,” says Brad Olsen, an economist at Infometrics. “When we saw the hoopla over the issue, we dismissed its ability to make a huge difference, because it was never a core part of the equation.”
The ban has done little to take the steam out of the housing market. Despite a blip in Auckland last year, partly attributed to the government’s flirtation with capital gains tax, prices stormed back at the end of last year. Boosted by record-low interest rates, prices are forecast to rise by as much as 6 or 7 per cent this year.
“On paper, the ban did what it intended to do,” Olsen says. “But to be worthwhile as a policy, it had to make a material impact on removing a source of pressure and restricting demand growth. If you look at the market before and after the ban, I doubt you’d find many people saying the market is better than before. House prices are still going up, and rents are higher. The conversation hasn’t changed.”
Kelvin Davidson, a property economist at research firm CoreLogic, said “foreign buyers weren’t really moving the market in either direction”, based on the stats.
“It’s not the strongest case that foreign buyers were driving the market. I’m sure they were, for individual properties in Queenstown, but for me, it’s never been a huge issue. The Government will be happy the numbers are down, but based on what I’ve seen, the numbers were never high anyway.”
Looking back, the economists say the foreign buyer ban was a political move.
“It was a quick win for them [the Government],” Olsen said. “Because their other housing policy has either been slow, or an abject failure, like KiwiBuild. This was an attempt to tinker with demand-side elements, but the supply side has been largely untouched.”
Davidson said: “Looking back in hindsight, that’s probably the only conclusion that you can take [that the ban was politically-driven] if you believe the data. For me, it doesn’t necessarily look like there was a problem to fix.”
While house prices keep rising, some commentators believe the Government needed to take action on foreign buyers as part of a wider effort to keep a lid on the market.
Property researcher Hugh Pavletich is “heartened” by the Government’s action on foreign buyers, as well as its urban development initiatives and efforts to boost infrastructure spending. He believes the ban was a necessary step to combat a “distorted” and “vulnerable” housing market.
“I’m a supporter [of the ban]. We’re such a tiny market that we can’t absorb the activity of overseas speculators,” Pavletich said. “We have a big enough problem as it is with housing affordability without foreign buyers turbocharging the market.”
Pavletich said he hoped the ban marked the start of a cross-party political effort to solve New Zealand’s housing crisis. He believed a more “dynamic” approach from local councils could be a catalyst for change.
“It [the ban] could be viewed as politically-motivated, but it could also be a way of sending a message that the government is not going to tolerate that level of housing inflation.
“I’m encouraged by the political initiatives and also the attitudinal changes within local councils.They are taking steps to deal with this problem — but it is going to take time.”