Rant time: House sales to non-residents

The rant isn’t here – it is over on interest.co.nz.

I’d note that I’m relatively sensitive about the idea of prejudice and how social norms form against “groups”.  Policy that is formed in this sense has a massive institutional weakness – namely that it relies on using an “indirect signal” to try to transfer, a signal that can be misinterpreted.  As a result, when defending against those sorts of policies I become a bit more willing to show my hand and express directly how uncomfortable it makes me.

Essentially I make three arguments in the piece:

  1. A ‘bubble’ from foreign owners is a transfer to NZers – no problem!
  2. A medium term affordability issue does not stem from foreign owners – it has to stem from supply issues!
  3. Any normative/distributional concerns about the transfer of resource from current NZ owners to current (and future) NZ buyers is legitimate – but better to deal with it through the tax and benefit system and intergenerational equity, rather than stopping trade and banning non-residents from purchasing!

A broader point was that, if we want to use a “solution” we should actually have a problem in mind first … just making a “solution” and hunting for a problem is not a good form of analysis.  Although it is one we are all guilty of at times!

Update:  I’ve been told that a lot of people are complaining about being called xenophobic.  Well that is nice for them, the action of pushing for house sales to foreigners being banned is still xenophobic – these people have a fear of someone else trading with someone else who just doesn’t have a NZ passport.  They are willing to hurt both foreigners and the people who would trade with them, simply to allay this fear.  I’m not going to stop saying it just because it offends your sensibilities – I think the entire idea of these bans is morally wrong, why would I go back on this just because it makes you feel funny.

Banning non-residents from buying houses isn’t “brave policy to save the poor in New Zealand”.  It is weak and pathetic policy for those who are uninterested in the real poor and would prefer to pretend they are doing something by limiting people’s rights due to their nationality.  I can only rationalise the fact people are willing to try this by stating that they don’t really understand what they are saying – hence why I stated in the article that we need to define what the problem is and then we can show that for every “problem” there is a better “solution”.

If you find it difficult to actually think about these trade-offs, and to accept your inherent bias against other human beings, then STFU about policy.  If you want to actually discuss trade-offs and stay away from arbitrarily attacking non-New Zealanders, then I’m more than happy to chat and to investigate the data and research that is out there on these especially complicated issues.

Note I’m not even rallying against capital controls here, I realise in specific extreme situations they may have a place (although just doing it in housing for foreign buyers doesn’t really make sense) – but the debate out there isn’t about this, it is about whether non-residents can buy property without really discussing why (usually first home buyers blah blah blah).  And is often filled with commentary about “Asian buyers”.  A level of tacit racism that really needs to GTFO.

Oww, and if you want to know what kind of “vested interest group” I am, I own zero properties – I rent.  I live in Wellington.  I am 29.  I am male and white.  Enjoy.  I am in the group who is being “ripped off” by the fact I can’t just buy a cheap house … I’ve just learnt to actually think about others in the marketplace before I rant incoherently ;)

  • Luc Hansen

    Phew! Another impassioned post! Hang on a minute, mate, while my heartbeat slows down ;-)

    Now then, a couple of observations.

    1. A bubble caused by foreigners is surely a problem if it sends a signal to drive up the overall price level, causing widespread difficulty for prospective local house buyers. I’m not saying that is what is happening, I don’t know, but the fact is, and has been shown many times, that sudden influxes of overseas funds can be a problem for all, not just the locals. Think tulips. Think the Asian crisis.

    2. If the tax and benefit system is in the mode of lowering taxes and cutting benefits, which it is currently, for example, our government is busy telling us about billion dollar cuts in welfare, then there ain’t much potential for solutions from that quarter.

    So, if your point 3 is a non-starter, maybe keeping the rich foreigners out is a plausible strategy, albeit not one that, by all accounts, will be a game breaker.

    I bought my first house in Auckland around 1977-8, a great investment, “a little box on the hillside” built by Universal Homes and financed by the government (1st mortgage) and AGC (top up). $4000 down (plus family benefit capitalization, from memory) for a $27,500 house that my children of that marriage lived in for their entire childhoods.

    A whole generation housed, thousands of tradesmen employed…why can’t we do that again?

    At todays prices, of course.

    • http://tvhe.co.nz/ Matt Nolan

      Hey Luc! Let’s have a go through the points and see where we end up.

      1) Bubbles: If our concern is financial stability due to a temporary “influx of capital” we need to think about why that matters – and as I point out in the piece, as long as we have appropriate macro-prudential regulation to protect the banking sector I struggle to see what the problem is.

      If the bubble is temporary and due to a “sudden surge” of capital, then foreign buyers are transferring wealth to current landowners. As I note in point three, this has distributional consequences which should be solved through the tax and benefit system.

      Note that this is all accepting that there are large numbers of non-resident purchasers and that there is a bubble – this isn’t as clear, or really in the data, no matter how much it has become “fact” in public.

      2) The tax and benefit system is set by society – and if it isn’t “fair” we should be spending our scarce space talking about that.

      I would note, the issue is distributional, and is an issue that there isn’t even much agreement on – if we look at the data implied rental isn’t very high, all that is happening is that first home buyers have to take on more “risk”, and this implies a risk-adjusted transfer between the old and the young.

      Foreigners are a strawman here – any distributional issue is generational.

      “A whole generation housed, thousands of tradesmen employed…why can’t we do that again?”

      There is housing for everyone – implied rental isn’t high, housing isn’t unaffordable. People just want a certain house for a certain price when land is becoming more scarce.

      Also, the issue coming up (and during most of the 2000s) wasn’t tradesmen not being employed – it was the fact that there were not enough tradesmen trained, especially given the additional skills required given regulation on quality (regulation I generally believe has a role given asymmetric information). This isn’t a “lack of jobs” issue, it is a “lack of skills/training” – and it is hard as it is an area the government has been trying to invest in, and where wage growth has been strong!

  • http://tvhe.co.nz/ Matt Nolan

    Hey Luc,

    I can’t see your comment when I’m actually on the website – but I’ll post it here in case other people are having the same problem. I will then reply :)

    Luc Hansen comment:

    Phew! Another impassioned post! Hang on a minute, mate, while my heartbeat slows down ;-)

    Now then, a couple of observations.

    1. A bubble caused by foreigners is surely a problem if it sends a signal to drive up the overall price level, causing widespread difficulty for prospective local house buyers. I’m not saying that is what is happening, I don’t know, but the fact is, and has been shown many times, that sudden influxes of overseas funds can be a problem for all, not just the locals. Think tulips. Think the Asian crisis.

    2. If the tax and benefit system is in the mode of lowering taxes and cutting benefits, which it is currently, for example, our government is busy telling us about billion dollar cuts in welfare, then there ain’t much potential for solutions from that quarter.

    So, if your point 3 is a non-starter, maybe keeping the rich foreigners out is a plausible strategy, albeit not one that, by all accounts, will be a game breaker.

    I bought my first house in Auckland around 1977-8, a great investment, “a little box on the hillside” built by Universal Homes and financed by the government (1st mortgage) and AGC (top up). $4000 down (plus family benefit capitalization, from memory) for a $27,500 house that my children of that marriage lived in for their entire childhoods.

    A whole generation housed, thousands of tradesmen employed…why can’t we do that again?

    At todays prices, of course.

    • http://tvhe.co.nz/ Matt Nolan

      Hey Luc! Let’s have a go through the points and see where we end up.

      1) Bubbles: If our concern is financial stability due to a temporary “influx of capital” we need to think about why that matters – and as I point out in the piece, as long as we have appropriate macro-prudential regulation to protect the banking sector I struggle to see what the problem is.

      If the bubble is temporary and due to a “sudden surge” of capital, then foreign buyers are transferring wealth to current landowners. As I note in point three, this has distributional consequences which should be solved through the tax and benefit system.

      Note that this is all accepting that there are large numbers of non-resident purchasers and that there is a bubble – this isn’t as clear, or really in the data, no matter how much it has become “fact” in public.

      2) The tax and benefit system is set by society – and if it isn’t “fair” we should be spending our scarce space talking about that.

      I would note, the issue is distributional, and is an issue that there isn’t even much agreement on – if we look at the data implied rental isn’t very high, all that is happening is that first home buyers have to take on more “risk”, and this implies a transfer between the old and the young.

      Foreigners are a strawman here – any distributional issue is generational.

      “A whole generation housed, thousands of tradesmen employed…why can’t we do that again?”

      There is housing for everyone – implied rental isn’t high, housing isn’t unaffordable. People just want a certain house for a certain price when land is becoming more scarce.

      Also, the issue coming up (and during most of the 2000s) wasn’t tradesmen not being employed – it was the fact that there were not enough tradesmen trained, especially given the additional skills required given regulation on quality (regulation I generally believe has a role given asymmetric information). This isn’t a “lack of jobs” issue, it is a “lack of skills/training” – and it is hard as it is an area the government has been trying to invest in, and where wage growth has been strong!

  • http://offsettingbehaviour.blogspot.com/ Eric Crampton

    Xenophobic is only part of it – there is a fear there, and it is an irrational fear. But I think it’s more than that. It’s a particularised misanthropy.

    • http://tvhe.co.nz/ Matt Nolan

      I suspect that people don’t realise that by saying I think it is xenophobic I am filtering my views with a more positive sense of their intentions.

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