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.

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!

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!

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.

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.