New Zealand to ban foreigners from buying existing houses

Speculative real estate investment is a direct result of restrictive zoning. Consider for example an already developed area of a city that is zoned for single family residential. This makes it illegal for a developer to increase supply in this region by building, say a duplex. A developer is allowed to rebuild a house, but not increase supply.

So of course there is speculative investment! Owners have a legal guarantee of resource scarcity. It’s the reason governments everywhere try to avoid deflation; it causes everyone to hold onto their cash.

Now contrast the situation when a developer can turn a house into a duplex. Supply is elastic. There’s no legal guarantee of scarcity. Of course real estate is still an investment vehicle, but there is no longer the artificial constraint on supply.

I also think it’s weird to lump this in with environmental protection. Preserving natural areas is an unassailably important priority for any nation. What does that have to do with home owners that feel they have a legal right to not live next to a condo? I don’t think the parent (or really anyone here) is advocating we develop undeveloped land.

Finally, I wonder if this is all moot, because the issue at hand is a restriction of foreign ownwers. Won’t native NZ real estate companies be glad to step in to fill the void? Can’t these companies then just shell shares to international investors?

Market failure, policy failure, awful planning.

Living here, it's hugely disheartening to see a similar pattern emerging so shortly after a massive crash.

I live in Cork, population ~200k. In 2012, I rented a 2 bed apartment in the city centre for €750 a month. Now, I would be lucky to get a decent 1 bed apartment for €1000. And because bank lending rules tightened after 2008, opportunities to purchase a house/apartment have narrowed. Therefore, those (and families in particular) who cannot purchase have been on the receiving end of the spiraling rents. It took the government till late 2016 to put the brakes on the rent increases by creating "rental pressure zones".

https://www.reuters.com/article/ireland-economy-housing/irel...

Auckland is adding apartments, albeit not at a sufficient rate. Their rents are high enough to make building them profitable. What does that say? It means that local resident demand is high enough to support investment of high-density residential areas.

Auckland's demand is significantly fueled by speculative investors, to be sure. What props up the house prices are the Kiwi families moving to Auckland for better work opportunities.

What Sydney and Melbourne are experiencing is a lack of rental support for their high house prices. That cannot be sustainable.

I'm amazed it was that low. I was inspecting recently and I was blown away, it was like a ghost town. I checked out the carparks of these massive buildings and they were basically completely empty, it was crazy.

Homes in Dublin under €175 (asking, at least) http://www.daft.ie/dublin-city/houses-for-sale/?s%5Bmxp%5D=1...

Also, green space is nice but it is worth considering that the actual natural environment of this island was lost between 1000 and 500 years ago. It used to be nearly all forest, but grazing animals are death to forest as they eat the saplings.

Oversupply is a problem for owners, not for renters and newcomers. The very people buying property and parking it are not making a sound investment, and they will naturally pay the price for it.

If what is happening is that speculators are dumping all this cash to make properties, then the best course of action is to do nothing. Eventually they will lose, but the buildings are still there. And there is plenty of space to build around. Housing is not a limited asset like its often portrayed. Its truly unlimited, thats why you can find land almost for free.

it is a hurricane-level force for everything.

if you think the situation in Vancouver and Sydney are bad, think again, think the situation in Shanghai -

a typical recently built 3 bedroom apartment in downtown Shanghai can easily cost you $3m CAD, a typical worker on average Shanghai salary will have to pay no tax, eat nothing, walk to work naked (no $ for cloth) for 300 years to afford that. not talking about luxury apartment with fancy view, just average apartment in an okay area next to busy & noisy roads.

If you’re trying to rent an apartment you’re screwed.

If you’re trying to buy a house you’re really screwed.

It’s not all Chinese money but it’s a lot of foreign and local investors. I can see investors being important for building or upgrading condos and apartments, but investors being able to buy so many single family homes and “flip” them just makes the whole Norman Rockwell picket fence thing seem pretty unattainable.

With the new football stadium going in there are “rundown” areas getting “gentrified” and it’s crazy to see one renovated 2 bedroom house in Baldwin Hills sell for $900k and be on a street with sales from the two years prior in the 200-300k range. [1]

[1]: a 200k house in LA is a shithole

Edit: See this comment https://news.ycombinator.com/user?id=tmnvix

What are the benefits of exporting any work whatsoever?

> Why would foreigners invest in the construction of new rental homes or apartment buildings if the rental price wasn't high enough to profit from?

This is a good question. There is an expectation that rents will rise in the next decade, so that could explain a healthy market reaction. An unhealthy one might be capital flight from China, so investors are willing to take a loss becaue its lower than the taxes/restrictions china has on that money. Housing has exploded globally, its not a local nz problem.

And housebuilding is not linked only to rent, but rather to sale prices: if homeowning is culturally valued, people will pay to buy at higher prices.

It supplies a property for rent (i.e. it's not like the property disappears), and the extra demand increases the value of properties the locals own.

I think it's only really problematic if capital is cheaper for foreigners than locals.

In that I mean, I feel you'll only get foreign investment to grow your city once its already too expensive to live in. As they build more and it becomes affordable again, they'd stop investing, and it will become unaffordable again. Keeping the city in a perpetual state of unaffordability.

I don't see how this logic is restricted to foreigners. The argument seems to be universally applicable, which makes me suspicious: why wouldn't investment grow the city until rent falls to the cost of capital + maintenance etc.?

(I think the argument doesn't actually work because of the nature of property: location, amenities, services, community; things whose supply isn't easily increased simply by capital. But if it did work to some extent, it would still apply to nationals just as well.)

Today's luxury housing is tomorrow's affordable housing. Being angry at lux high rises is like a dog being angry at its owner after a bee stings its ass. Without those high rises for the hedge fund bros to move into, they occupy merely nice apartments, pushing the rest of us into tenements and everybody else out to the fringes.

Developers would stop investing in projects as soon as projects became forecasted to be unprofitable. If the housing supply is being artificially restricted below its clearing price, there's a gap between minimum profitable housing unit, and the housing units that can currently be sold. The idea behind lifting the zoning restrictions is to allow supply to reach market clearance.

And if it turns out that if new housing wouldn't be profitable, there won't be any changes. (Though a pattern we see in cities with less strict zoning (see: Montreal) is that we get expensive, cramped apartments near the city center, with lots of empty land around the edges. This is okay too! It's good for other reasons, by reducing commute times and making mass transit more affordable. Density is good!)

Actual developer response would depend on how much price changes with supply.

And there isn't a "point" of NZ. We're a large island in the South Pacific - we have huge problems with poverty, family violence, and (I believe) the worst teenage suicide rate in the OECD.

Japanese zoning (which you'd expect to be quite concerned about quake standards) does not distinguish single-occupancy houses and apartment buildings, as a result non-central urban residential zones have a significant mix of houses and apartment buildings of 2~4 floors and 4~10 flats/floor e.g. this is a typical apartment building on the outskirts of Tokyo City: https://www.google.be/maps/@35.6352621,139.6260533,3a,75y,20...

In much the same way, "inner-city" parisian appartment buildings mostly follow the Haussmannian standard of 5 floors.

What people want is often contradictory. They want affordable, nice housing near their work, but given most people work near other people, they don't want high density housing like condos. You can satisfy all of these demands simultaneously.

Just because you house multiple families in the same building does not mean you head straight for highrise central or ultra high-density concrete slabs.

Most people don't. Unfortunately they also want to live close to work, which is probably closer to city centres, which is where almost everyone works, which means you can't simultaneously satisfy both desiderata. The greater good here is higher density housing, not aesthetics.

If you're seeking to artificially limit growth and prohibit buildings from being developed in the largest urban area in the country, than it'll inevitably suffocate economic growth as younger generations and entrepreneurs turn elsewhere.

Funny, I was reading the statements about Auckland and thinking, this sounds exactly like Vancouver's problem. Parts of downtown are quite dense but the vast majority (80%) of the city is zoned SFH.

Vancouver is not a big city.

As an aside, apartments can be awesome, precisely because of the services that higher density housing allows. I own and live in one in the Melbourne CBD, I have amazing views, no need to drive for any services (groceries, doctors, liquor stores, restaurants, cafes and more in the same block). While a house might be tempting in some ways it terms of convenience it would inevitably be an enormous step backwards.

Housing prices rose during that time, but not commensurate with rent. I ended up buying a condo outside of town. But I'd rather have the flexibility of an apartment -- if I get a job farther away, I'm pretty much stuck with the condo, but if I had an apartment, I could live closer to work.

Oh goodness, have you been suckered into the 'illegal gardening' joke?

>A man set himself on fire to protest the horrible family court system

That man's wife had left him and taken their kid to Japan. I'm not sure what kind of non-horrible family court system you imagine NZ could have, which would be able to direct outcomes in the Japanese system.

Simply removing the capital gains tax discount would help to prevent speculative investments.

There has been much talk of negative gearing being the issue but those with a short memory don't realise it has been around since the 80s and operating with out much fuss. It was the CGT discount combined with negative gearing that really got the property snowball rolling.

Further, I believe a land tax would help to cool the market in perhaps a more controlled manner.

The "no sales to foreigners, let's curb immigration" is a sop to affronted New Zealanders of European and Māori descent, who are increasingly finding themselves outbid by recent (last 20-years) Chinese migrants who not only want a house for themselves but also want to participate in the only economically thriving part of the NZ economy that doesn't require a dairy farm: real estate.

It would be nice if these laws were written in a less xenophobic fashion (i.e. allow ownership for citizens and permanent residents who've lived a certain number of years in country), but these kinds of policies have their purpose, even if they don't solve the housing affordability problem. It's in the interests of a city/country to have the people who own property in it be people who are committed to living there and caring about the community.

Your solution to high real estate prices is to make the investment less attractive by increasing taxes? What does this gain for the new buyer?

Agreed that capital gains and leverage have a lot more do to with it, but I don't think Australians are necessarily ready for "zone/invest appropriately" (and fair enough - so we have to watch our cities transformed to megacities?)

There is actually a very simple solution to this problem: build up.

Incidentally, I'm not saying foreign investment plays no part in such markets, but that its relative contribution has always been overstated. Adittionally, the policy responses I suggest which address house prices work irrespective of foreign/local mixes for most markets.

But I wonder what the percentages are for Sydney and Melbourne. My anecdotal evidence is that foreigners don't really buy outside the capitals, so I expect it to be much higher.

Which would have a stronger effect on property prices, as the capitals tend to drive prices for the smaller towns.

Nothing like huge population growth to keep the demand for housing up. Sadly the discussion has been so poisoned by the racists and xenophobes (like One Nation etc.) that we can no longer have a rational conversation about it...

That shouldn't matter. Foreign investors bidding up property in place A forces English buyers into place B, and prices naturally rise there as a result.

That new demand is on top of already high demand. It’s probably magnified as foreign investors want premium property and drive the top of the market up.

But how do you enforce it?

But let's accept some of those reports on face value. In Australia, you have to take into account both that we have laws that limit foreign purchasing of established properties, and that those figures are commonly for newly established properties.

Firstly, that's exactly what the policies were supposed to cause.

Secondly, new sales need to be measured relative to turnover and funding within the local established market. This gives you an idea as to the relative scales. Under the observation that many of these investments will be in high rise inner city apartments, again, it's not necessarily such an alarming figure, and arguably, might even be what policy was set out to achieve.

The most feasible take away I think is your link no 6:pointing out that the price set in a market is a complex play of expectations and marginal prices.

But, as with most of these articles and points, this all had to be taken in context of the behavior of locals and he size of their operations.

I don't say that foreign investment plays no part. While no rain drop considers itself responsible for the flood, I think it's a curious analysis and interpretation that focuses on the 10% and blames them, when there is enough explanation to be found in the behavior of the local 90%, given that obviously market outcomes are in truth an interplay of both.

Edit: from an American

If you access the ABS web-site and download the house price index for each state and capital and map out long term growth excluding the years after 2000. Then calculate the growth of housing that has been typically matching inflation or 3.3% per year (depending on state).

Then you over-lay immigration, births, deaths, and interest rates. You will find that that most of them don't really correlate with the boom in house prices.

Even accounting for the Negative gearing introduction it didn't have `that` much of a impact.

The only correlation I have found that triggered the whole entire cluster f we have now. Is if you go back and look at the introduction of Capital Gains Tax Discount.

After the introduction of CGT Discount that is when the vast majority of high to middle income earners turned to housing as a investment stream to avoid tax. Then on-top of this you had the Howard Government introducing the `User Pay` system where instead of the tax payer fitting the bill for new suburbs and infrastructure for housing, the developer and home owner now has to pay for housing infrastructure.

I live in Darwin, and did recently purchase a house.

If budgets/demand increases, and supply does not adjust, then prices rise. It's Econ 101, and it's technically true. But like most technically true answers, there something unsatisfyingly unhelpful about it.

Tokyo is likely strange due to the particular timing and history of housing and economic bubbles in Japan, vis a vis the millenium bubble and post gfc story that's been playing out for most English speaking nations.

From a later year Economics point of view though, we can start asking some bigger questions:

-what factors contribute to increased demand -should supply increase to match demand? -could any market have increased supply sufficiently to avoid price increases in any meaningful way given the relative liquidity and elasticity of funds and demand increasing policies vs the structural inelastic nature of housing supply - are lagged over/under supply problems possible? - from a public policy and prudential perspective, what should we be doing to manage these issues? should policy be set by locals or by money flows (and I don't think there's an easy or universal answer to that last one)

Take for example Australia. We have one of the most highly regulated land zoning regulations in the world. That and the high price of land where you can build a house on. If you track construction cost vs land prices you will find that land is one of the major contributing factor's to the price of houses.

For example, the house I recently purchase I purchased for $330,000 AUD, but the land is worth valuation is $315,000.

You can't do that in an open, globally connected economy though. As great and beautiful as Thailand is, it is still for the most part a corrupt developing country. You want to hold Australia or NZ, which should be open for business and wants to attract global investment by better protecting investor rights, to a much higher standard.

Overall the policy is largely ineffective at even slowing price increases.

Thailand and Australia are not comparable markets, sure foreign buyers want access to both markets but Thailand is a corrupt military junta and Australia has a mostly functional court system (but increasing levels of corruption at the top end).

Just look at Vancouver where incomeless foreign students are buying supermansions.

You compared the populations of the greater Tokyo metropolitan area (38m) with the New York 5 boroughs city area (8.6m).

You could also compare the Tokyo 23 wards city area (9.4m) with the New York tristate urban area (23.7m) and make the opposite argument.

>New Zealand’s overseas investment legislation only affects transactions that include sensitive New Zealand assets, including land that is considered sensitive.

https://www.linz.govt.nz/regulatory/overseas-investment/find...

Similar things are being monitored rather effectively: TV fee in the UK, child welfare, cannabis cultivation.

The point is not to be perfect but to tell people that they can’t own an asset with large externalities and not use it.

I don't think there is that many children in NZ. Let alone living in poverty.

Been doing a bit of reading about the last election in NZ, though, as you can probably tell :)

It should be an entertaining coalition collapse. Apparently they have a 31-MP executive!??!?!

https://www.kiwiblog.co.nz/2017/10/strengths_and_weaknesses_...